Is Santa good for the economy?

The Centre for Independent Studies (CIS) is holding a function in Sydney on Tuesday December 10 on The Capitalist Claus – Why Commercialism is Good for Christmas, featuring Miranda Devine and CIS researchers. I’ve always had mixed feelings about the economic impact of Christmas. It’s certainly good for the economy in the sense that the consumer spending benefits retailers, manufacturers and the hospitality sector. However, many of the goods that are given are manufactured overseas, benefiting overseas manufacturers rather than our own. Also, as someone just old enough to remember when Marxism still had some popularity outside of radical student organisations, every Christmas I worry there might have been something to the idea of “capitalist over-production”, when I see the huge amount of unappreciated and often useless gifts that people give to each other.

Certainly basic microeconomics suggests Christmas gift giving is much less efficient than giving equivalent cash transfers at the same value as the gifts that would be purchased. That’s because the person receiving the cash could likely use it to buy something that gives them a higher level of satisfaction than the gift given. This was argued forcefully in one of my all time favourite economics articles, Joel Waldfogel’s The Deadweight Loss of Christmas.

So Christmas might be good for the economy in the sense of boosting demand for goods and services, but it’s not necessarily good from an economic perspective – the economy could produce more of the goods and services we really want if we give up trying to guess what other people might want and give them cash instead.

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2 Responses to Is Santa good for the economy?

  1. Paul McGuire says:

    Doesn’t this ignore the psychic income from giving and receiving gifts? I’m not sure my wife would have a higher level of satisfaction if I gave her cash rather than a gift.

    • Gene Tunny says:

      Good point, but I’m unsure whether it’s psychic income or just better gift choices. With people close to you, you have a much better chance of figuring out what they want and getting it for them.

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