Welcome back all. I hope you had a restful holidays and are ready for a new year of economics.
Christmas is always an interesting period of the year for economics and it got me thinking: if the Grinch was an economist what would he have to say about it all? Here are some of the issues he might raise.
- Christmas presents are bad for society
There is a long held analysis that the whole act of gift giving creates quite significant dead-weight losses as there are often differences between what the giver paid for the gift and the amount the recipient values it. It was certainly nice of Granny to give you that turquoise jumper with pink spots, but would you have been willing and able to pay the $25 she paid for it had you seen it in a shop? Doubtful. By reselling gifts on eBay the recipient might be able to release some if not all of that value, but most people don’t bother and simply put presents away never to be seen or used again. The maker of turquoise jumpers with pink spots continues to trade when otherwise they might have had to shut down. That is clearly an inefficient use of scare resources. Unimaginative it may be, but gift-cards and cash are the smart economist’s gift of choice.
- Christmas doesn’t really help the economy
On the surface this statement appears absurd. In the USA alone it is calculated that consumers splurge nearly $500 billion on Christmas presents. That’s the GDP of Switzerland for an entire year. The problem comes that sales for virtually every retailer dip quite significantly in the new year and don’t pick up again until the spring. Essentially the $500 billion gain in the last quarter of the year is cancelled out by a $500 billion dip in the first quarter of the next year. If Christmas didn’t exist, retail sales would merely smooth out over the course of the year. This would almost certainly help retailers who can plan more and not have to rely on increasing stocks and employee numbers in the lead up to the holiday season. The unpredictable nature of Christmas shopping means market-clearing prices don’t have time to be found and instead we have excess supply as retailers over-stock and excess demand as desperate parents queue to buy the latest must-have toy.
- ‘Tis the season to be a demerit good
Whilst turkeys may not vote for Christmas, for most demerit goods it’s a bonanza period. Be it travelling, drinking, eating, partying, packaging or stress, the Christmas season sees a spike in the consumption and production of a huge variety of demerit goods. The economic costs can be significant. In the UK a study calculated that average Brit gains 5 lbs (2.5 kgs) over the Christmas period resulting in health costs to the government (and therefore tax payers) of nearly $4 billion. Another study, again in the UK, found that of the 20 most common days workers take off sick during the year, 13 are in January. It is almost certainly as a result of Christmas excess.
So it looks like the Grinch is an economist afterall, or at least all economists have a touch of the Grinch inside them. No wonder economics is called the dismal science!
Happy new year.