Bah Humbug…How Christmas Harms The Economy

Most people assume the rampant commercialism that comes with Christmas is a necessary evil.  Sure, commercialism isn’t exactly in the spirit of the system, but at least it provides a major boost to the economy and gives retailers a reason to exist the other 11 months of the year.  Or does it?  Economist Joel Waldfogel disagrees, calling Christmas an “orgy of value destruction.”

Waldfogel’s argument is simple and hearkens back to the days of classical laissez -faire capitalist thought.  Economies tend to operate most efficiently when they are composed of self-organizing markets.  Simply put, individuals tend to do a pretty good job, in aggregate, of efficiently organizing the use of scarce resources in accordance with the broad goals of society.  If the citizenry values environmentalism over consumerism, the economy will tend to organize itself towards preserving the environment.  If society values cheap plastic trinkets, the economy will tend to organize itself towards manufacturing plastic trinkets as cheaply and efficiently as possible.  When individuals are free to make their own purchasing decisions in accordance with their own wants, needs, and values, the economy will tend to optimize itself to produce what society as a whole deems most valuable, or so the theory goes.

How Christmas Harms The Economy

“How could Christmas possibly harm the economy?”  you might ask.  The money spent during the month in December alone is enough to keep many retailers in business and many workers employed.  Without Christmas, there would be fewer jobs and less wealth to go around, right?  Wrong.

The problem is that most people don’t do a very good job of buying gifts for other people.  How often have you received a gift you hated, or at least a gift you didn’t particularly care for and probably wouldn’t have bought on your own?  I’d be willing to bet the majority of the gifts you’ll receive this year fall into one of those two categories.  According to Waldfogel,

“…people value the items they receive as gifts 20 percent less per dollar spent than the items they purchase for themselves. These are items that are not well-suited for their tastes…”

and

“…the way we celebrate Christmas around the developed world is with an orgy of value destruction that vaporizes $25 billion per year…”

All these unwanted gifts distort the economy in completely unpredictable ways.  Nobody really likes fruitcakes and would never buy one for themselves, but they are popular gifts at Christmas time.  Hence, an entire fruitcake-making industry has sprung up which diverts resources away from activities actually valued by society, such as ninja training camps, towards something nobody wants, such as fruit cakes.  In an ideal world, there would be more ninjas and fewer fruitcakes.  But since Christmas gift-giving rewards fruitcake makers, fruitcakes will continue being made.  If Christmas didn’t exist, the world would have more ninjas and fewer fruitcakes because there would be no incentive to produce goods nobody wanted.

In aggregate, Christmas lowers total economic output and leads to fewer total jobs.  You can read the complete article on Bloomberg.