Free Markets, Free People

To give is to waste?

My friend George Scoville wrote a Black Friday-appropriate post on a problem with gift-giving, which touches on a broader point that libertarians should heed.

A microeconomics paper that’s bounced around econ-blogs for several years says gift-giving causes a huge deadweight loss: when someone else picks a gift for you, it may not be what you would have bought for yourself when you would have bought it, which normally implies that goods and services are being distributed inefficiently.

If that’s true, then Christmas is a tremendously wasteful institution, within an order of magnitude of the income tax, and we’d be better off giving each other cash gifts.


First, on a technical note, that paper was written in 1993, before Amazon wish lists and social media made it easier to detect people’s interests and needs, so perhaps we’re getting better at matching gifts with recipients.

More importantly, the paper fell short of meaningfully capturing deadweight loss, because it focused entirely on the value of the goods.  Gift economies mostly operate on another kind of supply and demand: the desire for social cohesion, meaning closer relationships with family, friends, and other peers.

This is no trivial matter: relationships with people we can count on make us happier, healthier, and more successful.  Anything that helps to build and cement those bonds is valuable, and while some academics and marketers try to quantify that value (it may be more than you’d think), the normal rule is that relationships of trust should not be fungible with cash.  All societies have some social taboo against trading off the sacred and the mundane, which sometimes leads to absurdly stupid conclusions, but also allows people to build trust without worrying that anything intimate or of an extremely hard-to-price value (what’s the rest of your life worth?) will be easily sold for any of the mundane things that can be bought with cash.

It’s awkward when people give each other cash as gifts even if the amount is equal, and gift exchanges in which only one side puts any thought into it show unequal empathy.  If you put a lot of thought into anticipating someone’s wants, and that person gives you a very generic gift, it’s like being put in the Friend Zone.

The point of gifts is to trip a hardwire in the brains of social mammals: cycles of giving and gratitude that go beyond simple reciprocity.  When you’re trading cash, everyone is acutely aware of the value of what’s been exchanged, and there’s no fudge factor in the brain for “the thought that counts.”

That’s something we disagreeable, rationalistic libertarians should keep in mind, because the gift economy is a powerful force in human relations that resists and resents the intrusion of market forces, even if markets efficiently bring us the gifts.

15 Responses to To give is to waste?

  • Never mind gifts, you could apply similar logic to a lot of government spending. If you took all gov’t health care and education spending, and just “gifted” folks the money instead, it’s quite unlikely they’d spend it all on health care and education. In that sense, government spending in these areas is quite inefficient.
    Of course, taxpayers would never stand for such large-scale taking of money from person A and giving it to person B so it ends up getting sytematized in massive gov’t programs that end up not allocating efficiently. Handing out money instead would be more “efficient” but would more nakedly expose its redistributionist nature.

  • I give gift cards…from Wal-Mart!
    I prefer to get cigars, preferably Hoyo de’Monterrey, if anyone is so inclined. 🙂

  • I like it when my girl gives me sweaters, even if they’re not my style ( they don’t contain a flaming skull or tribal symbol) It makes her happy to give so it makes me happy to smile and act like I love it. The value of gifts aren’t if you’d have picked it for yourself or even the monetary amount. This is one time Econ theory goes out the window in favor or real life

  • And along those lines, would any of you disagreeable, rationalistic libertarian types be willing to expound further upon the role of emotion, whether in an economic, political, or general sense, or perhaps point me to some further libertarianesque reading?  I’m trying to frame some arguments with some not-so-like-minded people, and I need better ammunition.

  • Add eBay to helping minimize deadweight.
    That being said, for the gift giver, its very much like entertainment and other non utilitarian pursuits including drinking.  So at some point its part of the point of living.
    If you want to discuss taboos, what about big fat diamond engagement rings?  You pay what, ‘2 months salary’ give or take, for a tiny rock.  But try to explain to a prospective wife about it being economic dead-weight.

    • “other non utilitarian pursuits including drinking.”
      *sputter* Oh yeah? Well, what is the utility of life? Drinking is very utilitarian. Particularly after this past election.

  • This shows that Milton Friedman was only partially correct. When you spend money on someone else, you can still be careful what you spend it on, as well as how much you spend. And even if you’re not picky about what you spend money on, it’s still a damn sight better than the government not caring how much it taxes and what it throws it away on.

  • I think there is some truth to this, (although as you point out, less than before)  I know I would prefer to get a gift card to someplace I often spend money on than an actual gift which I might not like (usually). However, there is another aspect of it. I call it the Tyranny of Christmas.  I just do not like to get gifts and do not like the hassle of picking out gifts. To me a gift should be something spontaneous and not something contrived by convention that you do because you fell socially compelled to .
    I am a Christian, and I loath Christmas. It has long since ceased to be anything about Jesus. I despise the phoney sentimentality and the herd mentality of this time of year.  And most of all, I despise hearing those same old tired, lame Christmas carols every flipping place you go to from before Thanksgiving Day.

  • The Chinese give red envelopes full of cash. These also bring delight to the eyes of the receiver, and my Taiwanese wife hates gift giving because coming up with gift ideas is a pain and foreign to her.
    I can’t say that I hated getting cards with cash in them from family members for Christmas, and in face, buying gifts for teenagers is exceedingly hard.
    However, getting a gift that has not been telegraphed has the surprise factor, which can be very nice indeed.
    Best gift I ever gave someone was to a customer. He was an avid fly fisherman. There was a famous book about fly fishing by a guy with his exact same name….so he would like the book, and it would be cool to have on his shelf. Dude told me he never read the book.

  • “If you want to discuss taboos, what about big fat diamond engagement rings?  You pay what, ’2 months salary’ give or take, for a tiny rock.  But try to explain to a prospective wife about it being economic dead-weight.”
    My wife is Asian and she always is demanding I buy gold stuff, so the daughter can wear a lot of gold at her wedding. I know, I know…but I broke down and bought some gold coins as I could not bear to buy gold necklaces. That probably was actually a smart move.

  • The word ‘libertarian’ was coined by the French liberal movement around the time of the Revolution—and the idea behind it bears no resemblance to the conservative reactionary movement that co-opted its name in the 60’s (and, in fact most conservatives would be embarrassed to be associated with such principles).  In effect they use the name because it connotes individual freedom, but, in effect they believe the opposite.  They anthropomorphize the market, suggesting that its so-called freedom equates with the freedom of individuals.  But, actually, their notion of a free market is a 19 Century delusion that resides only in their mind—especially with the advent of world markets  (in which people don’t believe as they do), and similarly the resultant freedom of the individual does not prevail.

  • One correction:  Rational Libertarian should be changed to Conservative Libertarian.  Reason:  The current state of modern Libertarianism is not always rational, but it’s always conservative.