Gifts2: Economist Calls Christmas a “Deadweight Loss”


December 29, 2006


Browse in Economics Gifts

Did you know that Christmas in the U.S. is wasteful?  Not in the way that is numbingly obvious to most of us, but in a narrower and more technical way that suits the strange form of human mentation called “economics.”  According to media reports, an economist by the name of Joel Waldfogel at the University of Pennsylvania has been asking college students to put monetary values on the gifts they receive from others.  Generally these values are less than what the givers actually paid.

The result is what the professor terms, with what one hopes is witting self-parody, the “deadweight loss of Christmas.”   He puts this loss at between ten and eighteen percent of Christmas spending, which means that billions of dollars a year go down the drain as he conceives it. That doesn’t mean energy and raw materials, trash and the rest. It means the difference between the dollar value that recipients put on gifts and the amount the givers paid for them.

That’s thinking like an economist.  Reduce everything to money, and regard stated “preference” as the bedrock truth of life.  I suppose that anything that argues for cooling off the consumptive frenzy is to be welcome. But I’m not sure this study really does that (why not just give a gift card instead of a gift?)

Besides, the assumptions here about the nature of value – what counts and what doesn’t –  need a lot more discussion  than they typically receive.  They are embedded in much of what passes for “economic analysis,”  including the arguments that regulations “cost” the economy and that action to slow climate change would “cost” ordinary people.

It is a bottomless pit, so I’ll stick to the study at hand.  Let’s say Joe Student received a set of Spanish Language Cds from an aunt, when what he really wanted was a new video game machine.  Let’s say further that he is one of the many students today whose academic work is suffering because he spends so much time on such games.  Are we really to conclude that the game would hold more “value” to him than the language course; and that the difference between the two is a “deadweight loss?”

What exactly does “value” mean in such a context? Value in helping him flunk out of college?  Where exactly is the “deadweight loss” in not receiving such an assist? The situation I have sketched is not just hypothetical. Addiction has become a significant part of this thing called “the economy.”  It has gone way past the usual suspects — gambling, drink, tobacco, drugs – and has penetrated into the larger realm of buying generally.

Millions of Americans are engaged in a grim daily battle with their own impulses.  They struggle to eat less, spend less time on the Web, use their credit cards less – consume less generally.  How then can their consumption choices – or in this case their stated “preferences” — in the market be a bedrock fact of “utility” and benefit? How can economists attribute “consumer welfare” to choices that the buyers themselves say they regret?

Addiction is just an extreme form of something that is even more pervasive.  The bookstores are full of volumes aimed at people who think they make bad choices.  That’s in work, clothing, food, appearance, romantic partners – just about everything.  So how can people who think their own decision-making is so flawed, become so suddenly flawless, and such unfailing markers of “consumer welfare,” just because a particular choice involves the expenditure of money in a market setting?  Haven’t these economists ever seen the closets, basements and garages full of stuff that the people who bought it never use?

The belief that markets are more “efficient” than commons in delivering utility or value or whatever you want to call it, rests largely on this assumption.  To question it is to raise the possibility that sometimes, a commons – undeveloped open space, a traditional main street, clean air — delivers more, even if any particular users might not have “chosen” it on their own.  You can see why most economists will grumble that they have dealt with this already (eg “public goods”) and then hurry on to something else.

A lesser point here is how circumstances change with time.  Say Joe Student, the summer after the Christmas in question, falls hard for a young lady who happens to be Hispanic.  Now he is spending hours listening to the Spanish Cds, and his estimation of their value has soared.  Things change.  What once seemed of little value becomes important, and vice versa.  Our estimations at any point in time are provisional and hardly bedrock.

Put these two things together – the foibles of human nature and the vagaries of human lives – and you get the messy reality that economists, with their insistence on “rationality,” find strangely unsettling.  Given the messiness, the things we choose to spend money on at any particular moment become a pretty shaky foundation for something that purports to be a science.  But the appearance of science is paramount, and so the messiness must be ignored.

As I said  this is a deep pit.  There is much more that could be said.  I’m going to skip over to the other side of the argument, which concerns the nature of a gift. According to the account by James Suroweicki in the Dec 25/Jan 1 New Yorker, Professor Waldfogel instructed his subjects to ignore what he called the “sentimental” value of the gifts.  This apparently was his way of describing the portion of the value that cannot be measured in crude monetary terms,

Sentiment is not something to which the economist attaches great significance. It holds roughly the same weight in their value system that the term “nice personality” has among teen-age boys discussing the girls in their class.  You know, the one who might help you with your homework but not the one you really want to hook up with. Note too that sentiment, like the monetary value it complements, lies totally in the individual.  It is another form of personal gratification – soft, spectral, not amenable to regression analysis and therefore a lower order of reality, but still personal.

Yet a gift is social by its very nature. The object is not to provide monetary value to the recipient but to affirm a bond and – this is crucial – keep it active and in motion.  Gifts aren’t just tokens of sentiment.  They are part of an economic dynamic that is different from that of market transactions, and that is generative in a different way.  The market produces gain; the gift produces cohesion, and both have a place in the economy of well being.

In my last post, I referred to Bronislaw Malinowski’s famous study Argonauts of the Western Pacific,  which looked at island dwellers and the gift economies that evolved among them.  At regular intervals, people on a given island would canoe across the sea to bring gifts to those on another island.  Then after another interval the recipients would paddle across and bring the gifts back. This was not what is called today, with chilling euphemism, “regifting,” in which people unload the stuff they don’t want on someone else.  It was the gift in its pure form, a reciprocal relationship kept alive and in motion by the back-and-forth.

The aim was not advantage for one side or the other; but rather mutuality, as in a game of Zen-pong, in which the aim is to keep a rally going rather than to score a point at the other’s expense. (For a discussion of these and other aspects of gift economies, I strongly recommend The Gift by Lewis Hyde, who has been a contributor on this site.)

Gift economies operate not just through specific bestowals, but also in the context of a commons, in which all participate and partake of the participation of others.  The sociability of main streets and public spaces, the teeming and uncompensated interactions on the internet – these and other things express a generative principle that economics, as generally conceived, does not encompass or explain.

Mr. Surweicki tries to see a silver lining in the Waldfogel work.  Maybe it will bring people back to the importance of giving for its own sake, rather than for calculus of benefit and reward. Well, maybe. Economists like to think that “self-interest” leads inexorably to good, so that they will not have to change their mental models based on that self-interest.

I’m looking at a different silver lining. Professor Waldfogel, in questioning the value of gift giving on the basis of the prevailing model, has given us all a gift, in the form of an occasion to look at that model again.