The Efficient Christmas: Why Economists Hate Gifts : The Indicator from Planet Money When economists see holiday gifts, they see waste: sweaters that never get worn; books that never get read. Many recommend cash or no gift at all. Economist Tim Harford may have a compromise.

The Efficient Christmas: Why Economists Hate Gifts

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The holiday season is an important time of year for many people, but it is a really important time of year for the economy.


Especially for retailers.


GARCIA: All right. A lot of retailers make more than half their annual sales this time of year. Holiday sales often set the economic tone for the following year as well. They're just a big deal, so you would think that economists would love the holiday season.

VANEK SMITH: Yeah, but they're a bunch of Scrooges.

GARCIA: Yeah, maybe not. Economists have really weird ideas about gifts.

VANEK SMITH: Yes. They have weird ideas about gifts because here's the thing about gifts, right? They're not necessarily efficient. You know, for instance, you spend a lot of money on a sweater for your aunt. Your aunt, you know, unwraps the sweater, is like, oh, wow, reindeer sweater - what I've always wanted - and never wears it. So you could say - economists would say that money was basically wasted, and for economists, like, this situation is unbearable. And so they are always recommending these weird alternatives like, you know, giving people cash or just not giving people gifts at all.

This is THE INDICATOR FROM PLANET MONEY. I'm Stacey Vanek Smith.

GARCIA: And I'm Cardiff Garcia. Today on the show, economists and gifts - it's complicated.

VANEK SMITH: It's depressing.

GARCIA: It can be, yeah.

VANEK SMITH: It can be.

GARCIA: We ask economist Tim Harford, who's a columnist at the FT and creator of the new podcast series "Cautionary Tales," to answer for his economist colleagues and to try and sell us on his version of the economically efficient gift.

VANEK SMITH: Hold on to your hats. Actually, hold on to your socks.

GARCIA: Yeah. Hold on to your socks...

VANEK SMITH: Hold on to your socks.

GARCIA: ...If you're going to be on the sleigh. Yeah.


VANEK SMITH: Economists are terrible about gifts.

TIM HARFORD: Oh, no. We are brilliant. No.

VANEK SMITH: It's so depressing.

HARFORD: No, no, no, no, no, no. You - no.


HARFORD: We are brilliant at gifts.

VANEK SMITH: No. It's a particular angle that you guys take on gift-giving because it's all about efficiency. Like, economics is about efficiency, and gifts are not particularly efficient. That is not necessarily their goal.

HARFORD: When you buy a Christmas gift, this is a big expenditure of resources. People worked hard to create this thing. And yet, some gifts - not all gifts - are not actually valued by the people who receive them. What they value is the gesture, the connection. And the larger the gift, the more resources have been put into it, the bigger the potential waste. And so if instead I were to maybe give you a really small gift that showed some real personal thought that I'd really thought a lot about what you wanted and maybe written you a handwritten letter rather than just saying, oh, I'm going to go to Macy's; I'm just going to buy something big in a big golden box, and I don't care about Stacey; I just care about the gesture - isn't the handwritten letter - isn't that better? You're telling me that I'm getting it wrong, that I...

VANEK SMITH: I mean, what's in the gold box?

HARFORD: ...Misunderstand. The true spirit of Christmas is just junk.

VANEK SMITH: (Laughter).

HARFORD: OK, here's Plan B.

VANEK SMITH: No, no. I hear you. I hear you, and you're right.

HARFORD: So here's Plan B.

VANEK SMITH: I would rather get a small, thoughtful gift than a giant, mindless gift.


VANEK SMITH: For sure.

HARFORD: Still, you want a gift. OK. I hear you. You don't want a letter. You want a gift. So - OK, Plan B is, what I need to do is I need to find out what you actually want.

VANEK SMITH: Is this the efficient present hypothesis?



HARFORD: The efficient present - this is mine. The efficient present hypothesis...


HARFORD: So the efficient present hypothesis is if I get something I think you really want, you've already got it.

VANEK SMITH: (Laughter).

HARFORD: You think I'm joking, but this happens a lot. I've had this experience with my wife, for example. I know she really likes this particular brand of woolen socks that keep her feet warm in the winter, and so last Christmas, I thought, oh, you're a smart guy.

VANEK SMITH: Wait, wait, wait. You got your wife socks for...

HARFORD: Not just socks, but, like, one of the things she really likes is socks. So I got these, like...

VANEK SMITH: Are you sure that's true (laughter)?

HARFORD: She likes - I am sure it's true.

VANEK SMITH: I feel like socks and gift cards...

HARFORD: Here's the...

VANEK SMITH: ...Are the junk bonds of gifts.

HARFORD: OK, so here's the reason I'm sure it's true. She bought the same pair of socks herself and gave it to me to, like - oh, please give me this gift for Christmas. I'm like, I already bought those socks for you. Like, I already have those...

VANEK SMITH: She bought herself a Christmas present and gave it to you to give to her?

HARFORD: Yeah because she didn't trust me to do it right.

VANEK SMITH: (Laughter).

HARFORD: And in fact, I was so good that I was bad because we bought the same thing. So the solution to all of this is ask or look at a wishlist. Now, I know what you thinking at this point. Wow, that's so kind of mechanical.


HARFORD: That's so unromantic. That's like you're not even thinking.

VANEK SMITH: It's like you don't even get a surprise.

HARFORD: There's no surprise.

VANEK SMITH: It's just like you registered for a Christmas gift. I don't know.

HARFORD: Like, did I...

VANEK SMITH: You have an official wish list that you give to all your friends?

HARFORD: No, no - just, like, my family. I don't send...

VANEK SMITH: (Laughter)

HARFORD: My family - no. I don't send people, like - please buy me this stuff. And I ask them for their wish list. And if they don't have stuff on their wish list, I ask them to put stuff on their wish list, and here's why - because I have read the academic research gathered by Francesca Gino and Francis Flynn. The people receiving the gifts loved getting gifts off their wishlist. It's like, great. That was so thoughtful of you. You went through the trouble to find out what I actually wanted, and you got it for me, and I really like that. And there was no sense of, oh, you didn't try or you didn't surprise me. So people think that wish lists are, like, a sort of cop-out. They're not really playing the game. But they work really well.

GARCIA: But, like, when we think about gifts and we think about the economy and we think about, like, the parallels between the two - like, the economy obviously grows as it becomes more efficient, or it has the potential to grow as it becomes more efficient, right?


GARCIA: Relationships grow or become more meaningful very often when they are inefficient, right? So think about, like, the parents spending, like, a lot of time with their kids or something like that. You can be doing other things. Sometimes, you're just lazing about. But it's meaningful in the context of the relationship. So when it comes to giving gifts, anticipating what somebody wants isn't always as straightforward as, like, what they themselves have expressed that they want, right? Sometimes, like, the weirdo gift that they absolutely have no use for - OK? - is the thing that deepens the relationship. And so even if, in the moment, the person's like, OK, this gift - right? - is what I want; I'm, like, really excited about it, it might not be as memorable, say, as the incredibly weird thing that you came up with...


GARCIA: ...That is useless.

VANEK SMITH: Just 'cause it's more use...

GARCIA: Right?

VANEK SMITH: Right. Right. Is this, like, a cash thing - like, giving cash?

HARFORD: Well, so cash is another benchmark. I think to teenage kids, that's fun.

VANEK SMITH: Would you want to give cash? Like, as an economist, do you feel like you wish you could give people cash?

HARFORD: The trouble is there's a big stigma to giving cash. Like, even we economists know if you just sort of hand your spouse $100 on Christmas and say, I love you, babe...

VANEK SMITH: (Laughter).

HARFORD: It's like, I know that - you know, I mean, it's funny. If you...

VANEK SMITH: It's like the gift from the airport.

HARFORD: I think the wish list solution really works for me. You are giving something. It symbolizes the relationship. It symbolizes a certain amount of thought, which is not - hey; I went off-piste and I thought of some crazy Cardiff Garcia kind of gift. It was like, I thought enough to figure out exactly what you wanted. And I asked you what you wanted, and I gave you what you wanted. And people really - the research shows people really appreciate it.

GARCIA: My other point is just that...

VANEK SMITH: (Laughter).

GARCIA: Stacey referred to socks as the junk bonds of gifts. But actually, I was just thinking junk bonds would be a great gift to give somebody, right?

VANEK SMITH: Why is that a great gift?

GARCIA: High risk, high reward. It's very, like, interesting. It's weird. It's flashy.

VANEK SMITH: You're going to give someone junk bonds for Christmas?

GARCIA: There's an element of uncertainty. No, I want junk bonds for Christmas, is what I'm saying.

VANEK SMITH: You want junk bonds for Christmas.

GARCIA: I'm sending out the...

HARFORD: That's OK. So now we - Cardiff is - let it be known you are now - Stacey, you are now allowed to buy Cardiff junk bonds for Christmas 'cause - and he would really appreciate it if you did it. That's what the research shows.

GARCIA: Junk bonds - that's right.

VANEK SMITH: All right. Oh, well, there is one, like, irony, I think, potentially, to, like, a lot of economists' recommendations for gift-buying, which is that our economy - like, a lot - it's not only - not only is it actually, like, a practical thing that - Christmas retail is, like, a huge part of a lot of retailers' income. And if they don't get that, it can become really bad. But also as an indicator, like, people sort of freak out if holiday sales aren't what they're expected to be. So if people followed economists' advice about gifts, it would be terrible for the economy.

HARFORD: Yeah, but it'd be good for human beings. So that's - the economy...

GARCIA: What kind of an economist are you?


HARFORD: The economy exists to serve us. As I said, it's not as big as people often say. But if a big chunk of the economy is devoted to people running around in cramped conditions under a lot of stress, working really hard to buy each other stuff they don't actually want, like, we're better off without that part of...

VANEK SMITH: That's a very bleak description of Christmas (laughter).

HARFORD: I love Christmas.


HARFORD: I love Christmas. I'm big into Christmas, and I like buying people gifts.

VANEK SMITH: I mean, it must be beautiful in Oxford.

HARFORD: But I like buying people gifts that they want to receive rather than rubbish.

VANEK SMITH: So junk bonds for Cardiff.

HARFORD: Got it.

VANEK SMITH: (Laughter).

Today's episode of THE INDICATOR was produced by Jared Marcelle, fact-checked by Nadia Lewis.

GARCIA: Our editor is Paddy Hirsch, and THE INDICATOR is a production of NPR.


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