(Bloomberg Opinion) -- If you still haven’t gotten a holiday gift for someone — or anyone over the age of 12, for that matter — you’ve come to the right place. As an economist, I can assure you that not only have you done the responsible, even thoughtful, thing. It may also not be too late to make the right decision.
Every holiday season, people ask me how much to spend on gifts. The most important question is what is a gift and how much is it worth.
At Christmas, one out of five people go into debt. Publishers tell me January is a great time to sell financial advice books — people are chastened by their overspending and a little scared.
Almost always, the gift is worth less to the recipient than what the giver paid. We all know Sam would sell the $25 mug you gave him for less -- estimates are 10%-30% less — producing a “deadweight loss” of $8. When you add up all those deadweight mugs, earrings, games, sweaters and other unwanted, regifted or discarded gifts, I estimate total American deadweight loss at Christmas could be about $170 per person, or $32 billion.
Every year finds us seeking a solution to deadweight: white elephant parties; $20 limits; couples pledging “no gifts this year, honey”; and charities instead of gifts. Or we contemplate a thoughtful homemade gift. But we chicken out. We still click on Amazon and rush the malls with a frenzy in the countdown to Christmas.
Thus, while it may sound dreary, the green-eyeshaded economist says the most efficient gift is just plain old cash. If you want to share some feelings, make your own cards, since $5 cards are probably $4.50 deadweight.
Despite the advice to spend less on gifts because they aren’t worth that much, this time of year economists take a back seat — we’re in the anthropologists’ and sociologists’ lane. That’s because presents are really about something else. They are often the first step in building a social relationship. And when gifts are refused or unreciprocated, relationships break. Also they are pure commodity exchanges. They aren’t gifts at all.
In one of the many how-to advice columns about gifting etiquette — what to give whom and how much — it is clear that presents are a social expectation, giving something to get something; it’s about as close to an exchange of money for services you’ll find.
Sociologist Theodore Caplow studied Christmas gift-giving in Muncie, Indiana, in the late 1970s, collecting data on 366 Christmas gatherings and 4,347 individual gifts. Gifting was revealed to be a rigid ritual, not the voluntary, spontaneous exchange people insisted it was. Participants gave one present each to their mothers, fathers, sons and daughters, and to each of these people’s spouses. A person was expected to give something to their own spouse. Participants expected to receive at least one gift in return from each of these persons. And that was more than 40 years ago, before the flood of cheap imports and Amazon made gift-giving easier.
To help afford all this, the finance site Bankrate suggests working more to alleviate the stress of the holidays, but that sounds like more stress to me.
This year JP Morgan has reported that spending will be down, mainly on airfare and lodging, likely because of the fear of the omicron variant, but also on retail purchases, partly because of worries about inflation.
But relationships strained by pandemic-induced distance and overall price increases almost doom us to spend more than we want. The consulting group PNC computes the cost of Christmas index, comparing the prices of “Six Geese a Laying” and “Seven Swans-a-Swimming” and so on from year to year. It’s up 5.7% since 2019. The Internet may make cost comparisons of the choices efficient, but it’s also easier to spend more than you want due to impulse buying and rising shipping costs.
Do I take my own advice? One of my favorite birthday cards shows a wise Buddhist monk opening a gift box tied with a big ribbon. Open the card and you see an illustration of an empty gift box. The monk says, “Just what I always wanted, nothing.” The irony makes me chuckle because no one ever thinks that way.
I bought 10 of those cards at $4.95 each, and I've given them away over the years with a nice big birthday present. I’m no dummy — I value my social relationships (almost) more than my money.
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Teresa Ghilarducci is the Schwartz Professor of Economics at the New School for Social Research. She's the co-author of "Rescuing Retirement" and a member of the board of directors of the Economic Policy Institute.
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