A money-man’s guide to Xmas
Tinsel, parties and presents are all very well, but this jolly economist Santa has a few fiscal lessons stuffed in his sack.
THERE’S nothing like a season of goodwill to make everyone hate each other. The mere suggestion of a female Santa Claus scandalised the nation. Then aMa¯ori Santa had the audacity to parade down main street. Apologies were issued, people were fired – all normal stuff.
If you or your children are easily frightened, stop reading now. There’s another marginalised group lining up to don the fake beard and belly. It’s well past time we put a stuffedshirt in the stuffed suit.
I’m talking, of course, about economists. This might seem like an unusual appeal. Economists are personifications of the word ‘‘actually’’. Like Harry Potter’s Dementors, they wear shabby black clothing, and take a professional pride in being able to suck the joy out of anything.
But I believe Economist Santa has a lot to teach us. Someone has to be the voice of reason, and give newspaper columnists a convenient cover for their own unpopular opinions.
Let’s take a peek inside Santa’s sack, and see what the optimal gift strategy looks like:
Everyone knows their own mind best. How much would you pay for the cardigan your aunt gave you? Almost certainly less than it cost her, which means you could have spent the money more efficiently.
Economists have calculated this ‘‘deadweight loss’’ of Christmas presents at billions of dollars a year. In the worst case, a gift actually imposes a cost on the recipient: if you buy someone a boring book, they’re obliged to read it.
As always, cash is king. It’s a fun-token that can be exchanged for anything. The further removed you are from the recipient, the higher the deadweight cost – this is why sensible grandparents opt for a stuffed envelope, rather than trying to predict the peculiar fascinations of the youngest generation.
Cash also eliminates ‘‘search costs"—the soul-destroying wandering that takes place in crowded shoppingmalls. If Economist Santa had his way, he’d set up frictionless online transfers, convert the reindeer into venison, and run the whole show from a data centre in Greenland.
no goats Economist Santa says most charitable giving is wellintentioned, but woefully misguided. You can’t even guess your nephew’s preferences; what makes you think you know what Ebo over in Ethiopia wants? Again, just give hard cash, or do some research into the most effective charities.
best item in the cheapest category If you’re determined to get an actual gift, consider buying the most expensive item in the cheapest category. A $50 candle comes across as ridiculously generous—what kind of maniac spends that much on a candle? But spending $50 on awatch seems kind of cheap.
The watch is probably way better than an overpriced lump of wax, but the recipient isn’t making that comparison. They can only anchor your gift against the reference class of similar objects in their head. Don’t feel guilty about this; you stopped optimising for value the moment you decided against giving cash.
giving is not about gifts The last suggestion sounded more like something you’d read in a psychology textbook. That’s because economists have started pinching the best findings from psychology, and rebranding them as ‘behavioural economics’.
This cross-pollination of ideas should be celebrated, because it led to the discovery that perfect rational people don’t exist outside of Ayn Rand novels.
Economists now acknowledge that gift-giving has a symbolic value, over and above the goods exchanged. Reciprocity helps to bind people together. It’s less about the gift itself, and more about the signal being sent.
A cynic might say it took economists an age to rediscover a truism that everyone else already knew: it’s the thought that counts. But that’s not the full picture. If you’d rather your auntie had thought a bit less and given you a gift card, then you’re living in a less than optimal world.
Spread the word far and wide: A good present is much better than cash. But cash is much better than a bad present.
Bouncing on Economist Santa’s bony knee isn’t the most comfortable experience, but it does jolt us into some valuable new insights that can improve things for everyone. And that, of course, is the most precious gift of all.
Stress can be a common sideshow for Christmas when money also enters the equation.