Economist As Scrooge

In Today’s Weekly Standard, Harvard’s Harvey Mansfield writes on "Saving Christmas From The Economists":

Economists … have become critical of the frenzy of Christmas gift-making. … Economic analysis says that consumers would be better off making their own purchases, buying things they know they want, rather than trying to get the benefit out of gifts bought ignorantly for them by others. Worse than ignorance is the imposition of the giver’s own taste or views, … The economy as a whole… would be better off without the surge in sales of Christmas gifts at the end of the year.  …  In this aspect economics is … a way of life–the life of efficiency and frugality. This life is bourgeois, middle-class, and opposed to your wasting your money on whims, as do rich aristocrats. …

To justify Christmas giving we need to look past the hasty confusion of the "consumer," so described by economics, to the soul of the giver and see how it is improved by the virtue of generosity. The benefit of giving is more to the giver than to the receiver–a paradox better known to common sense and the Bible than to economics. For having a generous soul saves one from living in the relentless anxiety of never knowing whether one has enough for oneself. … And let us not forget the advantage of generosity to liberty. The commonest form of slavery is slavery to money, and generosity is a kind of liberation as well as utility for yourself.

Economists have explained their critique often enough, and Mansfield has access to enough good economists, so I have to suspect Mansfield willfully misunderstands here — it must be more fun to defend Tiny Tim against mean old Scrooge.  But two points bear repeating:

  1. Economists fully grant that gift exchange is good if it just directly produces enough "warm fuzzy feelings."  I don’t see that exchanging gifts obviously makes us more virtuous, or reduces fear from want or "slavery" to money.  But directly creating valued feelings can be enough.
  2. Economists widely suspect that gifts are signals, given to show that we care, with the warm feelings coming more directly from seeing that others believe that we care.  This might seem a subtle distinction, but it can make a huge difference.  Signaling can easily lead to excess signaling, where most everyone can be better off with signals discouraged.  If we could not give Christmas gifts, no one would think us uncaring for not giving them.

My best guess is that Christmas gift exchange is another admirable activity, of which we have too much.

Added 15Jan:  Mansfield replies (via email):

Thanks very much for your attention to my piece and to my argument. 
To begin a reply I would say in speaking of caring and signaling you are too much concerned with others.  Virtue as virtue is concerned with the perfection of one’s self first and foremost.  Once you start looking over your shoulder at its effect on others, you encounter the difficulty you mention of distinguishing false concern, which is really your advantage, from the real thing, the advantage of another.
But you are a genuine homo economicus and I would not have you otherwise.

Let us assume you are right, that giving creates virtue, and that the usual concern about appearances is less virtuous.  Even so, by our (economists’) evaluation criteria, the question is: how much do people actually want to be virtuous in your sense?  We don’t recommend policy that creates virtue unless people actually want virtue; if people mostly want appearances, then we want people to get appearances.   

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  • Cynical Masters Student

    There is also a possible behavioral economics explanation put forward (forget what paper that was), somewhere along the lines of gift giving possibly breaking suboptimal mental accounting routines (especially in case of luxury gifts we certainly price but would never buy ourselves).

  • The important question – is our material wealth noticeably improved by all those pairs of socks and cheap DVDs? I’d say that if you make a distinction between Big Presents (iPod from partner, new bike from parents) and Small Presents (alarm clock, soap-on-a-rope), the effect is negligible, leaving you with just the signaling and the warm fuzzy glow. For Small Presents, there’s not very much of the latter.

    Hence, Small Presents are pure signals; a small sacrifice to the gods of commerce to demonstrate your affection at minimal cost. ‘I threw away ten pounds on that rubbish, just for you!’

    Can’t wait to do it all again in 11 months!

  • g

    Mansfield claims that giving makes the giver more generous, and that that’s a good thing. Do economists ever show any concern for that sort of effect? (Perhaps the answer is: no, because it’s been shown not to be real. If so, I’d be interested in a pointer to where it’s been shown.)

    Economists fully grant that gift exchange is good if it just directly produces enough “warm fuzzy feelings.” Anyone reading this would get the impression that Mansfield had said something like “Gift exchange is good because it produces warm fuzzy feelings, and economists don’t admit that”. Of course his article doesn’t say anything of the sort, and turning “gift exchange is good for the soul because it makes the giver more generous” into “gift exchange produces ‘warm fuzzy feelings'” (complete with misleading quotation marks) is just the sort of thing that’s liable to upset the likes of Mansfield.

    I don’t think it’s obvious whether Mansfield is right or wrong about regular gift exchange enhancing generosity. It seems psychologically pretty plausible to me and it’s not too hard to think of mechanisms by which it might work.

  • tcpkac

    You could think of gifts exchanged as being the ‘gluons’ of the social force. The ‘mathoms’ of the hobbits come to mind.

  • tsonevski

    Eric Posner discussed gift giving in his book “Law and Social Norms”. Finding the individual’s personal taste and making one happy is the art of gift giving. It’s not only the value of the gift, but also the value of our time we spent to figure out the taste and likings of the other person. From that point, gift giving is not only a form of art, it’s a superior form of human cooperation.

  • Silas

    Another benefit of gift-giving that he missed is that it exposes the recipient to some kind of good whose utility he hadn’t yet realized and thus would not have purchased with his own money, or after given cash or a gift card. Individual rationality does not imply omniscience!

    I personally have been on both ends of this. My brother got me a navigation system for my car, which has been tremendously useful, but which I would not have gotten on my own, even if I received enough cash to buy it as a gift. I also go my mom a webcam so we could video chat, something she wouldn’t have gone out and purchased on her own, and today she’s absolutely fascinated with it.

    Lesson: make your gift something that exposes the recipient a new experience they may like.

  • Richard Pointer

    It is interesting. Our family has decided on no gifts at Christmas and rather to donate to charity. Still people give gifts but less so. We have tried to bring us back from the edge, but the competition to give is too strong.

  • One reason there might be not enough gift-giving is people undervaluing the warm fuzzy feelings of others.

  • I’ve added a section the the post, with Mansfield’s reply and my response.

  • Shakespeare’s Fool

    Help me understand.

    When I write a poem for “Mrs. Shakespeare” for
    her birthday or our anniversary, am I showing
    her no love but only signaling?

    When Albert Schweitzer or Mother Teresa gave
    a glass of cold water to a thirsty patient
    what were they doing?


  • John, you can’t show that you care if you don’t care. Even so, you can care to show that you care, in addition to directly caring.

  • Tracy W

    When Albert Schweitzer or Mother Teresa gave
    a glass of cold water to a thirsty patient
    what were they doing?

    When a billionaire gives money to establish a hospital be called “The Joe Billionaire Hospital for Children”, what was he doing?

    Indeed, moral teachers have often been so concerned about the signalling incentives of lavish gifts that they have called for giving gifts secretly.

    How many people are like you and Mother Teresa – giving only because you care – and how many give for reasons like the rich people who put their names on hospitals – is a serious question and one I don’t know the answer to. I suspect though that there is a significant amount of gift giving that is mostly done for the purpose of signalling.

  • Doug S.
  • Nathan O’Sullivan

    Has the gift-giving-as-signaling hypothesis been empirically tested? The test seems rather easy–just compare giving under normal and anonymous conditions. If giving is reduced in the latter case (as I expect it would be), we conclude that signaling is a factor.