TheMarketForIdeas

The gift of wisdom (which does not reside in Santa’s bag of gifts) also enjoins us to reflect an additional second beyond the first impulse. For instance, Christmas is a parable of austere Birth, but we celebrate it with bells and whistles; Christmas floods us with gifts, but with every useless little thing that we receive, some say, welfare is lost; Christmas remains a Christian holiday, but it externalizes secular glamour into a globalization which is decorated with Xmasy globes.

A text, as the present one, that makes the apology of human behaviour – in all its “secularity” –, of consumerism, accumulation, interest, profit, speculation for opportunities, all these around Holy Christmas, seems to be a frivolous episode in which we have spoiled, once again, the profound meaning of these days. But to separate the work of the market from the preservation of the Christian order is simply a dogmatic atavism. True freedom is the one that reunites them. 

(“Economic”) Story from Galilee 

In the world of globalization of trade, finance, information, or technology, the Gospels’ text has significance not only as a worn-out historic exercise of investigating a world situated in a testamentary transition between old and new moralities. It remains a current issue in our world where things are traded online and people are “sold” in prime time, where slang is spoken in chat literature and books became abundantly… scarce.

The sequence of “The Adoration of the Magi”, richly illustrated in artistic forms, is the plea of the idea that not wealth, but the passion or dishonesty of acquisition are morally incriminating. The three offer the Holy Family not random things, though useful for the moment, but expensive gifts, scarce commodities in the era, “gold, myrrh and incense” (quasi-capital), to bring them more prosperity in the future. And they are not refused by the Holy Family.

Biblical parables are trendy, anytime and anywhere. We are not talking about the ecumenical contribution of the Christian doctrine, but about the fact that they contain ethical landmarks for a variety of recurring human actions. We learn about merchants and publicans, about beggars and thieves, about serfs and despots. The mundane – with its “economic” and “political” subsets – is heavily present in the Scripture. And it does not follow from the Bible that asceticism and free enterprise are not equally valid paths to salvation.

Before analysing the spirit of Christmas, as we see it on the stall – namely, in an economic manner –, it is worth – also in an economic manner – to concentrate a little on the Christmas story as it appears from the original texts, although the economic analytical reading of the “Bethlehem episode” seems to many interpreters of the scripture as a superficial and blasphemous enterprise. The conclusions may surprise.

For many believers, be they vaguely familiar with the Scripture, at least through the eyes of a country priest during Sunday liturgy, the sequence with the Birth of our Lord Jesus Christ is, above all, full of significance regarding the idea of austerity and mercy. There are the austerity of the shelter and the mercy of the host, in sharp contrast to the petty and brutal treatment from other innkeepers. Are we sure it is not more than that? 

About the “market”, from the Holy Book 

The American Llewellyn Rockwell Jr., a classical liberal intellectual and a modern Maecenas, tried in an article on LewRockwell.com to understand (more than meets the eye) “The Economic Lessons of Bethlehem”.

His reading is both iconoclast and… commonsensical.

Waldfogel condemns “The Deadweight Loss of Christmas”, believing that, although Christmas is generating an industry worth billions of dollars a year, between 1/10 and 1/3 represents... pure waste, because the receiver of the gift does not always get what he wishes for.

Firstly, the shortage of accommodation in Galilee was not fatally due to some moral failure or market failure. As usually in social life, the deep disequilibria are, rather, the product of inappropriate “governmental” intervention. The census demanded by the Emperor of Rome, which had to be done at everyone’s place of origin, for “fiscal reasons”, is the one that overturned the functioning of the inns’ market in the city. If this kind of shortage were a “long-lasting” state of affairs in that particular region, the local entrepreneurs would have already “speculated” such a generous business opportunity by building more accommodation spaces, and, as such, the shortage would have been diminished.

Secondly, no one would have refused Joseph, a man who was wealthy and well-respected in both communities (at home and at his destination), and his wife, Mary. The image of Joseph and Mary knocking from door to door, being treated with contempt or indifference, is rather an unfortunate narrow interpretation of the biblical text. The real feeling of agglomeration leads to systematic refusals, thus it is not necessarily ill will. That innkeeper who finally opened his door does not necessarily offer them shelter out of mercy; we do not know from the Bible whether the stable and manger were paid for. Irrespective of that, the gesture is above anything else the mark of an entrepreneur who is trying, with the resources available, to provide a valuable service.

The sequence of “The Adoration of the Magi”, richly illustrated in artistic forms, is the plea of the idea that not wealth, but the passion or dishonesty of acquisition are morally incriminating. The three offer the Holy Family not random things, though useful for the moment, but expensive gifts, scarce commodities in the era, “gold, myrrh and incense” (quasi-capital), to bring them more prosperity in the future. And they are not refused by the Holy Family.

The “preference revealed” through a questionnaire is not the same as the “preference demonstrated” directly through action.

Although many condemn the commercial exploitation of the Birth of Jesus, the moral of the scripture does not a priori discard the market spirit that is volens nolens present in the narrations and parables of the Gospels. “Private enterprise was there from birth, through life, and to death, providing a refuge of safety and productivity, just as it has in our time”, says Rockwell. 

Christmas, a welfare loss? 

From the Bible to Yale University. Beyond the rigid interpretations of the biblical text, the economic academic community is not very fond of the commercial Christmas spirit. One of the most famous bouts of “wrestling” with Christmas belongs to the American professor Joel Waldfogel, from Yale University, in a well-known and highly-debated academic article from the American Economic Review.

Waldfogel condemns “The Deadweight Loss of Christmas”, believing that, although Christmas is generating an industry worth billions of dollars a year, between 1/10 and 1/3 represents... pure waste, because the receiver of the gift does not always get what he wishes for; that is, if he had the opportunity, he might have spent the same amount of money, but on something else!

The methodology, obviously, is an empirical one. Waldfogel gave his students a questionnaire with two requests: first, to estimate how much the “donors” spent on the gifts received by the respondents; the second, beyond the sentimental value of the goods, how much would they have spent on exactly the same things.

The result: the gifts were on average estimated at a lower value than what was paid by those who gave them. A possible policy recommendation – thank God, not a public policy yet! – is that, if gifts are still to be given, they should take the form of money, and, in the extreme, there should be no gifts anymore and everyone should spend his own money for himself. In this way, there would be no loss of utility.

Full stop. 

Researchers and the war on gifts 

And yet, semicolon. This “neoclassical” microeconomic analysis, as it is called in universities, has some shortcomings. “Only” fundamental ones. To put the equal sign between the value of a good and the monetary price paid for it is a big error. Something ordinal cannot be equated with something cardinal. Or, in other words, value is something of a “wider” spectrum, it cannot be equated with the intrinsic, material qualities of a good.

If gifts are still to be given, they should take the form of money, and, in the extreme, there should be no gifts anymore and everyone should spend his own money for himself. In this way, there would be no loss of utility.

Methodologically, the questions and answers are somewhat irrelevant. The “preference revealed” through a questionnaire is not the same as the “preference demonstrated” directly through action. (See, in the same spirit, the well-inspired treatment of the problem in a 1997 article written by Jeffrey Tucker, “Is Christmas Inefficient?”, in The Free Market.)

The source of gift matters, it is part of it. An object can be all the more valuable if we receive it from someone dear, family member, friend (..., boss). “Expensive gifts seem cheap when the giver proves unkind”, noted long time ago a great economist without a degree. His name, William Shakespeare. Additionally, the context matters. Or prosaically said: the gesture matters, too.

Moreover, researches of the same type, but with reference to the prices of specific gifts, not to classes of goods, with more detailed questions and on a larger sample, conducted by two other academics – one from Harvard, the other from Miami –, later published in the same journal, revealed diametrically opposite conclusions. So, science-science, but perishable from one Christmas to another. 

We with the presents, and they with the calculations 

The idea of decoupling the material value from the sentimental value is an intellectual fraud. Value is subjective and that is all there is to it. And an empirical study cannot reveal the value of objects for individuals. Only explicit action shows us their preferences and order.

Not long after, Waldfogel, accusing by his critics of influencing the students, by formulating the questions, towards the tendency to report the “sentimental value” rather than the “material” value, thus altering the results, undertook a similar study, on an even larger sample, and again he achieved results favourable for the initial thesis.

Whom can we believe? Sincerely? We will bet on Santa!

The idea of decoupling the material value from the sentimental value is an intellectual fraud. Value is subjective and that is all there is to it. And an empirical study cannot reveal the value of objects for individuals. Only explicit action shows us their preferences and order. Cardinals, numerical indices, “utils” and other units of measurement are simply of no use.

In the United States, about one fifth of all retail sales over the year are concentrated around Christmas. Collaterally, many other industries that cannot be seen so clearly during Christmas – oh, sorry, “holidays” – thrive in December in the US: shipping, postal services, forestry.

Last but not least, not only the value for the person receiving the gift counts in the great formula of “inter-subjective aggregate welfare” (ultimately, a chimerical undertaking). There is also an increase in satisfaction for the one who offers, otherwise he would not have voluntarily made the particular gesture. To blindly mathematicise the things that cannot be mathematicised leads to paradoxical and parodic findings: “gifts are harmful”!

Tell that to... Santa! 

Have yourself a profitable little Christmas 

This holiday mixes and matches the fetishism of commodities and the madness of consumerism (deplored by Marx) with foreign trade deficits and domestic job losses (deplored by Trump).

Christmas drives economic activity beyond the Christian world. It would be politically correct not to wish each other “Merry Christmas!”, but “Happy Holidays!”, and thus to sing the same tune with a Shintoist, a Muslim, a Taoist, and a worshiper of Buddha, too. For example, in a colourful society like the American one, this can be profitable. Without being a generalized welfare period – even in festive moments, entrepreneurs can miss choosing the ideal offer –, it is sure that the seasonal commercial vibration gives a forward impulse to the economy. In the United States, about one fifth of all retail sales over the year are concentrated around Christmas. Collaterally, many other industries that cannot be distinguished so clearly in Christmas – oh, sorry, “holidays” – thrive in December in the US: shipping, postal services, forestry. The sales of Christmas trees alone are over a billion dollars. And there is a non-Christian country that “widens” its eyes when it comes to Christmas: China. At least for the Americans, the Chinese are unrivalled suppliers of odd trifles, especially for winter holidays. Annual imports of toys, dolls and games are as high as 20 billion dollars. And we dare to think that in Romania a good share of Christmas is labelled “Made in China”. Christmas carries on to be also an indigested combination for some theoretical and application-oriented economists: this holiday mixes and matches the fetishism of commodities and the madness of consumerism (deplored by Marx) with foreign trade deficits and domestic job losses (deplored by Trump).

One research topic: is Santa Claus being (re)financed from the inflationary credit expansion!?

And another thing about the economy and economics (in fact, the economic statistics) of Christmas. It is known that one of the intimate difficulties of a consumer price index is that the benchmark basket of goods refers to an average, yet fictional individual. Each Christmas, Americans have tried to give colour to an indicator that usually stimulates the pallor of cheeks, and so the “funny inflation” was born. For more than three decades, PNC Financial Services Group Inc., one of the most well-known US financial institutions, calculates a seasonal consumer price index. The PNC Christmas Price Index measures the cost of goods and services that are mentioned in one of America’s classic Christmas songs: “The Twelve Days of Christmas”. In this case, the methodology has to face small comical impediments (if only they were not paid out of the standard of living of the American individual); the basket is populated with everything: animals, ballet shoes, musicians, Christmas trees, jewellery, and the price references are pedantically detailed even for the most exotic inputs. And, in general, PNC calculations converge with the official index. This year, all the gifts from “The Twelve Days of Christmas” would cost about 34,558.65 dollars, up 0.6% in comparison with 2016, but almost double in comparison with “year one”, that is 1984. Christmas means redistribution of wealth (from those who make gifts to those who receive them), just like inflation (which redistributes, though in unconsented manner, purchasing power). One research topic: is Santa Claus being (re)financed from the inflationary credit expansion!? Fellow economists, on your marks…