The best Christmas gift can’t be found on the high street

CHRISTMAS is a time of consumption and, this year, despite some conflicting statistics, central London seems heaving. The New West End company estimated that the first weekend of December saw 16 per cent more shoppers than in 2011, many from abroad. Retail sales in December are typically twice those of other months and, for many high street firms, this couldn’t come quickly enough. With the threat of a triple-dip recession and bitterly cold weather, the economy could do with some festive cheer.

But there’s a downside to all this consumption. Yes, spending is up and the economy benefits. But growth is built on production, not consumption. Or rather it’s built on the coordination of production and consumption.

The main problem with Christmas spending is that it’s often used to buy gifts. And the problem with gifts is that they can generate dead weight loss. Most of us have a pretty reasonable understanding of our own tastes and, although we can buy things we regret, we have a strong incentive not to do so. Indeed, it’s typically our tastes that we regret, rather than our consumption choices. Perhaps this is why gifts make more sense for children, because we take a more active role in trying to shape their tastes.

When it comes to adults, the potential for waste is a lot higher. In almost every conceivable situation, the recipient would prefer the cash value of a gift to the gift itself. It’s always better to have the choice of £50 or a garish sweater, than a garish sweater that cost £50. Some argue that gifts serve a deeper purpose, since they demonstrate thought and consideration. But often the only thing they demonstrate is complete ignorance.

If you want to argue that the practise of gift-giving serves a deeper purpose, at least acknowledge that this is a benefit to the giver not the receiver. In a seminal article called The Deadweight Loss of Christmas, Joel Waldfogel estimated that “holiday gift-giving destroys between 10 per cent and a third of the value of gifts”.

It is possible that, if the recipient lacks information, a gift can make economic sense. One of my favourite presents was a small replica of Superlambanana, the famous Liverpool piece of public art. My wife has a good understanding of my tastes, and I was just unaware that you could buy them. It was a classic present. But if the value of the gift is the information, there’s a simple alternative. Rather than buy it, tell the recipient what the gift is and give them the cash to buy it themselves.

To some extent the rise of gift vouchers is the response to all this waste. But these also generate inefficiencies. Unless you can redeem the cash value, you are forced to buy something at that store and spend marginally more than face value.

Yesterday was my work Christmas lunch, and our Secret Santa instructions were to spend “a maximum of £5”. The lucky recipient of my contribution received a cardboard box containing two things: a £5 note and a message that said: “read City A.M.”.

Merry Christmas.

Anthony J. Evans is associate professor of economics at ESCP Europe Business School. Web:, Twitter: @anthonyjevans.