Bah Humbug! Presents Make No Economic Cents

Every year when the Christmas season rolls around I am extraordinarily thankful.  I really love seeing everyone relax, getting to touch base with old friends, and spending leisure time with family.  As a bonafide food addict that hates to cook, I am also a huge fan of the big home-cooked meals that are associated with the holidays!  There is nothing quite like the holiday atmosphere and all that it entails.  That being said, there is one part of Christmas that I will just never understand – presents.

Moral… Who Me?

Now most of the time when you hear this rant, it revolves around the idea that Christmas has become far too commercialized.  While it certainly has, this is not my main beef.  I enjoy my little luxuries far too much to complain about the commercialization of anything.  I just bought myself the new iPhone for goodness sake (review upcoming!) it doesn’t get much more clichéd and commercialized than that!  I also must admit that I was spoiled at Christmastime as a child.  My family was very middle class (mom was a nurse and dad was a forest products-based contractor – aka a lumberjack), but my mom especially loved to give presents.  I always got new hockey jerseys, the latest cd/movie, and a whole bunch of other goodies.  I can’t complain about getting cool stuff.

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Where I get all Scrooge-like on the subject of presents comes not from a moral imperative, but from a selfishly economic point of view.  I have always had this way-too-logical outlook on gift giving, and when I finally seen it put into words in the book Freakonomics, it struck me as just how ridiculous the custom of excessive gift giving can actually be.  The basic idea that the authors of the book put forward is that there is an intrinsic inefficiency in gift giving, and we really place an unhealthy amount of social emphasis on it.

Gee Thanks For That Sweater… It Will Look Great On a Hanger For The Next Twenty Years

The inefficiency (this seems like such a cold word when associated with Christmas… maybe I was meant to be an economist) that is systemic to gift giving comes from the idea that money is spent in ways that will not provide the receiver of the gift with as much enjoyment as if they had simply had the money to spend themselves.  Think about it, when most people want something, they look for the best price, and then go out and buy it.  They get a great amount of satisfaction from this most of the time, because it is exactly what they want, for the most competitive price they can get.  The free market also gets a solid signal that they should produce more of this product for a competitive price.  Now when the whole idea of guessing what people want comes into play, the efficiency-based system gets thrown into chaos.  There have been many different estimates as to what percentage of enjoyment people get from their gifts relative to if they had simply purchased what they wanted for themselves, but the general consensus is that a substantial amount of potential enjoyment is lost along the way.  Not only this, but on a larger scale, the free market gets confused because all these people are buying crap they wouldn’t buy under normal conditions, and sellers are getting away with charging whatever they want on certain items that are artificially in-demand.

 “You Don’t Always Get What You Want”… That’s Kind Of The Point!

To boil it down to the simplest terms, if I really wanted a lower-end laptop computer, and received a tablet as a gift, I would probably keep the tablet and would now put off buying the laptop.  The two items would have cost roughly the same amount, and a tablet is a nice little item that I can do most of what I want on.  Let’s say I like it 70% as much I would have my laptop.  I’m still better off (in terms of enjoyment) having it than not having it, but if you assume I bought the original giver a gift of similar value (don’t we all love this game) that they like 60% as much as what they wanted (does it surprise anyone I’m not very good at this whole gift giving thing), we have both lost a substantial amount of utility from our original financial standing.  Logically, wouldn’t we have been far better off keeping our money, ordering exactly what we wanted online (taking advantage of Black Friday sales), and then telling each other that we really cared about one another?  Couldn’t we have sat down for a meal together, shared a cold one, “fixed” the world’s problems around our kitchen table, and reminisced about the good times instead of “wasting” hours in a shopping mall?  Imagine how much more relaxing the holiday season would be if we simply used all that shopping time to truly express how we felt about people, and sat down together instead of trying to prove it through insane acts of shopping mall bravery?  That would be unbelievable, and we would be much happier materialistically as a bonus!  This is a win-win!

 So I’m Trading Money For Fake Money – Sweet Deal

Gift cards are almost as crazy when you think about it.  As a person that value efficiency and getting people something they really want, I used to think that gift cards were a great idea.  It makes almost no sense at all when I now look at the situation through my dollar bill-tinted glasses.  Our first clue that gift cards are a dumb idea should come from the fact that 30% of all gift cards go un-redeemed.  This actually says a lot about gift-giving in general.  Why in the world do we trade a medium of exchange that can be used anywhere (money) for a medium of exchange that can be used in one place (a store gift card)?  There is no incentive to do this.  Stores don’t give you a 20% premium when you exchange your cash for their “Best Buy Bucks” or whatever it’s called where you’re shopping.  There is no reason for this except to show how much we appreciate people in our lives, and I personally believe there are far better ways to do this.  Remember, I like nice things, this is not an assault on consumerism, I’m just for efficient consumerism!

 The Outliers

The only thing that I cannot possibly take into account is people like my Mom who gets WAY more joy out of giving a gift than receiving one.  She looks to buy presents for everyone around her during the holiday season, and is truly at her happiest when she finds “that perfect something” and lights up their face.  For people like my mom, their utility, the amount of joy they actually experience, is completely reliant on this whole notion of gift-giving.  She takes it as a personal affront to her gift-giving skills when someone suggests something specific.  These people are at their happiest during the Holidays, and I would never want to take that away from my Mom… so I guess until all mothers become economists we’re stuck in this weird consumer-driven vortex of impulse buys and endless searches for the holy grail perfect gift.

 The Kids Got It Figured Out

I think the most humorous thing about this whole gift-giving phenomenon that we have created, is that kids immediately figured out how to game the system in order to maximize their utility.  Hmm… Let’s see, how do we efficiently communicate to our parents and loved ones exactly what we want while still allowing them to see “spontaneous” joy on our faces and get the nice warm feeling that comes from giving someone exactly what they wanted… I know, let’s create this character named Santa Claus!  We’ll build up this cult-like following and then use him as a mechanism/excuse for making children’s gifts as economically efficient as possible.

Of course we adults are far too sophisticated for these games!  Instead we throw our blood pressure through the roof in our quest to show people how much we appreciate them.  All the while wondering what they are getting us and praying that our exchange is of equal value so as not to present any undue social anxiety or awkwardness.  It actually borders on the insane when you take a step back (or several) and look at it rationally.  What do I want this year for Christmas?  For everyone to keep their own money, or even better, use it to take a few days off instead, and then spend that time together doing dumb/fun things like playing board games, going skating on the pond, or watching the football game together!  Think it’ll work if I ask Santa for it?