Joel Waldfogel once again pops up at the holidays to tell everyone why they should be giving cash for holiday gifts, after all he is an economist and knows everything, right? [He is also hawking his book "Scroogenomics" as he ties his tired gift giving schtick to the "-onomics" craze in publishing - hopefully Beerononmics will be the next big -onomics book, once I get around to writing it] Here is his entire book in a nutshell: cash lets you buy exactly what you want so it optimizes the value of gift giving. There, I just saved you $10.
The problem is of course that we get pleasure from giving and receiving gifts, but less so with cash. So when he says, 'well if you like giving gifts, give cash and then I will be able to get just the thing I want, and you get your pleasure and I maximize my utility from consumption,' he is assuming the pleasure from giving cash is the same as the pleasure from giving a gift in kind. Which it isn't. How do I know? Few people do it. In economics we call this revealed preference.
Why this represents the worst of economics is that this type of logic - assuming everyone is deluded and irrational and it takes a smart economist to help them out - is not only insulting, but precisely what we teach our students not to do in social science. The equilibrium speaks for itself, the task is to uncover the mechanism or incentives that lead to the equilibrium.
I think the only way to justify this assertion is through a prisoners dilemma game in which, by acting in our own self-interest, we reach a sub-optimal equilibrium. But what about shopping for and giving a gift in kind is self-interested? Surely cash is simpler and easier. So, no, I think he has it all wrong and instead of calling it the deadweight loss of Christmas, he should call it the lower bound on the value of the utility we get from holiday gift giving. So give away and enjoy - you have this economist's blessings.
Happy Holidays.
