Can Christmas Gift Giving Be the “Waste” Economists Claim?

Policy Backgrounders | Economy

No. 180
Thursday, December 10, 2015
by Richard B. McKenzie

New York Times columnist Josh Barro took obvious pleasure last Christmas reporting on one of modern economics’ most settled arguments: that in-kind gift-giving, especially at Christmas, involves a lot of “waste,” or, more formally, “deadweight loss.”

Barro defers to economist Joel Waldfogel, who reported in his 1993 American Economic Review article that “between a tenth and a third of the value of holiday gifts is destroyed by gift-giving,” which means that of the total estimated Christmas gift-giving in 1992 of $38 billion, $4 billion to $13 billion of the gifts amounted to the type of deadweight loss that emerges from income taxes. Waldfogel summarizes his (and the profession’s) argument:

“While it is possible for a giver to choose a gift which the recipient ultimately values above its price – for example, if the giver is not perfectly informed – it is more likely that the gift will leave the recipient worse off than if she had made her own consumption choice with an equal amount of cash.”

How could Santa Claus (and so many others) get the Christmas spirit so wrong for billions of children (and adults) around the world? Could the “dismal science” be more dismal?

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