The Nation's Pulse

The Economics of Christmas

Some things are priceless.

By 12.16.08

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Another Black Friday has passed, along with its ritual tramplings and shootings. The Thanksgiving food coma has come and gone and stragglers are getting their Christmas decorations up. Now is the perfect time to reflect on the nature of giving.

Imagine for a second that you can give someone you love the power to buy something that they want, whenever they want, wherever they want, at no cost to them. Odds are, they'll resent you for it. That's what tends to happen when you give someone the gift of cash.

Right about now, most of us are scurrying through shopping malls across the country trying to find the perfect gifts for our loved ones. Every year we go through this hated ritual, cursing the name of Santa Claus.

Giving cold, hard cash is an easy way to avoid this annual pain and anguish. If you give people money, they can buy themselves anything they want and are therefore guaranteed to get something they like. So they get what they want and you avoid the horrors of holiday shopping. The perfect gift!

Yet it turns out to be the ultimate social faux pas. Imagine a Martian visitor, here on a mission to learn about Earth culture. Just try and explain that one to Uncle Martin.

This social norm of ours is odd, yes. But it does make sense if you think about it, because the act of giving is about far more than the gift itself. When you give something tangible instead of cash, you're signaling a lot of things besides the value of the gift -- which you probably went to great lengths to hide. (You did remove the price tag, right?)

You're saying that you know the recipient well enough to know her likes and dislikes. You're saying that you care about her enough to endure the hustle and bustle, the crowds and hassles, of modern commerce -- all so you can bring home a trinket she'll treasure. The cliché turns out to be true: It really is the thought that counts.

Of course, not all thoughts are of equal value. An unwanted, thoughtless gift actually leaves the recipient less well off than if she had received nothing at all. Some economists muse about the deadweight losses that Christmas costs the economy. They say giving money would avoid that risk.

But even bad gifts can convey good will. It tugs at even the coldest of heartstrings that Aunt Gladys cares enough about you to hunt down just the right paperweight for your needs. The look of joy on her face when you pretend that you like it is worth a lot -- certainly more than the minor disservice she has just done you.

Skeptical? Look at it like this. Honesty is one of the core values of western civilization. If you were raised right, it has been drilled into your head since birth. Yet every year, without fail, honesty rightly takes a back seat to Aunt Gladys's smile.

If her smile alone is worth bending the truth a bit, it's probably also worth more to you than whatever it cost Aunt Gladys to purchase the paperweight. This is true whether your smile out of love of Aunt Gladys or fear of your mother's nagging.

And the context of gift giving matters a great deal. The holiday season gives people a chance to spend time with their families. Especially for those of us who live far away from our loved ones, nothing quite compares with getting to play the role of uncle or aunt, niece, nephew, or cousin. There is a genuine joy simply in being a grandparent or grandchild.

Smiling at Aunt Gladys's paperweight is the price you pay for participating in all of that. It's a bargain.

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About the Author

Ryan Young is Fellow in Regulatory Studies at the Competitive Enterprise Institute.