 |
 |  |  |  |  |  |
photo: Walt Disney Studios Motion Pictures/Everett Collection (“A CHRISTMAS CAROL,” JIM CARREY, 2009)
|
Merry Wealth Destruction
BY JON HILSENRATH
As Christmas approaches, you are sure to hear many economists worrying about whether consumers will spend enough to spur economic growth. But there’s one grumpy economist who worries about them spending too much. University of Pennsylvania professor Joel Waldfogel, author of “Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays,” estimates that Americans drop close to $70 billion a year on Christmas shopping for gifts people mostly don’t want. He says the deadweight loss to society from all of this frivolous spending—an “orgy of wealth destruction” as he calls it—is about $25 billion world-wide, and society would be better off if people didn’t spend it. “If microeconomic theory teaches us anything, it is that people do best when they make choices for themselves,” Mr. Waldfogel said in an interview with The Wall Street Journal. Here are more excerpts from the interview: WSJ: How big is the loss? Put it in numbers, this “deadweight loss to society” you describe. Mr. Waldfogel: My favorite way to do it is to compare what would you be willing pay for stuff that you receive as a gift, per dollar spent, versus what would you be willing to pay for stuff you bought for yourself … . The surveys converge on the idea that it is about 20% less. U.S. holiday spending per year is conservatively about $65 billion. So about 20% of that, something like $13 billion a year, is what’s destroyed through gift giving in the U.S. WSJ: On Chinese New Year, the Chinese hand out cash in little red packets to kids. They’re called lai see packets. Should we adopt that tradition and just ditch the Christmas trees altogether? Mr. Waldfogel: Cash is in general a stigmatized gift. Psychologists have studied this. It would be very awkward for me to give cash to a social peer. ... What we’ve seen in the past 15 years is astronomical growth of gift cards, which are cash without the stigma. You the recipient get to choose what you want. … Probably [about] a third of holiday gift-giving is now in the form of gift cards. It does look like a response to a concern about destroying value. WSJ: You’ve got a bunch of proposals for avoiding all of this wasteful spending. What are your two best ideas? Mr. Waldfogel: My two best ideas are both to do with gift cards. One problem with them is that something like 10% doesn’t get redeemed. After 36 months or 48 months depending on the company, the escrowed gift card money that doesn’t get redeemed gets recognized as revenue and so it goes to the shareholders of Target How about encouraging companies to issue gift cards which after 18 months default to charity? The unspent balance goes straight to charity. … That way you would know that either the recipient or some worthy cause is getting his generosity for the holiday. WSJ: What about idea number two? MR. Waldfogel: It’s another idea related to charity. Let’s say you’ve got to get a gift for your brother-in-law and you don’t know what he likes. How about giving him one of these Charity Navigator “Good Cards,” where the recipient has the right to choose among a long list of charities and allocate the gift to the charity of his choice? WSJ: How do your wife and kids feel about Mr. Waldfogel: I try to be a pretty careful gift giver. Part of the point here is that when you know what people want—the immediate family—those are people where you can do pretty well giving gifts. You know what they like. You know what they have. You care. The situations that are really recipes for disaster are situations where you’ve got an obligation to give, but you don’t know what to give. ... Those are the situations where you run the risk of turning wealth into dross. WSJ: One of the arguments against your argument is that if people followed your advice and did a lot less spending on Christmas, it would hurt the economy. What’s your retort? Mr. Waldfogel: It is not really Christmas that is causing that spending. Christmas is causing it to occur through the gift-giving mechanism, and you get the wrong size. That’s retort one. Retort two is related to retort one. Spending is not really a measure of success or satisfaction. Unwanted and wanted spending are equally good for sellers. But spending is supposed to be good for buyers. When we say it is good for the economy, we can’t just look at the amount of spending, we want to think about the amount of satisfaction that we’re getting.
| |||||||||||||||||||||||||||||||||
