- The Washington Times - Thursday, December 31, 2009

ANALYSIS/OPINION:

SCROOGENOMICS: WHY YOU SHOULDN’T BUY PRESENTS FOR THE HOLIDAYS

By Joel Waldfogel

Princeton University Press, $9.95, 186 pages

Reviewed by Ryan Young

“‘A cribbage board? You shouldn’t have,’ we tell our mothers-in-law. Indeed.” In those three short sentences, Joel Waldfogel describes the origin of what retailers call “return season” and what consumers call “the week after Christmas.”



Mr. Waldfogel has a point here. By his calculations, such gifts cost the U.S. economy about $85 billion in waste. That’s more than 124 countries’ entire gross domestic product, by the way.

The reason for all this waste is that most people are lousy gift-givers. Or, as Mr. Waldfogel puts it, “Relative to how much satisfaction their expenditures could have given us, their choices destroy value. Take that, Santa.” The time wasted waiting in line to return unwanted gifts is an additional sock to the economy.

There’s a reason this book is titled “Scroogenomics,” you see.

The obvious way around this deadweight loss is to not give gifts. Mr. Waldfogel wouldn’t endorse that, though. He may be an economist, but he still has a soul. Besides, as he would quickly remind you, the cost of not giving any gifts is extremely high.

That cost is measured in terms of social and familial disapproval, not money. But it is still real. And expensive enough that people still give gifts even if they don’t want to. Turns out that giving is actually cheaper than not giving.

Fortunately, “Scroogenomics” has some advice on how you can adhere to the bizarre, ancient custom of holiday giving and do it well enough that your loved ones will want to keep what you give them.

First, know your limitations. Be aware that you are a poor judge of what others want. Choose your gift accordingly. That way your loved ones will have to spend less time in the return line. Fortunately, Mr. Waldfogel and his colleagues have dedicated years of multinational research to finding out exactly what those limitations are. The average difference in satisfaction between things we buy for others and things we buy for ourselves is about 18 percent.

One way to reduce that 18 percent waste is to give your recipient some choice in what they get. Maybe you got her a sweater from a store she loves, but not in a color she hates. That’s a trip to the store and time wasted in line.

Giving cash is one way to save her the trouble. Unfortunately, cash is generally considered tactless unless your relationship is sufficiently distant.

Luckily, gift cards are almost as good. And they have very little stigma attached. Not only do cards save the giver the trouble of finding out obscure likes and dislikes, the giftee is saved the hassles of return season. She’s all but guaranteed to get something she wants. Everyone wins.

The second way to avoid return season and prevent waste is to rethink what gifts actually mean. In a way, you’re adding to someone’s income. And what do people do when they have higher incomes? Yes, they buy fancy cars and houses. But those are out of the question for holiday gifts.

The more money people earn, the more they tend to give to charity. This is true both in absolute terms and in percentage terms. That means that if you’re adding to someone’s income, one thing they might like to do with that extra money is give it to a worthy cause.

Organizations like Charity Navigator offer gift cards redeemable as donations to a charity of the cardholder’s choice. That lets your loved one support a favorite, even if you have no idea what that is.

“Scroogenomics” is a quick read. Not only is it well under 200 pages, but the book can easily fit in your pocket. This is no thick volume intended to scare off non-economists. Better still, “Scroogenomics” is almost entirely free of jargon. And when technical terms do appear, they are immediately explained.

Some illustrations would have been nice to make Mr. Waldfogel’s explanation of consumer surplus a little easier for the uninitiated to understand. But this is a minor gripe.

Mr. Waldfogel also makes a few errors of fact when he strays from his main topic. In a digression about taxation, he writes that “In the past fifty years the U.S. tax system has become steeply less progressive.” That isn’t true. Yes, the top income tax rate is far lower than it was 50 years ago - 35 percent compared to 91 percent - but that has little to do with who actually pays taxes.

The top 1 percent of taxpayers pay a far larger share of total taxes than ever before. They earn roughly 22 percent of income, and pay more than 40 percent of income taxes. That share of the tax burden has been rising for years, helped along by the Bush tax cuts. Meanwhile, almost half of Americans pay no income tax. Taxes are more progressive than before, not less. Fortunately, this digression does not detract from Mr. Waldfogel’s thesis.

As you stand in line to return this year’s batch of unwanted gifts, you might want to bring a copy of “Scroogenomics” with you. It’s entertaining enough to pass the time. It’s also contrarian and informative enough to make you think. And while it may make you mourn the gifts that might have been, it will also give you hope that maybe next year, return season won’t be as bad.

Ryan Young is the Warren T. Brookes Journalism Fellow at the Competitive Enterprise Institute.

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