Thursday, 20 December 2012

Selling's a gift ? The tricky business of trying to do economic good at Christmas

Some have postulated that the star of Bethlehem, a harbinger of great joy, might have been  a comet.
The former workers at the stores of that name must be having a tough time this Christmas.  The gift of redundancy is a very bitter one. I guess the Administrators , Delloites must have found their failure to find a buyer for the white goods ‘ company put them in the place of messengers but with bad tidings .

For the majority of folk who have some money to spend, perhaps  we have a tighter budget this year Christmas. Our gift selection and purchase is on our minds. The task is tricky enough for family and friends but also in our business relations clients or suppliers and staff.

The perfect gift
For some it is important to buy the right gift.
So what do you buy the female 'employee' who has everything yet has served an institution extremely well for 60 years?
In the case of our monarch, her majesty was presented with a set of table mats in honour of her visit to No 10., Downing street in her jubilee year.

Eric Pickles the Communities secretary asked whether her Majesty might have had enough table mats already before today's gift, Mr Pickles said:

"One can never have too many table mats."

I would imagine the table mat industry is grateful for this endorsement of their industry.

My breakfast place mat on Thursday December 20th 2012
Here is a photo of my place mat on the morning after her majesty visited No.10. to receive  hers.
Mine was at a McDonalds !

BACK to The Challenges of Gift Giving

If you think gift buying is easy and the answer to the UK’s problems this season take heed of the viewpoint of economists.

Before we feel too pleased with ourselves there are professors like Anthony J Evans to direct us to the seminal article called the Deadweight loss of Christmas by Joel ( regrettably not Noel) Waldfogel  written in1993

Unless you ' froth at the mouth with excitement' at Economics papers, I would advise you not to wrestle with this.

( I tried !  The consequence of which  brought back nightmares of my student days in the last century struggling with ‘marginal propensities’, ‘utilities’ 'Giffin Goods' and the ‘Harrod Growth model ‘-which I learnt by rote to pass an exam but I confess never truly understood .

It seemed to me that  curves on the diagrams that economists produce were both baffling and  had a another nefarious  purpose ! This was to insert calculus into the course syllabus to make it last a few more semesters. Employing calculus meant economics could be also labelled a ‘science ‘and respectable in Academic circles ;))

Fortunately Professor Evans explains dead weight economics more intuitively . If only he had been my  economics tutor back in the day….

A matter of taste

He explains ( or argues as academics are won't to do)

Extract of article in City a.m. page 19 Thursday Dec 2012

The main problem with Christmas spending is that it’s often used to buy gifts. And the problem with gifts is that they generate dead weight loss.

Most of us have a pretty reasonable understanding of our own tastes and although we can buy things we regret, we have a strong incentive not to do so.

It is typically our tastes that we regret rather than our consumption choices.

Perhaps this is why gifts make more sense for children , because we take a  more active role in trying to shape their tastes.

When it comes to adults , the potential for waste is a lot higher. In almost every conceivable situation , the recipient would prefer the cash value of the gift itself.


Gift Solution with no economic deadweight loss
 w.r.t. Prof Anthony J Evans
It’s always better to have the choice of £50 or a garish sweater rather than a garish sweater that cost £50.

Some argue that gifts demonstrate thought and consideration.
But often the only thing they demonstrate is complete ignorance.”

The Professor’s answer to all this if the value of the gift is information is rather than buy it tell the recipient what the gift is and give them the cash to buy it themselves.

Waldfogel  estimated that holiday–gift giving for Christmas/ Hanukkah etc.  destroys between 10% to a 1/3 of the value of gifts.

I suppose to economists such as Joel Waldfogel and  Anthony J Evans,  the Magi should have
a. brought a cheque for the value of the gold,

b.  purchased their frankincense from Marks and Spencer which could be exchanged for a scent of the taste of the recipient- so long as the packaging and till receipt was presented.

 c. purchased a Boots' voucher for myrrh with the risk that only myrrh from the Boots chain could be exchanged.

Merry Christmas or Bah Humbug  whichever matches your tastes dear reader and  I hope 2013 turns out better for those former workers at Comet.

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