Undercover Economist

November 30, 2012 7:39 pm

Dreaming of a tight Christmas

The holiday is good for the economy during a recession. But in more normal conditions, it is a troublesome waste of money
Illustration by Raymond Biesinger of Santa Claus and his reindeer on top of the NYSE©Raymond Biesinger

Is Christmas good for the economy? I feel grimy just asking the question, since so many campaigns now try to justify as “good for the economy” reduced obesity, equal rights for gay couples, an end to racism or a cure for dementia. These things are good, full stop. Any attempt to justify them as being good for economic reasons is well-meaning nonsense. The economy is a means to an end: human flourishing. It’s not an end in itself.

So let’s be clearer, and ask two totally separate questions: is gross domestic product (GDP) higher because of Christmas? And are the Christmas festivities a good thing?

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The GDP question is the simpler. Obviously, we spend more in December because of Christmas. It is less obvious whether or not total consumer spending is higher across the year because of Christmas. To put it another way – without Christmas, would we still eat large roast dinners and buy gifts for ourselves and others, and just spread the spending over 12 months? Probably, but it seems plausible that Christmas does encourage more consumption overall.

If that conjecture is right, Christmas is good for the economy in depression conditions – a category that includes every Christmas for the past four or five years – because it raises consumer spending and employs idle resources. But in more normal conditions, Christmas is a troublesome waste of money that simply sucks resources away from productive investments, so that instead of broadband and high-speed rail, we spend money on fripperies that don’t much matter. Who would have thought that Christmas and Keynesianism had so much in common?

What about the deeper question – is Christmas good for us as people? At Christmas we give and receive gifts. This has a positive effect: it feels good for giver and receiver. It also has a negative one: lots of those presents are poorly chosen, and that means a vast waste of labour, energy and raw materials that could have been far more wisely employed. This is a subject on which I’ve written many times, following the economist Joel “Scroogenomics” Waldfogel. My conclusions are surprisingly soft-focus: keep giving gifts, but make them small and inexpensive, and try hard to make them of real emotional value.

But Christmas is more than gift giving and gluttony. It’s co-ordinated gift giving and gluttony. That co-ordination brings mixed blessings. The Olympic and Paralympic Games were much more fun because almost everybody got into the spirit of things; it’s hard to say the same thing about the M25 at rush hour, or Stansted airport on the first day of the summer holidays. I like an empty train carriage, but not an empty restaurant or nightclub.

For young children and those who share their excitement, the positive externalities of Christmas probably far outweigh the negative ones – the decorations on the High Street, the excitement of Father Christmas and the long holiday all spring to mind. For everyone else, the Christmas crush is less fun.

It is possible for individuals to swim against that particular tide. There’s a lot to be said for idiosyncratically shifting some of the key Christmas activities to other parts of the calendar. I’m not talking about buying next year’s gifts in the January sales. I’m thinking about writing letters or cards to old friends in April or October, and surprising friends and family with the occasional gift for no reason whatsoever, rather than letting gifts and cards be buried under the Christmas avalanche. When Lewis Carroll invented the “un-birthday”, he knew what he was doing.

And of course, we should all try to keep the generous and jovial Christmas spirit with us all year round. But now I’m becoming sentimental; it’s an attitude quite unsuited to an economist.

Tim Harford is the presenter of Radio 4’s ‘More or Less’

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