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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Traditionalists bemoan this trend. Judith Martin, the etiquette columnist known as Miss Manners, complains that gift cards have “taken the heart and soul out of the holiday. You’re basically paying somebody — paying them to go away.” Liz Pulliam Weston, a personal finance columnist, worries that “the art of gift giving is quickly devolving into an entirely commercial exchange. How much longer,” she asks, “until we simply start thrusting wads of dollar bills at each other?”

From the standpoint of economic reasoning, the turn to gift cards is a step in the right direction. Going all the way to wads of dollar bills would be even better. Money, after all, is like a gift card that is redeemable anywhere.

Not surprisingly, a market solution to this problem has already appeared. A number of online companies now buy gift cards for cash (at a price lower than their face value) and resell them. So, for example, a company called Plastic Jungle will buy your $100 Home Depot gift card for $80 and then resell it for $93. The discount rate varies according to the popularity of the store. For a $100 gift card from Walmart or Target, Plastic Jungle will pay $91. A $100 card from Barnes & Noble, sadly, yields only $77, slightly less than Burger King ($79). For economists concerned with the deadweight loss of gifts, this secondary market quantifies the utility loss you impose on recipients by giving gift cards rather than money: the higher the discount rate, the greater the gap between the value of a gift card and the value of cash. Of course, none of this captures the thoughtfulness and attentiveness that traditional gift giving expresses. These virtues are attenuated in the shift from presents to gift cards and, finally, to cash.

One economist who studies gift cards suggests a way to reconcile the economic efficiency of cash with the old-fashioned virtue of thoughtfulness: “Gift givers planning on giving a gift card might want to bear in mind the possible benefit of a cash gift with a note to the recipient suggesting that the money could be spent at (insert the name of store here)—to add the thought that counts.”

Giving money along with a cheery note advising the recipient where to spend it is the ultimate deconstructed gift. It’s like packaging the utilitarian component and the expressive norm in two separate boxes, tied together with a bow.

My favorite example of the commodification of gift giving is a recently patented system for electronic regifting. An article in The New York Times describes it as follows: Suppose your aunt gives you a fruitcake for Christmas. The fruitcake company sends you an email informing you of the thoughtful gift and giving you the option of accepting delivery, exchanging it for something else, or sending the fruitcake to an unsuspecting person on your gift list. Since the transaction takes place online, you don’t have to bother repacking the item and taking it to the post office. If you opt for regifting, the new recipient is offered the same options. So it’s possible that the unwanted fruitcake could ricochet its way through cyberspace — Christmas after Christmas. For all eternity.

Warming to the economists’ mind set? Click here for creative ways to give and receive cash this season.

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