Is giving gifts during Christmas a bad economic idea?

Kevin Albertson of Manchester Metropolitan University revisits the idea of gifting during x-mas.

Economists (the mainstream ones) think that gifting leads to dead weight loss.Better to give people cash instead:

Casual observation indicates many of us appreciate gifts more than those items we require or buy for ourselves: consider the giving of birthday presents, flowers, and such like. This is despite the fact that, according to strict neo-classical economic theory, such giving is inefficient. Waldfogel makes this clear in Deadweight loss of Christmas.

According to Waldfogel, the inefficiency arises because when we give, we might not perfectly match the recipient’s preferences. He estimates that giving “destroys” between 10% and 30% of the value of a gift. However, it strikes me Waldfogel has not figured in how much value is added, even to a simple pair of socks, because of the affection with which it is given.

He says this rational self-interested thinking misses quite a few points about gifting:

There are several difficulties which arise when we consider self-interest to be people’s sole motivation:

Firstly, we limit the potential of human interaction. If we consider all interactions are market transactions, it follows all friends are fair-weather friends and every gift under the tree an investment of sorts. Such an outlook has been shown to have adetrimental impact on our mental health.

Secondly, there is the potential error of equating price with value. A baby’s smile is priceless, but far from valueless: similarly, Christmas morning in a warm and gaily decorated front room with one’s family is priceless. To argue I could have bought everything much more cheaply in the boxing-day sale is to miss the point.

Thirdly, and rather more broadly, we limit the scope of the policy debate. Many human interactions take place in a social, not a market, context. If we consider only monetary self-interest as a motivating force it suggests government should limit itself to market-based solutions, rather than considering social solutions to social concerns.

Therefore, we risk undermining our economy. Economists have shown policies which favour the individual pursuit of self-interest undermine morality and the development of trust and co-operation. As well as limiting human capacities and engagement, this limits the potential for economic growth, which depends, in part, on trust.

Ultimately, we limit human expectations. Behavioural economists have shown that tolerating, even encouraging, greed is likely to lead to an increase in amoral behaviour while reminders of moral codes are likely to discourage cheating. There is also evidence that greed and bad behaviour are contagious, while it is generous people who are more likely to be happy.

No one, of course, would deny the existence of financial self-interest, particularly in the field of business – though it is by no means clear we should encourage it even there. However, if we promote a solely mercenary focus in human interactions we risk crowding out higher and more satisfying motivations.

God only knows what will happen if each of us start thinking and behaving like economists want us to..

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