If you find Christmas a horrid task, not the actual day, but the seemingly never ending build up to it. If you find the constant queuing, the packed shops and the crying kids painful, in the back of your mind you might be thinking “is all this worth it?”
Then you may be pleased to know that economics carries a rather convincing argument why Christmas needs a rethink.
Buying Presents
The buying of presents is a tradition started with the three kings, who each brought gifts of gold, frankincense and Myrrh to baby Jesus. Not an entirely useful present for a new born baby. And indeed the three kings were to set the trend for thousands of years to come. The only difference being that the three obscure materials are replaced by obscure knitted jumpers.
But in the giving of gifts there is a serious problem of waste. In the example above the three kings brought highly valuable gifts. But they were not highly valued by baby. The kings could have used the money to buy something valued more by the baby, like a room in the inn.
Effectively the kings have destroyed value by giving something they place high value to, to someone who places little or no value to. Of course baby Jesus could have sold the items and then brought the things that he really wanted. Which then begs the question, why didn’t the kings just give him the money?
Losing the Value
When we buy our loved ones presents we are, thankfully, more thoughtful than the three kings, but it doesn’t change the problem that baby Jesus had.
We all have a limited budget to spend on things that we want and things that we need. We all are faced with a basic economic problem of how to spend our income in a way that maximises our happiness. For example you might spend £1000 on a holiday abroad, but you only do so because it will add more than £1000 value to your happiness, let’s say £2000.
Since only ourselves really know what we value the most, purchasing decisions should be made by ourselves. Otherwise you would end up with a highly valued gift, which you don’t value as much. If only you had been given the cash, you could have brought the things you really wanted.
Can I have…
Surely this problem can be easily solved by just asking for certain items, or by writing a wish list?
Unfortunately not, it does help increase the value of the present, but it is still suboptimal when compared with the cash.
Let’s say you ask for the latest Coldplay CD which is priced £10. But then if you really do want it, why haven’t you already brought it?
The value that the Coldplay CD adds is perhaps greater than £10, let’s say you value it at £11, but you haven’t brought it yet because you’re saving for that holiday abroad, which for you, every £10 you save you will get £20 worth of happiness. In this case it would still be better to just have the money.
The real concern for economists is that billions of people around the world who participate in the Christmas institution are spending hundreds of billions on gifts to one another which is resulting in a loss of value. Just like the three kings who destroyed the value of their ill thought gifts, we are destroying value by not giving cash as a present.
Jobs and the Economy
You might think that Christmas is useful because it increases spending, creates jobs and therefore improves all of our lives.
Not so. Instead of the economy producing things that people want, it isn’t. For example, a factory that should be producing ski jackets is instead producing knitted jumpers. A builder, who should be building inns, is instead busy harvesting Myrrh.
Merry Christmas everyone.
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