By Eddie watson
With everyone well into the holiday spirit of Christmas/Xmas/Hanukkah/Bodhi Day/Winter Solstice/Festivus, no doubt many of you have dragged your way through the acutely distressing experience that is #ChristmasShopping. It’s something we all go through, even Uncle Mal probably bought his wife, Lucy, a packet of artisanal kombucha from his recent trip to Japan, being the innovative, elitist, latte-sipping, inner-Sydney leftie he is. Hopefully, she won’t be too ‘disappointed’ (that’s a witty topical reference in case you missed it).
For those of you who haven’t yet though, don’t stress! I have prepared a foolproof excuse you can give for why you bear no gifts come 25th of December. Even if your friends and family don’t buy the logic, rest assured they won’t want to hang around you much longer anyway after you ruin the holiday spirit with a bit of Economics 101.
On the surface, it might seem intuitive to think that Christmas is the best gift you can give to the economy. It is great for GDP, with a lot of businesses making a sizeable portion of their profits during the holiday season. That makes sense: everyone buys gifts, regardless of whether you are ordinarily a big spender or not. So how could you make an economic argument against Christmas? Well, it comes down to the fact that holiday shopping is all about gift giving, and that introduces a complicating factor into the cost benefit analysis: preference.
We don’t buy gifts for ourselves. That means it’s technically incorrect to consider the benefit we perceive from buying the present even though we shoulder the cost. Since the gift is a) used by someone else at very little cost to them, and b) often not their first preference if they had the choice, there is actually a mismatch in the subjective valuation of it (they tend to be undervalued by the receiver).
Basically, Aunty Lucy probably won’t attach as much benefit to the artisanal kombucha Mal gifted her, given she has a bit of a sweet tooth for lemonade instead (a preference expertly revealed by news.com, Australia’s No. 1 news source: http://www.news.com.au/national/breaking-news/lucy-turnbull-supports-lemonade-stand-day/news-story/72b681ad09046d18b8c8b667bfef57a4). So bad luck Mal, just hope she doesn’t take you to the ICJ over it (witty topical reference no. 2).
Pulling out our rulers and coloured pens then, that means the demand curve is actually lower than it is perceived to be. Lo and behold, the triangle of death that economists fear reveals itself (don’t ask me which triangle it is, just trust me that it exists).
If you’ve done ECON2030, you could even draw an analogy between Christmas presents and in-kind transfers. Since you (i.e. the government) don’t know what your friend/family (i.e. the ‘dole bludger’) wants, your in-kind transfer (i.e. box set of ABC’s The Killing Season) might be preferred less than other potential goods, thereby causing the indifference curve to intersect the budget line at a sub-optimal point. The better option would thus be to simply hand over cash, and allow them to choose their own gift, since they could then maximise their utility.
NB: Don’t heave a sigh of relief, stuff some cash in an envelope, and call it a day though. That’s just being lazy and un-Australian. Go out and buy a gift voucher instead. Have some class.
Of course, you may very well argue that a well thought through present adds emotional value well above recommended retail price (especially if you manage to get Myer to price match). The moral of this story, then, is maybe to look beyond the commercialism of Christmas, and get a present your friends and family will actually value this holiday season. That would be the best gift you could give the economy in 2015.
[This idea, and strong counterarguments are explored a bit more in this article if you are interested: http://www.economist.com/node/885748]