Notes From Scrooge: The Downside of Giving Gifts

Why gift giving is a lousy way to demonstrate love—at least according to economists.

hands holding money in a box

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This is a strangely wooden way to think about lovers and gifts. “Signaling” love is not the same as expressing it. To speak of signaling wrongly assumes that love is a piece of private information that one party reports to the other. If this were the case, then cash would work as well—the higher the payment, the stronger the signal, and the greater (presumably) the love. But love is not only, or mainly, a matter of private information. It is a way of being with and responding to another person. Giving, especially attentive giving, can be an expression of it. On the expressive account, a good gift not only aims to please, in the sense of satisfying the consumer preferences of the recipient. It also engages and connects with the recipient, in a way that reflects a certain intimacy. This is why thoughtfulness matters. Not all gifts, of course, can be expressive in this way. If you are attending the wedding of a distant cousin, or the bar mitzvah of a business associate’s child, it is probably better to buy something from the wedding registry or give cash. But to give money rather than a well-chosen gift to a friend, lover, or spouse is to convey a certain thoughtless indifference. It’s like buying your way out of attentiveness.

Even economists who view gift giving in utilitarian terms can’t help noticing that cash gifts are the exception, not the rule, especially among peers, spouses, and significant others. For Waldfogel, this is a source of the inefficiency he decries. So what, in his view, motivates people to persist in a habit that produces a massive destruction of value? It’s simply the fact that cash is considered a “tacky gift” that carries a stigma. He does not ask whether people are right or wrong to regard cash gifts as tacky. Instead, he treats the stigma as a brute sociological fact of no normative significance apart from its unfortunate tendency to reduce utility.

“The only reason that so much Christmas giving is in-kind rather than cash is the stigma of cash giving,” Waldfogel writes. “If there were no stigma, then givers would give cash and recipients would choose items that they really want, resulting in the most possible satisfaction given the amounts spent.” Stephen Dubner and Steven Levitt [authors of Freakonomics] offer a similar view: Giving cash gifts is, for the most part, a “social taboo” that “crushes the economist’s dream” of a “beautifully efficient exchange.”

The economic analysis of gift giving shows how market reasoning smuggles in certain moral judgments, despite its claim to be value neutral. To insist that the purpose of all gifts is to maximize utility is to assume that the right way to treat friends is to satisfy their preferences—not to challenge or deepen or complicate them.

So the economic case against gift giving presupposes a certain conception of friendship, one that many consider impoverished. Consider the rise of gift cards. Rather than search for just the right gift, holiday shoppers are increasingly giving certificates or cards with a certain monetary value that can be redeemed for merchandise at retail stores. Gift cards represent a halfway house between choosing a specific gift and giving cash. They make life easier for shoppers and give recipients a greater range of options. A $50 gift card avoids giving, for example, a sweater two sizes too small, by letting the recipient choose something he or she really wants. And yet it’s somehow different from giving money. True, the recipient knows exactly how much you spent; the monetary value is explicit. But despite this fact, a gift card from a particular store carries less of a stigma than simply giving cash. Perhaps the element of thoughtfulness conveyed by the choice of an appropriate store eases the stigma, at least to some degree.

The trend toward the monetizing of holiday gifts gathered momentum in the 1990s, when growing numbers of shoppers began giving gift certificates. In the late 1990s, the shift to plastic gift cards with magnetic strips accelerated the trend. From 1998 to 2010, annual sales of gift cards increased almost eightfold, to more than $90 billion. According to consumer surveys, gift cards are now the most popular holiday gift request—ahead of clothing, video games, consumer electronics, jewelry, and other items.

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