Whatever winter holiday we celebrate, the inherent inefficiencies of gift giving can reduce our loved ones' well-being and harm others we'll never meet. No need to Scrooge out, however: with only a little thought, you can do the season proud!
An Unexpected Sermon
On the first Sunday of December, 1993, dozens of colourfully-scarved university students and curious tourists braved the cold and ice of snow-dusted Cambridge to crowd into the cavernous King's College chapel.
The main draw at this time of year, of course, was the college's angel-voiced choir, peerless (if album sales were any indication) in the art of rendering the world's favourite Christmas carols.
That day, however, came with a unexpected bonus: what many (myself included) would later come to remember as perhaps the most thought-provoking sermon -- if it could be called that-- they'd ever heard.
The chaplain's subject was the interplay of Christmas and commerce. Yet the Reverend Dr Stephen Cherry's message was not simply a retread of the familiar pastoral complaint that commerce was ruining Christmas -- but the other way round.
While Christian moralists continued to wring their hands each year over retailers' hijacking of the Messiah's birthday, and the faithful's attendant prioritization of giving and receiving of presents over celebration and reflection, Cherry suggested we should be more concerned by something that rarely got much air time, let alone press: certain troubling aspects of holiday's broader social impact.
Though the arrival of "Black Friday" in the UK was years away, consumers were already aware they tended to do most of their retail spending in the month before December 25. Indeed, so keenly aware were lower income British consumers of the need to save for this annual event that an entire cottage industry of "Christmas clubs" had sprung up in the early 20th century whereby monthly pre-payments were made each year to ensure there would be a year-end bonanza -- highly inefficient, of course, but effective.
Few appreciated, however, just how dramatic that spending surge was. It was estimated that the period accounted for almost a quarter of all non-food retail spending -- in many cases making the Christmas season the difference between a profitable year and potential business failure.
"Think about what that means for businesses all around the world," Cherry urged from the pulpit. "Not just the retailers in the West, but their suppliers in the East. Think about the uncertainty that brings. How much pressure that puts on the retail supply chain and the people who work in it. The stress. The risk. The fear."
Fast forward to today. If anything, the situation has worsened: last year, the US Census Bureau estimates, holiday spending represented 27% of retail sales.
Behold what Cherry called, "the Christmasization of Commerce."
How We Hurt Ourselves
The impact is not just on retailers, however.
Economists in recent years have undertaken increasingly detailed studies into the effect Christmas spending has on what they call "consumer surplus"-- in effect, the "profit" we get by acquiring things we value at prices below the maximum we'd be willing to pay.
Consumer surplus is the one relatively unmitigated social good that free-market capitalism -- for all its shortcomings in terms of labour conditions and environmental impact -- has been able to produce. It's the yardstick by which we measure how economic growth raises living standards for the poorest among us -- something the figure at the centre of Christmas, as Cherry pointed out, urged followers to care about more than anything else.
Alas, study after study has found that Christmas appears to have a net negative effect in this regard.
In 2009, the economist Joel Waldfogel published a book that summarized the argument many in his field had been making piecemeal up til then.
Scroogenomics: Why You Shouldn't Buy Presents for the Holidays was every bit the buzz kill it sounded like.
Its core argument revolved on a dismaying finding about the nature of how we value the gifts we receive, based on a experiments with Yale students and elaborated in a peer-reviewed article in the prestigious American Economic Review Waldfogel had published the same month Cherry had given his sermon.
To understand the finding, just think about how you value the gifts you receive. Sure, you may get the occasional book that introduces you to a new author, and years of ensuing joy. (I shall personally be forever grateful to my friend Laurel Baig for giving me the astonishing Cloud Atlas many years ago -- I've now read every word of every mind-bending novel David Mitchell has ever written.)
But that dry history book from Dad you have no intention of reading, or that sweater from Aunt Bel you'll probably only wear once? These are not worth (to you, their ultimate consumer) what was paid for them.
Indeed, Waldfogel's study suggested that, on average, the "deadweight loss" of Christmas-- that is, the destruction of consumer value arising from the gap between what a thing costs and what it's worth-- is about 20%, and possibly 30% or higher.
So think about it. This year it's estimated Americans alone will spend almost a quarter of a trillion dollars on gifts. And a fifth of that-- almost $50 billion, enough to lift every one of the country's 11.6 million children living in poverty above the poverty line-- will be wasted.
What Can We Do? The Secret to Better Giving
There's a corollary to all this, others have countered.
Sure, there are many consumer spending decisions -- like the purchase of clothing or a new TV -- which we postpone until the end of each year, which may we result in the need for great inventory buildup and warehousing in the supply chain.
But at the same time, aren't there also lots of things, from toys to jewelry, that we might not feel inclined to buy at all if we weren't inspired by the spirit of the season?
Don't events like Christmas, and birthdays, and other holidays like Valentine's Day and Hallowe'en in fact stimulate demand, result in a net positive effect on the economy?
Perhaps. But this does little to mitigate the problem of the deadweight loss, which stems from our cultural requirement that a good gift needs to be a surprise-- as more than 4 in 5 Americans insist.
The history of this tradition runs deep -- and it would appear, for good reason. In previous eras, when gifts tended to be more modest, it may well be that the element of surprise accounted for much of their value.
What appears to have happened over the years, especially this century, is what many of us have already intuitively sensed: gift inflation.
In the 1970s, according to Waldfogel, average gift spending per person in the US barely cracked $25 (in today's dollars). By 2016, we were spending $94.
This holiday season the figure expected to reach $239 -- representing growth of almost 16% per year, at a time when nominal GDP has grown only 4%.
Part of this may be a holdover from consumers switch to purchasing goods versus travel and other services in the dark days of COVID - as can be seen in the above chart, annual holiday giving surged almost 40% in 2020, when the economy overall was contracting.
And habits are hard to break.
Yet break them we must -- or at least, should.
A mass change in tastes and expectations is unlikely to result from the grumbles of a few miserable (if caring) economists.
What we can do as individuals and families, however, is take note of the fact that we frail humans generally tend to be pretty bad gift givers (by 20%!).
Three recommendations in particular come to the fore, inspired by Professor Waldfogel and the Financial Times columnist and podcaster Tim Harford:
1. Give smaller physical things on Christmas Day, or at whatever winter solstice gift giving tradition you celebrate. After all, the less we give, the less we can waste
2. Give cash. Yes, gift cards are an option, a way to suggest we at least know where our recipients are likely to enjoy spending, and to discourage banking most of it. But even then, as the Canadian startup Giftbit and its customers know all too well, cards often go unused, resulting in, you've got it, more loss.
3. Give to others in need. This should be in addition to the above-- after all, it can be more than underwhelming to be told that someone has got a tax deduction in your name. To give to impoverished children in the US, or anywhere around the world, the well-reputed and efficiently run Save The Children has got you covered. Or you might consider what the Butler family and millions of others are doing this year, and support the humanitarian response in Ukraine. There are many excellent options, including the Red Cross. But if you also want to send a political message, consider doing so through the UN's appeal.
A lot to consider regarding what is already one of the most anxiety-inducing activities most of us do each year.
So you take only one thing away from all these considerations, may it be this. Spending more on those we love, or hoping that we can guess the surprise that will knock their socks off, is not necessarily the best way to show it.
It truly is the thought that counts.
Happy holidays, and let us all wish for a peaceful 2023.
Stephen Butler is a management consultant at Framework and a partner at Rimrock Advisory Partners. He can't wait to see his family at Christmas, and will be doing his level best to practice what he's preached.