Today we exchange gifts, and we rush to unwrap what was carefully wrapped to realize all the deadweight loss embodied in them. For some economists the holidays seem to mean an opportunity to trot out favorite rational arguments about what a waste gift exchange is, and the essence of their case is that the process is inefficient: I would get much more utility out of the money you spent on me and with much less time spent shopping if you just gave me cash. Instead, as Joel Waldfogel points out at Slate, “gift-giving effectively discards 20 percent of the gift’s price. So, of the nearly $100 billion spent on holiday gifts each year, one-fifth is effectively flushed down the toilet.” From this point of view, twenty percent of the money we spend for holiday gifts makes no one but retailers happy. (Probably some of that loss actually buys shoppers the thrills and excitement of holiday shopping, participating in the zeitgeist of Xmas fever. Those people must exist.)
The solution, if you don’t have the gumption to give cash, is to buy gift cards, which have become shockingly ubiquitous this year. You can buy them for any number retailers at drug stores, convenience stores, grocery stores, pretty much anywhere. I got my father a Home Depot gift card (his idea) while I was buying a toothbrush at CVS for the holiday sleepover at his house. The problem with cash, presumably, is that by giving it, you haven’t given any (wasteful) thought to what the person might “really” want, demonstrating how quietly attentive you’ve been to their needs – and how you were able to diligently ignore those needs until they could suit your year-end gift-giving requirements. Also, you aren’t going to surprise anyone with your savvy at picking out clever things or your fortitude in pursuing just the right thing (the Internet now discounts this particular approach; who can’t find some specific thing in an instant with eBay and Google at one’s disposal) or your shopping endurance in procuring whatever hot, artificially scarce gift got all the local-news coverage. And moreover, a cash gift confesses that you haven’t gazed into the crystal ball and divined what they might really need or what could extend them beyond their practical self. At Marginal Revolution, Alex Tabarrok suggested that gifts should appeal not to our rational side but to our wild side that remains shrouded as a mere potentiality:
We want the gift giver to buy something for us that we would not have bought for ourselves. Or more precisely one of our selves wants this - the self that is usually restrained, squashed, and limited, the wild self, the passionate self, the romantic self.
Gift giving, therefore, is about reaching out and giving to the wild self in someone else. Why would we want to do this? Because we want the wild self in someone else to be wild about us.
The bottom line? If you want to please the economist in me, send me cash. If you want to please my wild self (you know who you are!) use your imagination.
Some ambitious givers give gifts to try to encourage people to actually more accurately approximate the sort of person they fantasize they are, the kind of person we can see they want to be with all the clarity that comes with not being saddled with their particular neuroses or inhibitions. Ideally, a gift from someone else who knows you well will give you an opportunity to move beyond yourself in some direction you vaguely yearn for but lack the wherewithal to pursue. Of course, few gifts accomplish this: Instead you get gifts that push you in directions the gift giver would like to see you go, or you get generic gifty gifts equally inappropriate for anyone that encourage you to think of yourself as anonymous.
The gift card, which is essentially branded money, allows you to express the idea that you gave some thought to what the recipient might want but not so much that you are going to impose an inefficient result on them. It’s an intermediate step, a compromise between cold, hard cash and actual thoughtful gift. And retailers love them, because consumers leave a healthy percentage of gift card cash unspent, meaning retailers collects millions of dollars for selling virtually nothing – a piece of plastic and the cost of the computer system to track the unspent funds. The gift card makes sure the holiday deadweight loss accrues to retailers in a clear, calculable way. And with that cash virtually in their back pocket, retailers can afford to aggressively push gift cards in stores not their own, cutting other retailers in on the great gift-card consumer giveaway. They can sell their branded cash at a loss because they know much of it inevitably will never be exchanged for anything in their inventories.
With all the retailers’ incentives pointing in one direction with gift cards, it’s no surprise they use various subtle and not so subtle ways retailers encourage you to leave money unspent on them – expiration dates, restrictions, refusing to cash out remainders, or doing so only after elaborate paperwork is filed. And they are able to work gift-giving guilt to their advantage, encouraging the sense that they have done you a favor by letting you use their gift card service to get you out of difficult gift-giving conundrums, letting you and the recipient circumvent that threat of unwanted gifts. Thus we get the impression that we are already ahead – we didn’t get socks or useless ornaments or momentarily funny gag gifts—and shouldn’t complain too loudly at the other sundry restrictions on how the branded cash can be spent. We pay cents on the dollar to avoid more substantial holiday losses. (All this has convinced me by and large to give cash as gifts on prescribed occasions (my father is an exception, because he gives me cash, and giving him cash back makes the holiday cash-flow accounting a but too self-evident and a little ludicrous) and give real presents on spontaneous occasions when serendipity strikes, which admittedly is not as often as I’d hope for, probably because I’m generally thinking only of myself when I’m out in shopping land.)
But we get something more in the gift card exchange than defense against bad gifts. This occurred to me when I was filling my car with gas and getting coffee at Wawa, the convenience store chain dominant in Bucks County, where I grew up and where I return for the holidays. I was in line waiting to pay, and the woman in front of me was buying a gift card for Wawa itself, and was asking the cashier questions about logistics – could it be used directly at the pumps to pay for gas, was it good at every Wawa, etc. It seemed strange to me at first to give a gift card for something as mundane and quotidian as Wawa. This certainly is not allowing you to unleash your “wild self.” It’s certainly useful; you end up going in to Wawa almost everyday around here as a matter of course. But it’s not especially festive. And in fact these trips are precisely the kind that pocket cash is meant for. Then it hit me what the Wawa gift card is all about – it is about making money not fungible – it’s a way to ensure that as the recipient spends the money you gave him, it doesn’t dissolve into his own cash supply and become forgotten. It imprints your name on every nickel of the gift, so he must think of you each and every time he buys coffee, smokes and hoagies. Actually this brings you to the heart of his everyday life, embeds your gift pretty deep into the fabric of his life where it can’t but be appreciated intimately. But it is pretty egoistic; you are giving the gift of making him continually think of you, sending the message, effectively, that he isn’t already thinking of you enough. A Wawa gift card – or any of the various American Express and Visa gift cards that work like prepaid credit cards—is like giving bills with your face printed on them. Ultimately, that seems to be the ultimate purpose of gift cards, to brand money with your own image as well as the store’s.
This is probably self-evident, but I forgot the cardinal rule of economics – there is no such thing as altruism: I was fooled by the ideological smokescreen that suggests the point of gift-giving is to maximize the recipient’s utility – to make someone else as happy as possible. But gift-giving is actually about making you feel good, comfortable in the thought that you will be recognized and remembered.