The standard economic view of gift giving at Christmas (yes, I am of that flavour, please do substitute Kwanzaa, Chanukkah, or the recently past Eid or Diwali, any other culturally appropriate gift giving time you may celebrate, to adjust to your flavour) is that it's a waste, it's something that makes us all poorer. This is because the recipients of said gifts often value them at less than they have cost: quite obviously those who have paid for them cannot possibly value them at less than they have cost. Thus there is a deadweight loss and deadweight losses are something that make us all poorer. Therefore we shouldn't do this.
However, that economic view does come up against a pretty stiff barrier. Because that's not really economics, not the way it should be done. The subject isn't, or at least isn't supposed to be, normative: it doesn't tell us what we should be doing. It's supposed to be positive: what it is that people actually do? And at this point we can note three further things. Firstly, economists do not generally think that people are stupid. Yes, OK, that supposition usually gets dropped when discussing politicians but....secondly we note that near all human societies have such gift giving occasions. Which makes it very difficult indeed to believe that there's something economically wrong with such a well known human behaviour: because people in general are not thought to be as pig thick as politicians.
So something else is going on here, what is it? The standard view is well told by Tim Harford:
Loyal readers will know that 22 years ago, Joel Waldfogel, an economist, wrote an article titled The Deadweight Loss of Christmas, in which he quantified something we all instinctively know: a lot of the presents that people give and receive aren’t terribly well chosen. We spend money on things that people don’t really like — and thereby we waste energy, material resources and labour that could have been far better deployed making something people did want.
Chris Blattman calls the anthropologists into evidence:
Every other kind of gift, however, tells a thousand words.
Giving gifts also creates inequalities, very much on purpose. These gifts quietly say, “I did something nice for you. Now we’ll see if you pay me back and how. I’m watching and waiting.”
This sounds cynical. You might say “What about the warm glow of giving?” People genuinely enjoy gift exchange. That’s true. Not all giving might be strategic. Social science theories don’t explain all of a behavior. Just regularities.
Then again, it’s possible the warm glow is an evolved response. People who are better at reciprocity and alliance building are more likely to pass on their genes.
Tim wanted to ruin your Christmas with talk of deadweight loss. But like the Grinch whistling down the mountain back to Whoville, I bring tidings of another spirit of giving: an evolved approach to communicating your status, creating a system of social insurance and club goods, and keeping the boundaries of the club clear through reciprocal, sometimes unequal exchange.
There's very definitely a value to that way of thinking. And yet I'm afraid that I still find it lacking in something. Take that idea further and think of what is usually considered to be the opposite of our current societal set up, the potlatch one. In our society we are considered wealthy if we can call on the resources of the society around us to achieve some task we want to undertake. In a potlatch society it's exactly the opposite, you are considered wealthy if you can call upon the resources of the society around you to a achieve some task you want to undertake. Wealth is that ability to call on those resources, nothing else. What differs is how that wealth is stored.
Bill Gates is wealthy because he can simply pick up the phone and get an airplane of any size he likes to take him wherever in the world he wants to go. He can call, literally call, on hundreds of millions of dollars of other peoples' resources any time he likes. If you can make that same call on other peoples' resources then you are just as wealthy.
And the difference between our current society and a potlatch one is how that wealth is stored. In our world it might be gold, money, real estate, whatever, but we have the physical wealth which we then swap for the effort and resources of others that we desire. A potlatch society is also known as a gift giving one: once you get some resource then you furiously work hard to give it away. And that act of giving then means that you can call on those others and their resources in the society at some future date. It's as if we all had $70 billion of Bill's money and there was a social obligation on us to go do something for him when he called.
So in one sense we can say that the only difference is in how we account for wealth: both produce the same result. Potlatch makes a great deal more sense in a society where fresh meat based protein is a scarce resource. Because it's a bit difficult to store that slaughtered pig under the mattress: the best place to store it is almost certainly in the bellies of people who will then owe you a future favour.
So what Blattman is describing is a half way stage to that potlatch: perhaps something like Polanyis' society of mutual obligations. But that still doesn't explain why we would be willing to suffer deadweight losses, whichever way we're doing our wealth accounting. We still want to get the maximum claim on future resources out of our current store of wealth. We thus want people to appreciate our gifts more than we appreciate the cost of them, either way.
Which leaves us back with our original problem. We don't think humans are dumb, humans do gift give yet gift giving produces utility losses. There's got to be an error in the argument somewhere. And I think I know what it is.
Generally when we talk about utility we mean the utility of whoever it is doing the act. But here we are trying to measure not the utility of the gift giver, but the utility of the person to whom the gift was given. And that's the bit that's not right: we should be considering the utility of the gift giver.
At which point, one of those true* stories from childhood. Given two pullovers, one red and one green, for Christmas I go upstairs, take off the one I was wearing and come back down to model the red one to an adoring, and gift giving, mother. The reaction being "What's wrong with the green one? I knew you wouldn't like it!"
Yes, thanks folks, I'll be here all week and I suggest you order the veal.
Obviously, the ability to be contrary on Christmas morning is not what motivates most gift giving, even by mothers (mothers in law however....). But there has to be something in there. Because that's the only way that we can make sense of the behaviour itself. The loss of utility by the recipient just isn't the correct point to be concentrating upon. It's the utility gained by the giver that should be.
And here I think we come into the realm of the great explanation of all authoritarian politics. Yes, we all insist that we're in favour of freedom and liberty but most of us, most of the time, really mean the freedom and liberty for people to do what we think they ought to do. And if we give money then people get to do what they want to do: and if we give a gift then we know that they're stuck with that thing that we have decided they ought to want. And thus the utility to the giver of what is seemingly impoverishing for us all.
Although given how common that joke about pullovers is across both cultures and times there may be something to that explanation as well.
*For a given, and not very large, value of the word "truth".
