"Christmas is the Spirit of Giving without a Thought of Getting."
The Holiday season is here. The Merriment of the upcoming festivities already seems prevalent in the air. It’s that joyous time of the year where we can sit back and relax for a bit and embrace the time away from our desks. We look forward to spending time with our friends & family. And lest we forget, neatly wrapped gifts that have, over the years, become a central part of the year-end festivities.
Now on such a joyous occasion, I would hate to sound like Mr. Grinch. But there’s a major economic problem that occurs around this time of the year. we will be looking at the Wonders of the “Economics of Christmas.” to better understand the issue. Now in layman terms, Economics of Christmas refers to the Significant Economic Shifts that are affected by the fact that Christmas is a peak selling season for retailers in many nations around the world. Sales increase drastically as people purchase gifts, decorations, and supplies to celebrate.
The marketing & advertising for the Christmas sales began in most countries, in mid-October. This phenomenon is referred to as “The Christmas Creep.” It’s the busiest season of the year for a majority of retailers. It successfully disrupts the calendar for many retailers, as products become out of stock too early, and reduce the takings in the weeks that follow. The opposite is also true for a lot of retailers. They tend to over-estimate their sales & order larger quantities of all products, some of which may not be as popular. It is difficult to forecast demand from previous sales as you must investigate the popularity & trends of each line item. Hence it would be fair to say that Christmas serves as a make or break it season for a lot of brands.
Let’s look at what economic value is defined as, the value of an object is the maximum amount that its owner would be willing to pay for it, or simply put, how much it's worth to you. For instance, you bought a pair of sneakers worth $100 for you, but you were fortunate enough to buy them at a discount of 50%. Well, it's worth a hundred to you, and you only paid 50. In economic terms, when you bought it, you literally created $50 in value... which means you're 50 bucks richer. That is basic economics, now how this relates to the concept of gift-giving is the fascinating part.
We are brilliant when it comes to purchasing gifts for ourselves. But we're terrible at guessing what other people would economically value our gifts. Suppose I give a Harry Potter mug to a friend that doesn’t quite like Harry Potter. The go-to response for a bad gift usually is that it’s the ‘thought that counts’, but that isn’t entirely true for economics. This would imply that my friend might value the mug I gifted them at $15 even though I paid $50 for it. In this case, I have successfully burned $35 worth of value. This phenomenon is called the “The Deadweight Loss of Christmas.” Joel Waldfogel first theorized this in 1993. He found that of the $65 billion spent on winter holiday gifts in 2009, about 20 percent was wasted, in the sense that the gifts were worth that much less to the recipient than they actually cost. And indeed, it is an inescapable fact of life that people who receive holiday gifts often don’t much like what they get.
If you’ve ever been presented with a sweater that you would never wear in public or lived the very real horror of receiving whiskey stones, you’re probably able to understand Joel’s Point of View.
As cynical as this simple economics problem may sound, it’s not that complicated. To solve this issue, we need to change the Mindset of the People. Rather than giving gifts that the person may or may not value, we have to allow room to shift the paradigm to giving the corresponding amount of money in cash (or a voucher) and leave up to them what to buy with it. While giving out cash and vouchers is often associated with being unthoughtful and unromantic, we have to remind ourselves that our simple Act of Kindness & Goodness is inversely harming the economy.
I hope that this thought piece has promoted awareness: the intention of the article is not to hurt the emotional sentiments of the readers, but to help break a common misconception that can potentially save billions of dollars that can be put to better use. So, this Christmas, consider swapping the standard salt-and-pepper shaker set you were about to give Aunt Tessa for a nice $40 gift card from her go-to homeware store. I do wish all my readers Merry Christmas and a Happy New Year.
The article was originally written by Vaibhav Bhatnagar (BBA'15) in the second edition of Valour.