Economics Professors at the U Weigh in on the Efficiency of Holiday Gifts

During the holiday season, economists aren’t only stressed about cooking and the in-laws, but also about the effects of gift-giving on the economy.

Three economics professors opined that giving specific gifts for the holidays is economically inefficient and fraught with “deadweight losses.”

Subhasish Dugar, professor in the Department of Economics at the U, described the “deadweight loss” of Christmas as the waste that occurs when people make spending choices for other people, which is the basis of gift-giving.

Two of the three professors agreed that the most economically efficient gift is cash because the gift-receiver can spend it on what they truly want.

During the months of November and December, the National Retail Federation projected a 3.6 percent sales increase, with sales amounting to $655.8 billion. The forecast excludes autos, gas and restaurant sales and is significantly higher than the 10-year average of 2.5 percent.

But, if the holidays were to be discontinued, some economists argue that consumers would either spend more on themselves or disperse their gift purchases more evenly across other events like birthdays.

Peter Phillips, a professor in the Department of Economics at the U, said many people around the world already don’t celebrate any of the holidays set around the time of Winter Solstice.

“[If the holidays didn’t exist] there probably would be other customs and activities that would support consumer demand,” Phillips said.

Dugar asserted that the dispersal of funds caused by an elimination of the holidays would put more goods into the hands of people who truly value them and may enhance social welfare as a result.

A survey conducted at Yale University calculated festive-waste by asking students to estimate the cost of the presents they received. The average answer: $438.

Molly Scoville, a senior in business, estimated the total worth of her Christmas gifts last year to be approximately $700.

Scoville said she would prefer being given that amount of money instead of gifts this holiday season.

“For me, money would be better,” Scoville said. “I have some very practical things I would splurge on.”

Scoville added that she would spend the holiday funds on new tires for her car.

The holiday season between Thanksgiving and the new year is the most active part of the year for retail sales, professor of economics Steve Bannister said.

Bannister suggested that there may be a consequence to giving only monetary gifts. “Cash gifts may be interpreted as a form of insult,” he said.

Phillips questioned the claim that gift-giving is inefficient.

“A society without gifts would be a sad and selfish world,” Phillips said. According to him, the most effective gift “is the one that connects people together in friendship, love and belonging.”

As markets encourage selfishness, Phillips argues, gift giving helps to re-balance human interaction.

Scoville recognized that a $700 cash gift would be nice, but says she values time spent with family and friends more.

“I’d rather have an hour of conversation with someone I love than the monetary equivalent of that hour,“ Scoville said.

The three economists concluded that a society without gift-giving and charity might be more efficient in allocating goods, but would eliminate a feeling of belonging – something important to humanity.

Phillips said, “If we cannot work together, markets will not work at all.”

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