Scroogenomics: Why You Shouldn't Buy Presents for the Holidays

We live in contrarian times. At least that's what my recent scan of bookstore shelves suggests: every month another quirky social observer arrives on the scene to persuade us of the value of unconventional thinking (as Malcom Gladwell did in Blink, for example) or to turn us on to a bizarro alternate reality (as Steven Levitt and Stephen Dubner did in Freakonomics).

Joel Waldfogel enters that dubious pantheon with Scroogenomics, in which he critiques the annual orgy of consumerism we call the holiday shopping season. An economics professor at the University of Pennsylvania's Wharton School, Waldfogel trots out a wealth of statistical and empirical data to drive his argument home.

In a series of surveys going back to 2002, Waldfogel asked people to rate the personal dollar-value of holiday gifts they received relative to what the items actually cost. Not surprisingly, he found a significant gap—one that grows larger the more distant the relationship with the gift-giver. Anyone who's ever received a golf-club mitten, ugly sweater, or singing battery-powered fish knows exactly what the author is talking about.

Waldfogel's research revealed that, on average, a dollar spent on oneself provides 18 percent more satisfaction than a buck spent by others on us. In the big societal picture, he maintains, that disparity represents an inefficient allocation of resources that yields "a meager amount of material satisfaction for the amount of money spent."

That difference in value is what's known, in economics jargon, as "deadweight loss," and in 2007 it amounted to about $12 billion of the $66 billion that Americans forked over at malls and on retail Web sites. (In fact, Scroogenomics is an expansion of Waldfogel's 1993 article for the American Economic Review entitled "The Deadweight Loss of Christmas.")

Cold, hard cash can be a risk-free alternative, but in many gift-giving circumstances—younger relative to an older one, for instance, or coworker to coworker—laying out the long green would be short on taste.

Then there are gift cards. Purchases of these convenient surrogates reached $63 billion in 2005, and their popularity continues to soar. But the rub here is that roughly 10 percent of their value goes unredeemed because of lost or forgotten cards, or through the money sacrificed when, for instance, you buy a $46.50 item with a $50 card and never spend the rest. Overall, about $8 billion per year is lost to non-redemption—two-thirds of the "deadweight loss" calculated above. Plus gift cards rob you of the fun and anticipation of feverishly tearing open a gift-wrapped package.

All told, it makes for a lot of evaporated capital. And it gets worse: the bulk of holiday shopping is done with credit cards, which inflict "debt hangovers" on consumers that persist well into the following year.

So, let's see … that makes Christmas shopping wasteful, wrongheaded, and potentially injurious to one's personal finances, right? I'm not convinced. Waldfogel's screed (published as a pocket-sized hardcover—a sarcastic stocking stuffer, perhaps?) may be dang-near irrefutable by the numbers, but it's difficult to take to heart.

That's because, in the end, the message of Scroogenomics amounts to a well-meaning but empty truism. You know the kind I'm talking about: "When you have your health, you have everything." Or "It's what's inside that counts." Though theoretically or philosophically valid, such maxims are irrelevant to life as it is daily—or, in the case of holiday shopping, annually—lived.

"Can I have some outrage here?" Waldfogel demands at one point, suggesting that if America's holiday shopping budget were scrutinized as closely as a government program, the waste would incite citizens to riot in the streets. "Is anyone even concerned about this?" he rails. "Santa is a beloved figure, but this is ridiculous."