Jess Irvine* has an op-ed about the economics of Christmas.
ECONOMISTS hate Christmas; and not just because of the plunge in personal productivity that occurs this time each year (hello couch!).
I know what you’re thinking: shouldn’t economists love Christmas? Isn’t Christmas a massive boost to the retail economy? Doesn’t it boost spending and create jobs?
Well, in a sense, yes.
Retail sales surge in December. The crucial Christmas and New Year’s sales period can make up half of a retailer’s profit for the year.
But what really matters to economists is not just that you spend money, but that you get something you really want for it.
Re-read that last sentence. It is exactly correct. What is amazing is that many economists would agree with that sentence and also think that stimulus spending ‘saved’ the economy from recession during the GFC.
In a famous paper titled “Scroogenomics”, economist Joel Waldfogel first explained the “deadweight loss” of Christmas.
An economics professor at the University of Pennsylvania, Waldfogel ran a series of experiments with students asking them to assign a dollar value to gifts they had been given.
A consistent gap was found between the dollar value the purchaser paid for the gift and the dollar value perceived by the gift recipient. This gap could be as large as a third of the purchase price, and at least 10 per cent.
This gap – money spent but not enjoyed – represents a deadweight loss to the economy. The gift giver could have spent less to achieve the same result. And the gift receiver could have bought more of what they’d really like for the amount spent.
Apply this gap to the total value of all Christmas spending, and you soon get billions of dollars of deadweight loss.
Now consider the deadweight loss associated with pink batts, school halls and the like. What would the deadweight loss of the stimulus spending be? Small wonder economic growth is sluggish.
* – this is not an invitation to launch into Jess. Her views are entirely mainstream.