Business Irish

Friday 20 September 2019

The spirit of Scrooge - Is the Christmas splurge good or bad for economy?

SATURDAY INSIGHT

Christmas card: Our festive shopping spend has been called ‘an orgy of wealth destruction’
Christmas card: Our festive shopping spend has been called ‘an orgy of wealth destruction’

David Chance

In 1993, Yale University's Joel Waldfogel took a survey of students and, based on their responses, concluded that "holiday gift-giving destroys between 10pc and a third of value" because, to put it simply, what you paid for a present exceeds how it is valued by the recipient.

In his 2009 book 'Scroogenomics: Why You Shouldn't Buy Presents for the Holidays' he wrote that $12bn in the US and $25bn worldwide was thrown away at Christmas in "an orgy of wealth destruction".

So the Irish Independent put 'Scroogenomics' to five of the country's leading economists.

Governor of the Central Bank of Ireland Philip Lane says he has had to endure accusations that economists are overly concerned with prudence and prices, taking the fun out of life - "especially at Christmas".

In reality, he says, expertise in economics is no use when it comes to buying gifts.

"A training in economics provides absolutely no guidance in picking presents for families or friends. The only recipe for success is to have a sufficiently close relationship that you have some hope of understanding what kind of gift might be happily received," he said.

Professor Alan Barrett of the Economic and Social Research Institute (ESRI) and Dr Loretta O'Sullivan of Bank of Ireland are both inclined to find something worthwhile in Waldfogel's approach.

Prof Barrett is still stung by the disappointments of Christmas past.

"I can still remember as a small child the feeling of excitement as I unwrapped gifts only to suffer the horrible disappointment of realising it was a jumper or some other piece of clothing," he said.

"I can still feel the disappointment that I experienced on those occasions and how it was made worse by having to pretend that you really liked the jumper."

To be fair to Waldfogel, the dismal science is at its best when its "counter-intuitive, irreverent and interesting" - in the word's of 'The Economist' newspaper.

Loretta O'Sullivan says her own family has gone done the Kris Kindle route in recent years, but she sees merit in Waldfogel's approach.

"By making us reveal our preferences, it helps reduce the inefficiency of present giving. Putting my festive hat on, though, there is something warm and fuzzy about the Christmas gift tradition - efficient or otherwise," she said.

Waldfogel is still an economist and he stands over Scroogenomics, but Seamus Coffey of University College Cork takes a wider view.

"We give gifts because we enjoy it - or in some cases we do it to avoid the negative consequences which not doing it will bring. Plug 'keeping the peace' into your cost-benefit analysis and you'll find reason enough to justify why we do it," he said.

What would Finance Minister Paschal Donohoe make of that? After all, he wasn't 'keeping the peace' by spreading Budget goodies, which Mr Coffey excoriated the minister for in recent weeks.

Dr Tom Healy of the Nevin Institute for Economic Research takes a similar view to Mr Coffey.

He tells a tale of an economist in a department store asking for help to find something that was neither 'outrageously expensive nor 'tacky' and ending up with a beautifully wrapped gift.

"Economists are limited in their knowledge and use of data," he said.

"Giving and receiving unlocks human emotions and needs that go well beyond money. Human behaviour such as that of the sales assistant is based on qualities of helpfulness and kindness that are not directly measurable and go beyond monetary reward or sales commission."

On the way out, Dr Healy relates: "The economist stopped and gave a small token of money to someone begging in Henry Street. It was not the money that mattered in that case. It was that someone was recognised, had their hand shaken and asked for their name."

Irish Independent

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