This Christmas, why not make your gifts especially expensive and thoughtless?

How to protect your pockets.
Dec. 2 2010 6:39 PM

The Sky Mall Stimulus

This Christmas, why not make your gifts especially expensive and thoughtless?

Illustration by Robert Neubecker. Click image to expand.

Economists never tire of pointing out that gift-giving is economically wasteful. The ur-text is O. Henry's famous short story "The Gift of the Magi." Della cuts off her silky tresses to buy husband Jim a platinum fob for his gold watch. Jim sells his gold watch to buy wife Della tortoise-shell combs to groom her silky tresses. Merry Christmas! Even if Della hadn't cut off her hair, economic theory would demand to know why, if Della really wanted the combs, she wouldn't already have bought them. Or why, if Jim really wanted to replace his worn leather watch strap, he wouldn't already have done so.

But let's consider an alternative interpretation. Yes, Christmas gift-giving will visit upon Della and Jim heartbreak and economic waste. But upon the altar of their sacrifice they create economic stimulus. Jim and Della suffer that the rest of us may prosper. Long live inefficiency!


The economics profession's pre-eminent gift-basher is Joel Waldfogel of the University of Minnesota's Carlson School of Management. Waldfogel is the author of the 2009 book Scroogenomics: Why You Shouldn't Buy Presents for the Holidays. According to Waldfogel, gifts on average "generate 20 percent less satisfaction than items we buy for ourselves." The "deadweight loss" increases in inverse proportion to acquaintanceship because the less well you know the recipient the more likely it is you'll guess wrong about what he or she might possibly want. (The absolute worst givers, according to Waldfogel, are in-laws, a finding long supported by my own field research.) Another important factor is the recipient's grasp of his or her own preferences. The surer the recipient is of what he or she wants, the less likely the giver can improve on a straight-up gift of cash. The ideal gift-giving situation is one in which the giver knows precisely what the recipient would like while the recipient (who clearly needs to see a shrink) has not the remotest idea. The lesson would appear to be that you are likeliest to create value (or at least not destroy it) if you restrict gift-giving to your husband, wife, children, parents, lover, and best friend.

The catch is that only in our most intimate relationships will an ill-considered gift risk inflicting serious emotional damage, which imposes a different type of cost. Give your mailman a Hershey bar for Christmas and the worst he'll likely do is shrug. Give your wife a Hershey bar for Christmas and she may file for divorce. Increasing the gift's value won't necessarily keep you out of the penalty box. If Jim gives Della $100 in cash, she may file for divorce even though he's thoughtfully eliminated any risk of deadweight loss. Harvard economist Greg Mankiw explains this dynamic using "signaling" theory. When Jim chooses a gift for Della, he signals that he spent time on it and utilized "private information" about Della. If Jim chose well, that will tell Della he loves her because it shows "he is thinking about her all the time." If Jim chose poorly, that will tell Della he doesn't love her because it shows he isn't thinking about her very much at all. Parental relationships are intimate, too, but the same calculus doesn't apply because a parent's love for a son or daughter is usually less open to doubt. Jim is less likely to offend Jimmy Jr. if he writes him a $100 check for Christmas, because Jimmy Jr. probably doesn't spend much time worrying that some other young man will displace him in his father's affections. (Literary caveat: In "The Gift of the Magi" Jim and Della are a childless couple with nothing like $100 to blow on Christmas presents.)

In general, men appear (unsurprisingly) to be less generous gift-givers than women; they get away with it only because their wives and girlfriends don't know (or don't want to). Margaret Rucker, a cultural studies professor at the University of California-Davis, surveyed couples about how much their partners spent on a gift. She found that the woman consistently overestimated what the man spent while the man consistently underestimated what the woman spent. (Indeed, in O. Henry's story we learn that Della spent $21 on Jim's watch fob, but we never find out how much Jim spent on Della's combs.) Such asymmetry suggests that even if you ignore gift-giving's strong likelihood to create deadweight loss, it contributes to the existing wealth inequality between men and women. Such inequality is economically inefficient not only because women are likelier than men to be raising children but also because women increasingly outperform men in the labor market.

Waldfogel further points out that Christmas gift-giving contributes to consumer debt because society has "shifted from saving up for Christmas to maxing out our credit cards to finance the gift storm." If you want to give yourself a good scare, take a look at this chart from Fortune magazine tracking the rise in credit-card debt (now $822 billion) since 1968. And (thanks to the housing bubble of the aughts) credit card debt has lately been declining relative to overall consumer debt, which now stands at $13 trillion. (Mortgage debt accounts for $10.6 trillion of that.) Jim and Della should thank their lucky stars they predate the era of revolving credit and the sub-prime mortgage.



Slate Plus Early Read: The Self-Made Man

The story of America’s most pliable, pernicious, irrepressible myth.

Rehtaeh Parsons Was the Most Famous Victim in Canada. Now, Journalists Can’t Even Say Her Name.

Mitt Romney May Be Weighing a 2016 Run. That Would Be a Big Mistake.

Amazing Photos From Hong Kong’s Umbrella Revolution

Transparent Is the Fall’s Only Great New Show

The XX Factor

Rehtaeh Parsons Was the Most Famous Victim in Canada

Now, journalists can't even say her name.


Lena Dunham, the Book

More shtick than honesty in Not That Kind of Girl.

What a Juicy New Book About Diane Sawyer and Katie Couric Fails to Tell Us About the TV News Business

Does Your Child Have Sluggish Cognitive Tempo? Or Is That Just a Disorder Made Up to Scare You?

  News & Politics
Sept. 29 2014 11:45 PM The Self-Made Man The story of America’s most pliable, pernicious, irrepressible myth.
Sept. 29 2014 7:01 PM We May Never Know If Larry Ellison Flew a Fighter Jet Under the Golden Gate Bridge
Dear Prudence
Sept. 30 2014 6:00 AM Drive-By Bounty Prudie advises a woman whose boyfriend demands she flash truckers on the highway.
  Double X
Sept. 29 2014 11:43 PM Lena Dunham, the Book More shtick than honesty in Not That Kind of Girl.
  Slate Plus
Slate Fare
Sept. 29 2014 8:45 AM Slate Isn’t Too Liberal, but … What readers said about the magazine’s bias and balance.
Brow Beat
Sept. 29 2014 9:06 PM Paul Thomas Anderson’s Inherent Vice Looks Like a Comic Masterpiece
Future Tense
Sept. 30 2014 7:36 AM Almost Humane What sci-fi can teach us about our treatment of prisoners of war.
  Health & Science
Bad Astronomy
Sept. 30 2014 7:30 AM What Lurks Beneath The Methane Lakes of Titan?
Sports Nut
Sept. 28 2014 8:30 PM NFL Players Die Young. Or Maybe They Live Long Lives. Why it’s so hard to pin down the effects of football on players’ lives.