John-Paul Flintoff

When it comes to Christmas gifts, a bit more bah, humbug is what we need

Like most people, Joel Waldfogel smiles bravely when he opens a Christmas present he neither wants nor needs. “I try to be polite,” he says.

Which is odd because Waldfogel believes the world would be a better place if we gave relatives a poke in the eye with a sharp stick when they buy us fondue pots and novelty knitwear. This, he says, would send out a clear signal and help to improve subsequent performance.

By administering pokes in the eye, we could reduce substantially the wasteful spending associated with Christmas – waste that by Waldfogel’s calculations amounts, worldwide, to £15 billion a year.

And this is a big problem in the UK, where, according to Waldfogel, spending on Christmas, at £129 per man, woman and child, is second only to Norway. Because of our soppy attachment to the season of goodwill, we overlook what is perfectly obvious: that Christmas giving, “as an institution for allocating resources”, is a washout. “Is anyone even concerned about this?” asks Waldfogel. Bah, humbug!

You may now see why Waldfogel is regarded as the founder of an especially dismal branch of science, Scroogenomics.

But he’s got a point, because each year you unwrap presents that you have no use for, and deliver similarly useless gifts to others. It’s the same every December – as if a tornado had hit a shopping centre and distributed the contents at random.

A professor at Wharton business school in Pennsylvania, Waldfogel’s main academic interest is industrial economics, but in 1993, for fun, he started to investigate Christmas. He asked students to list the presents they’d been given, by whom, and to indicate a) how much had been spent and b) what the recipients felt all the grisly knitwear and golf-themed knick-knacks were actually worth.

The difference between a) and b) represents the amount of money squandered by givers. For example, if I spend £100 on a lamp that you believe is worth £80, I’ve wasted £20. The “added” sentimental value of the present is irrelevant.

Considered separately, these wasteful purchases are shrugged off. But if you multiply them by the total number of presents we buy every year – 23 each, according to accountants Deloitte Touche Tohmatsu – it’s big. “If you discovered a government programme that was haemorrhaging money,” says Waldfogel, “spending $100 billion to generate a benefit of only $85 billion, you would be outraged.”

In his new book, Scroogenomics – a perfect stocking-filler – Waldfogel argues that buying presents is no longer a luxury but a necessity because the social pressure is immense. “It’s something that people need to get out of the way, not something people wish they could do more of.”

With very few exceptions – such as when you find something that you know the recipient has searched for or when buying for toddlers – the only way to avoid wasteful spending is to give cash, Waldfogel says, because the recipient can then purchase exactly what they want.

But there’s a stigma attached to giving cash, he concedes, and it’s particularly inappropriate as a gift from younger to older people.

“The ‘cash stigma’ functions like a tax,” he says. The recipient gets the full amount but “the ickiness of getting it in cash” makes them feel only as happy as if they’d stumbled on a smaller amount. The “tax” is fairly large, and “explains the rarity of cash gifts”, he says.

Why is there such a stigma? Mr Smart-Guy Economist (his own description) doesn’t know. Me, I suspect it’s because we don’t especially wish to feel like prostitutes or lavatory attendants.

Waldfogel concedes that taking gift-giving advice from an economist is “a little like taking a Swiss lover”. But his loyal wife believes that his 16-year campaign against wasteful spending at Christmas has been key to the increased social acceptance of gift vouchers.

Even here, there’s still work to do. “Roughly a tenth of gift cards are never redeemed. So for every dollar a giver spends on a gift voucher, the recipient gets on average only 90 cents. This is not much better than typical gift giving.”

Waldfogel’s big idea is that shops should issue vouchers that expire after 12 or 18 months and that at expiry the remaining balance is given to charity. “If we can do this together, maybe I can join the ranks of jet-setting do-gooder economists who get to hang with Bono.” If we all bought those vouchers and stopped buying tacky £100 lamps, the annual orgy of wealth destruction would cease.

“Economists use the term ‘deadweight loss’ to describe losses to one person that are not offset by gains to someone else. If a dollar disappears from my pocket and reappears in yours, it’s a loss to me but not to society. If you take my dollar and destroy it lighting your Cohiba [cigar], it’s a deadweight loss.”

But this sounds like quantitative easing in reverse: if it turns out that Mervyn King, the governor of the Bank of England, has pumped too much money into circulation and inflation starts to shoot up, chancellor Alistair Darling will probably pass a law requiring us all to light cigars with paper money.

“Okay, my example is misleading,” says Waldfogel. “Literally destroying money isn’t that bad because it’s just paper. Wealth destruction is more like taking something out of my pocket and smashing it. By my conservative reckoning, US givers spent $66 billion in 2007 and produced $12 billion less satisfaction than this could have bought – an annual deadweight loss of $12 billion.”

He’s on to something, but I’m not convinced it’s as bad as he says, because in a household well known to this writer, unwanted presents are either given to charity or set aside to rewrap for somebody else next Christmas. And so long as that pass-the-parcel continues, there’s no deadweight loss. Happy – and efficient – holidays.

982 words. First published 15 November 2009. © Times Newspapers Ltd.

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