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Why Economists Hate Presents, And How 7th-Graders Solved The Problem

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Why Economists Hate Presents, And How 7th-Graders Solved The Problem

Planet Money

Why Economists Hate Presents, And How 7th-Graders Solved The Problem

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It's MORNING EDITION from NPR News. Good morning. I'm Steve Inskeep.

Today millions of people finish buying their Christmas presents or wrapping the ones already in hand. And on this Christmas Eve, we have a story in which economists play the Grinch. Americans, it turns out, buy a lot of presents that the recipients don't want. By one estimate, all those unwanted ties and unread books and un-played-with toys add up to 13 billion wasted dollars.

David Kestenbaum of our Planet Money team investigates.

DAVI KESTENBAUM: Economists don't like gift giving because it leads to an inefficient distribution of goods. What does inefficient mean? It's this...

Ms. TADRE JONES: Hey, my name is Tadre. And this is kind of silly, but I got a Power Ranger. I was grateful, but I didn't really like it. I was like, can I get something else?

Ms. ANGELICA OSOIRO: My name is Angelica. And last year my mom got me a Barbie.

(Soundbite of laughter)

Ms. OSOIRO: I didn't want it and I was like I'm too old for it.

KESTENBAUM: You're too old for it?

Ms. OSOIRO: Yeah.

KESTENBAUM: What would you want instead?

Ms. OSOIRO: Something like electronic. Not like a Barbie.

KESTENBAUM: That's Tadre Jones and Angelica Osorio. We're at a public school in Brooklyn called the Lyons Community School. And to try and find a solution to this problem, we set up an experiment. We begin by giving gifts to the 10 kids the worst way possible, randomly.

We've got a bag of 10 pieces of candy. One goes to each kid. The Reese's Peanut Butter Cup, the Sour Patch Kids are big hits.

Unidentified Child #1: Oh, you're lucky.

KESTENBAUM: Others, not so much. Something wrong with Fig Newtons?

Unidentified Child #2: I hate figs.

Unidentified Child #1: Oh.

(Soundbite of laughter)

KESTENBAUM: A box of raisins.

Unidentified Child #3: Oh, I hate raisins.

(Soundbite of laughter)

KESTENBAUM: So to measure how much wealth there is out there right now, we asked the kids: How much do you value what you have in your hand? Look around and give us a number from zero to 10.

GENESSE: My name is Genesse and I got Mike and Ike. And it's a zero because I don't eat these.

DONAY: My name is Donay and I got a 3 Musketeers bar and I got, I have, I put up a five because I like them but not that much.

MICHAEL: My name is Michael and I got Nerds and I put up two because I don't really like these.

KESTENBAUM: One student writes the numbers on the board in neat handwriting. We add them up. And total: 50. On average, everyone is just a five, even though these were gifts. Three minutes ago they didn't have any candy. So we wanted to find some way to fix this without bringing anything new into the room.

So how can we make that number go higher?

Mr. JOSHIA FELICIAN: To appreciate like, do something that like oh my god, like give it around. Probably like trade and like stuff like that.

KESTENBAUM: Trade. In 11.8 seconds, Joshua Felician, seventh grader, has proposed creating a marketplace - one of the most important economic innovations in human history. You see it pop up throughout civilization. Here it takes 11.8 seconds.

And we try it out. Ready. Go. All of a sudden it's like we're on the floor of the Chicago Mercantile Exchange, like everyone's swapping corn futures contracts. There's a trading frenzy.

Unidentified Child #4: I got Nerds. I got Nerds. Yeah, I got Nerds.

KESTENBAUM: One kid just holds a Twix bar above his head so no one else can find it.

Okay. I think we're done.

Now, we want to see if the trading had increased the wealth in the room. So we ask everyone again to value what they have now.

GENESEE: My name is Genesee and I got Sour Patches and it's a 10 because I love Sour Patches.

And what were you before?

GENESEE: A zero.

KESTENBAUM: So you went from a zero to a 10?


JUSTIN: My name is Justin. I've traded a Fig for raisins.

(Soundbite of laughter)

GENESEE: So now I put - it was a zero to a one. This is better.

(Soundbite of laughter)

KESTENBAUM: From Fig Newtons to raisins is a zero to a one. Okay.

We add the numbers up and the total wealth has gone from 50 way up to 82. Look, I say, magically, without bringing anything new into the room we've increased the wealth. Behold the power of economics. My educational speech didn't get much of a reaction. It is worth noting that humans, without consciously celebrating economics, have quietly found their own ways to more efficient gift giving. That is why parents intercept kids' letters to the North Pole, to see what they want. That's why we give gift cards. That's why we have very generous return policies.

David Kestenbaum, NPR News.

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