With Christmas quickly approaching, retail stores are overflowing with frantic shoppers purchasing a multitude of presents for their loved ones. The economics of Christmas are important as it is a high volume selling season, in which sales increase dramatically as people buy gifts, supplies, festive food, and decorations. There is an ongoing debate whether Christmas harms the economy or benefits it. On one hand, some economists argue that there are negative financial impacts, while others argue that the holiday stimulates economic growth.
An economist, Joel Waldfogel, in 1993 came up with the problem of the ‘deadweight loss of Christmas’, due to the act of gift-giving. Deadweight loss is a loss of economic efficiency which is a result of supply and demand being out of equilibrium, due to the inefficient allocation of resources. For example, if someone gives you a bag worth £50 but you already have a really nice bag which you don’t want to replace, you would value the bag to be lower than its actual price. Waldfogel surveyed Yale students and estimated that gift-giving destroyed between a tenth and a third of the value of gifts. He argued that during Christmas, a time of intense present giving, many people receive gifts they don’t like or don’t have any need for and found that of the $65 million spent during the holiday season in 2009, nearly 20% of it was wasted, in the way that they were less valuable to the recipient than the actual worth, further reinforcing the problem.
On the other hand, there have been many arguments against this theory and believe that the act of gift-giving is more complex and dependent on people’s behaviour rather than simply an economic transaction. Gift-giving serves as a way of communicating, as well as investments in relations, which further increases the strength of the relationship. It also varies with the recipient. For example, while giving cash (which Waldfogel argues is the most economical and efficient gift) to a family member is perfectly acceptable, it would be socially unacceptable for a teacher. Moreover, exchanging cold, hard cash lacks festive spirit and this encourages people to buy what they think are meaningful presents. However, behavioural economics suggests that this usually results in people mispredicting what the other person actually likes and how they would respond to receiving the gift. This is made worse when the recipient has to feign enthusiasm and joy in receiving a gift that falls short of expectations.
Over the years, commercialisation of Christmas has increased drastically, with the economic boom of the 1950s being the foundation. The economic effect of commercialisation is important, as it reveals how Christmas stimulates the economy in multiple areas, such as retail and food industries. The Bank of England stated that during the lead up to Christmas, households in the UK spend almost £740 more in December than any other month, which is 29% more than a typical month. Advertising for Christmas signifies the social significance of gift-giving, and promotes shopping, enticing people into retail stores, especially due to sales, discounts and Christmas-themed decorations. The ‘Christmas shopping season’ usually starts a lot earlier than the actual holiday, with the U.S. starting as early as October and the UK and Ireland starting from mid November: a key aspect of commercialisation.
Overall, if microeconomic research suggests that Christmas causes a welfare loss due to the act of gift giving, on a macroeconomic scale Christmas boosts the economy through the increasing commercialisation of the holiday.
Navya Pillai is a student in year 12, hoping to study an economics course later in university. She is very interested in economics in history, and the impact it has on the modern world, as well how people's behaviour affects the economy.
Sources:
Commentaires