Monday 24 October 2016

There's no vouching for the spirit of Christmas in unimaginative cash gifts

Published 24/12/2015 | 02:30

Economists have argued over the merits of gifting hard cash and vouchers versus buying thought-out presents
Economists have argued over the merits of gifting hard cash and vouchers versus buying thought-out presents

Christmas is the best time of the year. For all the endless talk about it losing its true meaning and spirit, these festive days retain their sense of wonder.

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The season is mostly about human relationships - reaffirming them, renewing them and strengthening them (even if bickering around the Christmas dinner table can end up doing exactly the opposite).

On this most happy day, final preparations are made and last meetings with friends and acquaintances take place, often in the convivial glow of a drink or three.

Later tonight, most of us will retreat to the bosom of family for some mid-winter downtime, spending the next few days deep in a couch or a favourite armchair.

But as this column is mostly about matters economic, taking a glance of the festive season from the perspective of the dismal science may be a trifle diverting and, hopefully, just a little illuminating.

Giving gifts to family and friends is a hallmark of the festive season. And in this regard some economists have helpfully offered their tuppence ha'penny worth of analysis.

One of the big debates in 'Christmas economics' (there is such a thing!) is whether gifts make sense, or, in the jargon of the economists, whether they amount to an efficient allocation of resources.

The economist Joel Waldfogel has argued that traditional gift-giving is not only hugely inefficient, but that it actually destroys wealth. In his appropriately titled book, 'Scroogenomics: Why You Shouldn't Buy Presents for the Holidays', he claims that buying gifts for someone is risky.

Generally when you buy something, his argument goes, you are broadly satisfied with the product and the price. But buying for others is a different matter - you may have a less than perfect knowledge of the recipient's preferences.

That, as most of us know to our cost, can cause grief, particularly with significant others.

In Waldfogel's estimation, unwanted presents which are worthless to recipients results in vast amounts of money being misspent each year.

A more economically efficient solution, he believes, comes in the form of hard cash. Gifting banknotes allows the recipient to choose what to buy, aligning cost with preferences.

But as giving cash suggests little thought has gone into the decision, he proposes that gift-vouchers can be an acceptable mid-point. So, if tomorrow morning you feel that the voucher you have received indicates a lack of thought, it may be cold comfort to know that the gift-giver was in fact choosing the most efficient and preference-optimising gift available!

If you happen to think that Waldfogel's is talking out of his hat, then you are not alone. A survey of top economists showed that a majority disagreed with the statement, 'Giving specific presents as holiday gifts is inefficient, because recipients could satisfy their preferences much better with cash'.

In response to the question, Angus Deaton, winner of this year's Nobel Memorial Prize in Economics, remarked: "This is the sort of narrow view that rightly gives economics a bad name." Clearly there are still a few wise men (and women) in the dismal science.

If the spat among economists about presents is something of a storm in a teacup, there is something a little bit serious in all this for people's livelihoods. The run-up to Christmas is, as exhausted shoppers know, a hive of economic activity. As such, there are considerable effects for the wider economy.

Household spending spikes each December. In turn, employment rises and joblessness falls as businesses hire extra staff to cope with increased demand.

Above all, the weeks leading up to Christmas are the most important time of the year for retailers. Having been hit hard by the crisis and fall of domestic demand, many of Ireland's merchants will doubtless have hoped for a bumper Christmas. And with the economy recovering there ought to be more cash around.

The hard facts will not be known until the New Year, but the industry group Retail Ireland expects households to spend more than €4bn over Christmas, an increase of 3.5pc from last year and the best since 2008.

If the retailers' lobbyists are bullish, others are, alas, less sanguine. The killjoys at the League of Credit Unions foresee a lower average spend.

There are several reasons why this Christmas may not be so merry for some retailers. With the ghost of recession past still about, consumers might be opting for bargains instead of splashing out, and intense competition from discount stores and the internet has pushed down profit margins.

'Black Friday' is the epitome of the move online. Originally an American pre-Christmas shopping day after Thanksgiving (somewhat akin to what the 8th of December used to be for country folk here), it is now a major international shopping event. The credit and debt card outfit, Visa Europe, says that its figures show a strong increase in card-spending by Irish customers during Black Friday.

But all of that is almost over. The hours are ticking down to the closing of the tills. Thanks to custom (and trading laws), tomorrow is the least economically active day of the year. Almost everyone can take a break. Enjoy it, because it won't last long.

Nollaig shona daoibh.

Irish Independent

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