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.

Sunday News - - FRONT PAGE -

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.

Newspapers in English

Newspapers from New Zealand

© PressReader. All rights reserved.