Why cash is the worst Christmas present to give

Christmas generates a shocking amount of waste.

I’m not just talking about discarded wrapping paper or congealed mashed potatoes. I'm talking about what economists and their acolytes have long mourned as "the deadweight loss" of gift giving – the portion of the retail value of a gift that is destroyed when the gift is given.

Let’s say, for example, your aunt gives you a weird little figurine that cost her £40. But because you don’t like it very much, you would only be willing to pay £5 for it. *Poof*, £35 of value is gone.

The idea comes from a particularly Scroogey, and infamous, paper by the economist Joel Waldfogel, who estimated that the deadweight loss from gift-giving is one-tenth to one-third of the gift’s value.

The National Retail Federation has estimated that Americans will spend $630.5 billion (£423bn) during the 2015 holiday season. As Mark Perry of the American Enterprise Institute writes, if Waldfogel’s estimates are correct, that means $63.5 billion (£42bn) to $210 billion (£141bn) of that spending will be wasted. That’s way more than it would cost to, for example, give every homeless person in America a house or everyone in the world safe drinking water.

Some economists advise that instead of a gift, you should give cash instead. But cash just doesn’t work under a Christmas tree. Gift cards might seem better, but they are also pretty inefficient, since many people never use them. Just look at giftcardgranny.com, where you can buy gift cards for a third of their face value.

So what is one to do?

The best option, probably, is to ignore those economists. And to listen a little bit more to anthropologists.

Though some economists argue otherwise, economics isn't that great at capturing the point of gift giving. Economics is centered on the idea of utility – a measurement of how useful something is to people, in a world of finite resources. But look around the world, and you see that there's good reason to think that gift giving is rarely motivated by practical concerns.

By contrast, there are many anthropological studies that show that gift giving is, and has always been, driven by factors much different than maximizing economic value.

An anthropologist named Wendy James who studied a group called the Uduk in northeast Africa wrote about one such practice in the journal Sudan Notes and Records in 1970.

According to Jones, the Uduk had a rule that any animals or grain given from one subclan to another needed to be consumed rather than invested. For example, if someone gave you a goat as a gift, you should eat it, rather than selling it or breeding it to make more goats. Those who used goats or other gifts to their own profit would be seen as getting rich at someone else's expense, and were likely to bring on bad weather, the people thought.

Obviously, if you're trying to get wealthier as an individual and a society, eating gifted goats isn't the best way to do it. Even so, the rule was very important for the Uduk. It helped to create a distinction between gifts and capital, and preserved the special status of gift-giving as something outside the realm of everyday economic activity.

In this example and others, anthropology shows that gift giving around the world is rarely about efficiency. Sometimes it even deliberately results in waste and the actual destruction of food, goods and other forms of wealth.

Marcel Mauss, a French sociologist and anthropologist and one of the most influential thinkers about gift-giving, wrote about one practice in which huge amounts of wealth was destroyed: the potlatch, a gift-giving feast among native people of the Pacific Northwest.

Potlatches were always given by aristocrats, often on the occasion of a birth, death or marriage. The host would hold a huge feast for his and often neighboring tribes, in which he would give away and sometimes destroy vast quantities of food, blankets, animal skins, ornamental coppers and other objects.

During the late 19th and early 20th Century, the US and Canada both outlawed potlatching, because the white population saw the practice as uncivilized and wasteful (it was decriminalized again after World War II).

But for those giving the feasts, the potlatch served other purposes rather than efficiency. It was an essential way to establish one’s social status, redistribute wealth in the community, and, probably, as the anthropologist Franz Boas wrote, ensure that no one person in the community acquired too much wealth.

In these examples and others, gift giving is about far more than the actual transaction. It's about the reciprocal activity that creates ties between people, with one gift leading to another gift and then a relationship.

In the case of the potlatch, the invitees to one potlatch were obligated to answer back by hosting a bigger and better celebration, giving away or destroying even more stuff to demonstrate their status and wealth. “Every present received at a potlatch has to be returned at another potlatch, and a man who would not give his feast in due time would be considered as not paying his debts,” Boas writes.

As Lewis Hyde, an essayist, writes in his 1983 book The Gift, gifts are nothing like the market transactions that economists are used to studying. In a market exchange, the point is settling up – you give me something, and I give you money or goods of an equivalent value. The scales balance, and we depart as equals.

But in gift-giving, the point is the opposite, says Hyde. The giver gives the gift to unsettle the balance and make the two parties unequal. In doing so, it creates a kind of trust, commitment and obligation between the parties.

The point of all this is to form and cement relationships. You might buy and sell things to strangers, but you wouldn't give them holiday gifts. Gift giving is part of what anthropologists call “an economy of small groups” — reinforcing relationships between extended families, small villages, tribes and workplaces.

In short, it’s great when someone loves a Christmas gift, but getting the best value for your money isn't what's important.

In The Gift, Hyde relates a folk tale from the brother Grimm, called The Ungrateful Son, that teaches an essential lesson about gift giving and generosity.

“Once a man and his wife were sitting outside the front door with a roast chicken before them which they were going to eat between them. Then the man saw his old father coming along and quickly took the chicken and hid it, for he begrudged him any of it. The old man came, had a drink, and went away.

Now the son was about to put the roast chicken back on the table, but when he reached for it, it had turned into a big toad that jumped in his face and stayed there and didn’t go away again.

And if anybody tried to take it away, it would give them a poisonous look, as if about to jump in their faces, so that no one dared touch it. And the ungrateful son had to feed the toad every day, otherwise it would eat part of his face. And thus he went ceaselessly hither and yon about in the world.”

Economists take note.

Copyright: Washington Post