Christmas: The Economy’s Friend or Foe?

Written on 22 December 2015

With only three sleeps left till Christmas the shops are full of people buying their last gifts to fill the spaces under the Christmas tree. With tills ringing at a rate not seen at any other point of the year as well as increased employment in most stores it may seem logical to assume that Christmas is the UK economy’s friend. However, an American College Professor Avner Ben-Ner has made a compelling argument that Christmas may in fact be harmful to our economy. But how so?

The argument stems from the notion of ‘deadweight loss’ that often occurs with gift giving. The jumper I bought you from GAP for £20 you may only value at £16; this £4 is simply lost to the gift receiver. This deadweight loss is particularly large at Christmas where we’ve all opened our stockings on Christmas morning to see gifts we know will sit in the corner of the room for the rest of the year. Wouldn’t it be better if we simply were given £20 and could spend it on something we truly valued at £20? From a microeconomic view the economy at Christmas misses out on potentially millions of pounds of ‘satisfaction’; money that could be utilised more efficiently by individual consumers were the choice of gift given to them instead of their Aunt, cousin or Bob from the office who got you in Secret Santa this year.

In the macro-economic sense many consumers also take out loans, often with high levels of interest, to fund the gifts they buy at Christmas. If we still gave gifts, but spread them out more evenly across the year it could save consumers huge amounts on. Choosing one date where everyone gets presents is simply illogical if we want to smooth over the year.

So what is the solution? Well if we listen to Professor Avner Ben-Ner it is simple. We give each other money to go and buy the presents that we want to buy, maybe once a month. We then get gifts 12 times a year and all get what we really want! But here lies the problem with Ben-Ner and his Scrooge economics; it misses the whole point of Christmas. For every ‘deadweight loss’ present we receive at Christmas, there are those that we cherish for years that we would never have bought ourselves. And could you imagine waking up on Christmas morning and just handing over wads of cash to each other? The joy that you get from all sitting round the tree exchanging presents is something economists cannot measure and something that we would not want to change. Is Christmas ‘economically inefficient’? Yes it probably is but who cares. When I sit down on Christmas morning and open my presents, ‘deadweight loss’ and all, I know I’ll be having a better time than Ben-Ner and his family, exchanging $20 bills…..