How Economics Can Ruin Christmas, In A Good Way

Authored by Art Carden via The American Institute for Economic Research,

Some time ago, I resigned myself to the fact that economists are the wet blankets of the world. We can ruin almost any proposal and almost any situation with just a couple of analytical tools and the words “unintended consequences.” Rent control? It causes shortages and hurts poor people. Minimum wages? They reduce employment and hurt poor people. Laws against “price gouging?” They also cause shortages and hurt poor people. Interventions, regulations, and subsidies that were supposed to make housing and higher education more affordable and thereby make the world a kinder, gentler, more prosperous place? We’re seeing how that’s working out right now. You get the idea: the list of dreams that have been dashed upon the rocks of the principles of economics is long indeed.

Not content to ruin the dreams of a few idealists, economists turned their attention to Christmas a few years ago. Here are a few thoughts from the Dismal Science that rain on the holiday parade.

1. You Shouldn’t Have. No, Really. You Shouldn’t Have.

The classic salvo in the literature on the economics of Christmas is Joel Waldfogel’s “The Deadweight Loss of Christmas,” which provides a bit of evidence that people would be happier if you gave them cash instead of an equally-expensive present.  Yes, it’s the thought that counts, but how many of us have given (or gotten) gifts that have ended up in an end-of-year Goodwill donation or a Spring yard sale?Today In: Business

We learned this first-hand at a family holiday party that involved a white elephant gift exchange. Everyone went home happy, but one participant (an Alabama fan) opened a box of Auburn stuff, another (an Auburn fan) opened Alabama stuff, and one of the gifts I (an Alabama fan) opened was an LSU cap. Again, everything worked out in the end, but the initial distribution was incredibly inefficient.

The spectacular wealth we enjoy today has created the epitome of a first-world problem: over-gifting. It used to be that giving a gift required a meaningful material sacrifice. Today, baubles are so cheap that our problem isn’t a lack of generosity. It’s poorly-channeled generosity. You have probably heard people joke that kids are usually more interested in the boxes the toys come in than the toys themselves.

You might have seen this Wired article listing “the 5 best toys of all time:” boxes, string, cardboard tubes, sticks, and dirt. As a father of a three-year-old and an 18-month-old, I can attest that this is most definitely true. At the end of How the Grinch Stole Christmas, the Grinch learns that Christmas doesn’t come from a store. The Grinch learns that Christmas means a little bit more. As we head down the Christmas stretch, it’s a lesson we should take to heart.

2. Your Church or Civic Organization Should Probably Cancel Next Year’s Holiday Food and Toy Drives. 

In a post that made my economist’s heart grow three sizes, Matt Yglesias explains “Why food drives are a terrible idea.” Most importantly, there’s no free lunch. Actually going out and getting the food is itself costly, sorting it is costly, and distributing it is costly. As Yglesias explains, charities can probably alleviate a lot more hunger if you give them $20 in cash rather than $20 worth of creamed corn.

Throughout his research, F.A. Hayek emphasized the knowledge problem and explained how markets utilize and disperse knowledge that can’t be known or articulated by a single mind. Collecting and distributing canned comfort and joy runs into the same problem. People know their own preferences better than you do. The creamed corn might be a nice gesture, but what if the recipient is allergic to corn?

3. Economics is Like The Transformers: There’s More Than Meets the Eye.

No doubt, someone reading this is and saying “well, if you looked in the eyes of the people who are being helped, you would understand.” Hear me out, though. Economics emphasizes the unintended and unseen consequences of different actions. Suppose you could feed two hungry children with the same effort you’re currently using to feed one. Would you want to know how?

If we’re honest with ourselves, we will see some of the ways in which Christmas lays bare our hypocrisy. You’ve probably heard someone say “don’t give until it hurts; give until it feels good,” and again, I think that if we’re really honest with ourselves a lot of our charitable endeavors have less to do helping the least of these among us than with showing that we’re the kind of people who care about the least of these among us. I’ve written before that “let not your left hand know what your right is doing” is not merely a sound Biblical injunction regarding our giving. It’s also excellent economics. If you haven’t read about people anonymously paying off others’ layaway accounts at Kmarts around the country, it’s an excellent example of what I’m talking about.

4. That Impulse Purchase won’t “Help the Economy.” 

We consume about two-thirds of national output every year, and it is true that production takes place with the goal of generating goods and services that make people happy. At the same time, consumption per se does not create sustainable economic growth. “Spend more” is an intuitive-but-wrong prescription for what ails the American economy. While purchasing a greater assortment of trinkets and baubles might pad retailers’ and manufacturers’ bottom line in the short run, they leave us with fewer unconsumed resources with which to build the economy of tomorrow.*

5. Peace on Earth and Goodwill To Men Can Be Enjoyed and Deployed More Effectively.

Intending to help people isn’t the same as actually helping people. Good intentions and a few dollars will get you a cup of coffee, if you’re lucky: “good intentions” channeled through pathological institutions might leave you saddled with a body count. In one of the most provocative books I read this year, Timothy Keller explains how Generous Justice is more than just giving stuff away. It’s a lifestyle decision that requires getting meaningfully involved in the lives of others. Over the long run, this is likely to be far more effective than simply bunching all of our benevolence into a few frenzied weeks.

As a mentor has told me, economics shows us that it is very difficult to be charitable in ways that actually benefit the people we’re trying to help. Some people might find this sad–dismal, even. I actually think it’s kind of liberating because it suggests that–at the risk of being dramatic–a better world is possible. A new paradigm for charity and justice will require a lot of thinking outside the donation box. With Christmas 2019 and a brand new year right around the corner, it’s a challenge I look forward to meeting head-on.