Dear Editor,
At seasons such as these, the communications media are littered with advertisements encouraging us to purchase one present or another, and many of us expect some kind of a gift from those close to us (‘Christmas gifts’ SN, 21.12.09). As far back as I can remember, I have baulked at giving Christmas and other such presents and – needless to say – many of my family and friends believe that I am something of a Scrooge. Of course, nothing could be further from the truth; I simply feel that this process of gift-giving lacks utility and is too obligatory. I do occasionally give presents, but spontaneously and on the spur of the moment, when I come upon some item I believe would really give pleasure to and excite the recipient. However, like most people holding contrarian opinions, one tends to seek solace in others having similar beliefs, or better still, in learned supportive expositions.  So how fortunate and self-gratifying it was to come upon Scroogeconomics: Why you shouldn’t buy presents for Christmas by Professor Joel Waldfogel.

Put simply, the professor argued that normally when I spend say $100 buying something for myself, I receive the full value of what $100 is worth to me. However, it is quite possible for me to spend $100 buying a gift for someone who receives little value from it. The reason for this outcome is simple. We tend to know best what we want and are able to optimise the value of our money. We know less well what others want and thus, the value of “dead weight loss” through gift-giving differs between categories of givers, with the greatest loss occurring in presents given by grandparents and in-laws in that order. Of course, the reason our grandparents do not know what we will appreciate is not because they are hiding from us! Perhaps this is a point we should note, particularly during this period of ‘good cheer.’

After quite extensive research Professor Waldfogel claimed that as a result of this incongruity, 20% of every dollar spent on holiday giving is lost. Annually, this amounts to some US$13 billion in value destruction in the United States and US$25 billion world wide. But are we to consider gift-giving in these strict efficiency terms? What about the sentimental value of giving; ‘the joy of giving’?

It does not take much to see that this joy would be maximised if the recipient is truly excited by what is given. In other words, the joy of giving cannot rescue bad giving from being inefficient. A cash present which allows us to purchase what we actually want, would appear to be the ideal gift, but this is not necessarily so, and cash is not normally an appropriate gift. However, while cash allows both parties to maximise the value of the relationship, transcendent gifts, those items which would truly excite us but which for one reason or another we would not purchase for ourselves, even on occasions when we have the money to do so, would deliver more than normal value. These gifts are occasionally given by persons who are close to us, eg spouses and significant others.

The solution is not to stop giving but to try to give as efficiently and sensibly as possible. If the professor is to be believed, while appearing voluntary, much of normal holiday giving is not. Just imagine turning up for a Christmas family lunch without a present for your mother! Research has shown that holiday giving is a necessity; an obligation. However, charitable giving is a luxury that increases with our income, and at Christmas and such times we try to give luxuries: jewellery, chocolates, etc.

Professor Waldfogel noted that 80% of the world’s population controls only 20% of world GDP, which suggests that some form of redistribution, regardless of how small, is appropriate. Gift cards, which come close to cash giving, have become quite popular in most countries, constituting some US$80 billion per annum in the US. Since charitable giving is considered a luxury and at Christmas and such times we try to give luxuries, giving to some appropriate charity might optimise both the joy of giving and receiving. Indeed, since 10% of gift cards are not redeemed, a start could be made by automatically transferring the value of unredeemed cards to designated charities.

The above is a most truncated and thus distorted presentation of what the good professor has to say, but what I hope it brings to our attention is not simply the need for efficient giving, but other pleasurable ways for us to help those in need at this festive season.

With best wishes for a happy and efficient holiday.

Yours faithfully,
Henry B Jeffrey