Scroogenomics, Bah Humbug
by Benjamin on December 24, 2009
No-one likes being called a Scrooge – not even in these recessionary climates. So it is perhaps timely that Scroogenomics – the book – is published for the 2009 Christmas-present buying rush. Ironically it advises people not to buy presents for other people but rather give them cash, so as to maximize their welfare. Technically speaking there is something to that argument: When buying a present you will probably be unable to judge how much utility the recipient will receive from a given purchase, so you will over-pay and reduce consumer surplus – by up to 18% according to the author. Some commentators quite like this idea, and agree that cash-presents (or maybe gift-cards) would be a much better way to deal with gifts. The guys over at Freakonomics disagre, in their own bite-size Christmas book release [no really, it's an 8 hour read at the most]. They suggest that if you turn up at your mother-in-law’s house for Christmas dinner and then offer to pay $40 at the end of the meal, odds are you may have hit the cost-benefit balance but the consumer surplus will plummet pretty immediately. We mustn’t forget that money is not the end-all and be-all of life, present giving or social re-compensation. Money is hardly a social lubricant – a business lubricant for sure – but rarely successful when it comes to picking your close friends or raising your children. Similarly for presents.
British Midlands (airline) advertises that they won't be striking over Christmas - as opposed to threats from British Airways (BA)
We are not gathering for the holidays (be it Christmas, Hanukkah, Eid, Diwali etc. etc.) to swap cheques. The consumer surplus – sticking with the jargon – is not solely reliant on the cost-value of the present, but on the whole occasion. Presents are an not an expression of “Look, I think you’re worth me spending $60 on”. That’s why we take price tag of! We buy presents without the price-tag because we want to give something the recipient wants for fun or in need based on our experience of the. We may even make something from scratch – often more appreciated than store-bought presents, ask any mother who keeps a macaroni decorated jewelry box. Or, tellingly, we give an ‘experiential good’ that we have enjoyed (a book, film, theatre tickets) and thought the recipient would like. We might not always be right, but the thought goes a long way to making presents special. So my personal opinion about the arguments of Scroogenomics, Bah Humbug – but I can think of someone who’d probably love it, which is why I might buy it, despite the dire warnings of the author.
