Scroogenomics: why reindeer jumpers, singing fish and novelty clocks shouldn’t be under our Christmas trees

Had a wonderful day yesterday at London’s Royal Society of Arts (RSA). And met the engaging and urbane Joel Waldfogel, Ehrenkranz Family Professor of Business and Public Policy at the Wharton School in Pennysylvania.

Joel is a serious scholar and mostly works on ‘proper’ academic issues – dammit he’s at Wharton. These issues range all the way from intellectual property piracy to the effects of information on markets. And oddly, almost inadvertently, he’s a great advocate for Christmas cheer, virtual charity gifts and philanthropy in a roundabout ‘economic’ way… Let me get to that bit.

Anyway he has in the last ten years become concerned, not to say excited, by gifts at Christmas and their negative economic impact. And he’s written a book about it called Scroogenomics .

It’s based on some serious academic study. But the genesis of the book was his disappointment some years ago at receiving yet another poorly chosen and ill-fitting sweater from a loving but inept relative. He was worried that his relative had wasted money on something he would never use. Does this sound familiar?

This personal pain led him to carry out research among his students into the value they put on gifts they received from loving but out-of-touch relatives or friends. He found that the students tended to value their Christmas gifts at a level 10-20% less than the price people had actually paid for them. Joel’s take was that this difference represented lost or wasted ‘value’ in the economic sense.

This isn’t just a tale of American excess. Joel has impressive international data to show that this waste is a global phenomenon – it’s not just restricted to countries ostensibly celebrating the birth of Christ. In fact, he shared an astonishing statistic that Russia, ruled for many years by “godless communism” – his phrase – now outspends the US at Christmas as a proportion of GDP.

His thesis is simple. Christmas gift giving is fundamentally a “value destroying” phenomenon. And we need to think about stopping this wanton destruction – at the very least moderating the sheer scale of Christmas present exchange and maybe even rethinking the idea of gifts generally. The “value destruction” sum is enough to make a fairy fall off her tree. If you add all up all those 10-20% losses-in-value he estimates we waste something like £50B – or $80B – a year in the month of December alone on gifts. Even for a gloomy economist that’s a lot of money. And of course some gifts, like mine sadly, don’t lose 20% of their value but 100%.

Let’s be clear Joel’s not a glum, “bah humbug” Dickensian misanthrope keen to snatch the X-box from the trembling hands of contemporary Tiny Tims engrossed in first person Santa shooter missions. And he’s not even a tree-hugging environmentalist keen to reduce the carbon dioxide impact of too many Brussels sprouts, or limit the landfill potential of polypropylene singing fish. He’s not against gift giving in principle.

But he does ask us to stop and consider two simple questions. How many of us get gifts we like? And as important, how many of us give gifts not knowing what recipients want?

So his economic argument against Christmas gift giving is essentially about economic efficiency. It runs something like this. When we buy something for ourselves, every £/€/$ we spend produces at least a £/€/$ in satisfaction. This is because of what economists call ‘consumer sovereignty’ – the idea that the consumer is the best person to make his or her own choices. Essentially we shop carefully and buy things that are worth more than they cost us. This principle underpins many economists’ – and conservatives’ – disdain for government spending. QED if you dislike government because of its inefficiency, or think healthcare should be all private, then really you have to have reservations about Santa Claus too. (Hmmmm wondering if Obama has thought of this brilliant argument or if he’ll pick it up from my blog.)

Anyway, gift giving, Joel argues, works against this hallowed ‘sovereignty’ principle. We tend to make less-informed choices, and run up credit card bills, to buy gifts for others which end up worth less than the money we spent. Most important we leave the gift-receivers unsatisfied or at best puzzled about why we thought they ever wanted ‘one of those.’

The good news is he’s also a very practical man and recognises that there are challenges in altering current wasteful gift-giving habits suddenly, even if he could. (What would happen to all those long term workless elves and surplus to requirements reindeer? It’s a new refugee challenge waiting to overcome UNHCR.)

So his simple Christmas advice, which I pass on to you as my gift, boils down to four choices:

As an economist he is clear the most efficient thing to do is to hand over money to people we like as a gift– that way, he says, all the value in the exchange is retained. Still he is clear that this isn’t really a great relationship builder, unless maybe you’re dealing with teenagers, and it fits too much with economics as the dismal science.

An alternative is to put the receipt in an envelope with the gift you hand over. This allows the recipient to choose if they want to keep your gift or if they would rather exchange it for something else they can open the receipt envelope. This is surely an argument for buying things from multi –purpose department stores where there’s a choice of goods.

A third choice, is to gift shared experiences. Why not, for example, agree to meet people you like for a meal and each one pays their own way? The gift is the chance to spend time with the person and share the experience. You get what you want by choosing your meal and company. Gifts for kids could be a trip somewhere that you share. The challenge might be when you have to give a gift to someone you don’t want to share an experience with.

His final choice? Well the heartening alternative he suggests with slightly naïve enthusiasm is charitable giving for someone. So he loves charity catalogues where you can buy a virtual gift of a toilet or a goat or a vaccine for a beneficiary. Interestingly his isn’t a moral argument for philanthropy. The economic argument is that no value can possibly be destroyed with such gifts. So the charity uses the £50 or whatever to buy a valuable and valued resource for the beneficiary. And all the £50 value is retained when the goat or vaccine is delivered. If your friend for whom you buy the gift also likes the charity or the gift then value is added. And if they don’t, well, to be economically candid, no value is destroyed. Result!

“God bless us everyone” – I may have had an epiphany. I’m thinking his book is a great Christmas present for my charity friends rather than my conservative ones. Better still I’ll get one for myself and tell people it’s their present to me. Suggest you do the same. Don’t buy me one though – send money to a charity!