The economic case against Christmas presents
It’s everyone’s least favorite part of the Christmas season: You’re expected to get a present for your brother-in-law, but you have no idea what he wants. Or conversely, your aunt gets you a sweater that you have zero interest in ever wearing. The result: People often get a lot less value from their presents than the giver spent on them.
More than 20 years ago, economist Joel Waldfogel dubbed this the “deadweight loss of Christmas.” It’s the gap between how much a gift giver spends on a present and how much the recipient values the gift. Waldfogel’s research found that “holiday gift-giving destroys between 10 percent and a third of the value of gifts.”
But Waldfogel told me in a Tuesday interview that it’s often not realistic to stop giving gifts altogether. Instead, he suggested some strategies — like giving gift cards or making donations to charity in a recipient’s name — to minimize the wastefulness of the holiday season.
The transcript has been edited for length and clarity.
Timothy B. Lee
Most people see gift giving as a sweet and harmless holiday tradition. But you argue that it has a serious downside.
Joel Waldfogel
If you think about gift giving as a means of resource allocation, there's very little question that it is not an efficient way to do it. Me spending $100 to give you a gift is probably not going to generate as much satisfaction as you spending $100 yourself.
There's this other element to gift giving, though. It can make both givers and recipients happy in ways that buying for oneself might not. So jumping to the conclusion that people should stop giving gifts is by itself is not necessarily warranted.
But I think it’s hard to dispute that gift giving is a poor means of resource allocation.
Timothy B. Lee
This isn’t just a theoretical question for you. You’ve actually done some empirical research asking people how much they value the gifts they’ve been given.
Joel Waldfogel
The question is if only I went out and spent a dollar on myself, in dollar terms, how much satisfaction would that buy for me, versus if someone else spent a dollar on me, how much satisfaction would I get from that?
Let's just think about the thing I get, not sentimental value. My research found that a dollar spent by me on myself produces roughly 20 percent more satisfaction — the thing that I get is worth 20 percent more to me per dollar spent — than when people buy me a gift.
Timothy B. Lee
If gift giving is such a bad way to allocate resources, why do people keep doing it?
Joel Waldfogel
Not all gift giving is entirely voluntary. You can ask yourself, are there people I'm obliged to give gifts at this time of year? To the extent that the answer is yes, it's hard to think it's fully voluntary. There's no law, but there are some obligations. This obligatory nature creates problems.
Suppose you only bought a gift when you said, “Oh, my goodness, this gift would be wonderful for some person I know.” Then you'd do a really good job.
But if instead some time of year rolls around and now you have to buy things for 10 people — some of whom you might not know well — that's a pretty tall order, at least from a resource allocation standpoint, in terms of spending money in ways that get people things they actually want.
Timothy B. Lee
I wonder if it’s a category error to be thinking about this in terms of resource allocation. If a friend invites me to a dinner party, I don’t worry about whether my friend spent more on groceries for my meal than I would pay to eat it. Because efficient allocation of food resources isn’t the main point of a dinner party.
Joel Waldfogel
If it were true that assessing the resource cost of a custom were unimportant, that would have to be because the resources are somehow free to us. We don't care about the resources.
Suppose you find out about a government program that was spending $80 billion per year, and suppose you found out that the $80 billion could have been achieved with $60 billion in spending. Would you be concerned as a taxpayer?
Timothy B. Lee
So the point is that people might be able to get the same social benefits from gift giving while spending less money on the gifts themselves?
Joel Waldfogel
I think you're saying, “Doesn't it miss the point to quantify the costs?” But I'm saying the flip side of that is if you think we can achieve the benefits without lighting a lot of resources on fire, maybe we can achieve the warm feelings associated with giving without buying a lot of stuff people don’t want.
Timothy B. Lee
Obviously, most of us don’t have the option to just stop buying gifts at Christmas time. So what practical advice do you have for people who want to minimize gift-giving waste?
Joel Waldfogel
Think about little kids — they like what we give them. They'd be devastated if they didn't get these gifts. So it doesn’t make sense to say that this is categorically bad.
The question is what do we do in these circumstances where we have to buy a gift but we have no idea what to buy? That tends to be situations where we're buying for an adult we don't see very often. And so what could we do in that circumstance?
A couple of things come to mind. One is you just look at gift giving over the past couple of decades. There has been an enormous growth in the use of gift cards as an alternative to buying particular goods for people. In some way, that is the conclusion the economy has come to: that there's a lot of money being spent, and it would be nice if the ultimate consumers of the stuff got to choose what they consume. That's not me admonishing people; I’m just observing that that's what people have done.
What's interesting about that behavior is it's most common in the situation where choosing a particular thing would be done poorly. Grandmas and aunts and uncles are the givers who are most likely to give a gift certificate or a gift card instead of the crapshoot of choosing a specific gift.
One form of gift giving especially within the family is the granting of permission. Suppose a husband or wife wants to do something extravagant. They can decide that as their gift to each other, they'll do this extravagant thing. Suppose you want to buy a gadget, but it's joint money and the partner needs to grant you permission. Permission can be a gift.
Another good gift idea is giving to charity. Suppose you’re seeing your brother-in-law and you have an obligation to give him a gift. You could give him a golf-themed knickknack because you know he likes golf, but he’s unlikely to actually enjoy that. But how about instead a gift to Heifer International in his name? Depending on how he feels about giving to charity, that might be a good thing.
Timothy B. Lee
Gift cards have a form of waste associated with them, too: Every year, more than $1 billion in gift card balances goes unredeemed. Is that something gift givers should be concerned about?
Joel Waldfogel
In one sense I am concerned; in another I am not.
Suppose I spend $100 on a card and give it to a friend. Then suppose he redeems $75 and forgets the rest. The $25 eventually belongs either to the company issuing the card or to the state government, depending on the state.
While my friend only got $75 worth of spending out of my purchase, the other $25 is not destroyed. It's just transferred from me to the retailer's shareholders. It would be way worse, in some sense, to spend $100 on a sweater that my friend values at only $75.
Having said all that, I have long advocated a simple tweak to gift cards: Stores should issue cards whose unredeemed balances go straight to charity after 24 months. Stores could crow about the money that they're sending to charity, and buyers would be assured that someone worthy — either their recipients or some good cause — is getting their money.
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Last year we published a conversation between Waldfogel and his daughters about what it was like to grow up with a father who wrote Scroogenomics: Why You Shouldn't Buy Presents for the Holidays.