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Economics is labeled the “dismal science” and often for good reason. Using standard economic thinking, it is easy to show that the holiday custom of gift giving is an enormous waste of time and resources. Ebenezer Scrooge was right: The whole thing is a humbug!
Take that bottle of cologne nephew Fred gives Uncle Ebenezer. It is probably not the brand the old miser likes, nor one he would buy for himself. Economists point out that an individual knows his or her own preferences better than any other person in the world. So, when Fred buys any gift for his uncle, he can never choose as well as his uncle could for himself. Plus, Fred wastes time shopping. And Ebenezer wastes his time when he returns the unwanted bottle of cologne and exchanges it for what he wants.
Fred would have been much wiser and richer had he done what economists often propose: Just give Uncle Ebenezer money. Indeed, the economists’ ideal Christmas was proposed by a late brother-in-law of Bohanon’s: “I’ll write you a check for $50, and you write me a check for $50, and we rip up the checks by the Christmas tree: Merry Christmas!”
We love economics, but it is good for economists to get out of our bubble now and then. As one of our heroes, the Nobel-prize-winning economist Friedrich Hayek, once said: “(N)obody can be a great economist who is only an economist—and I am even tempted to add that the economist who is only an economist is likely to become a nuisance if not a positive danger.” A little social psychology and anthropology reveal there is more to the economists’ gift-giving story.
First, friends and family often have a better idea of what is best for one. Both our wives know what clothes look better on us than we do. We suspect most all married men concur. Second, gift giving is an essential part of almost all cultures. Gift giving shows we are willing to sacrifice for the people we care about. This shows that we are trustworthy and care about the relationship. Being trustworthy and willing to sacrifice for others is vital to reciprocity and exchange. Gift giving is not primarily about the goods but about the relationship.
Adam Smith, the father of economics, knew this. He noted that the “chief part of human happiness arises from the consciousness of being beloved.” Happy Holidays from Adam Smith.•
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Bohanon and Horowitz are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.
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