The costs (and benefits) of Christmas

According to a survey conducted by the National Retail Federation, the average American plans to spend $967.13 on gifts during the 2017 holiday season (defined as spending over November and December), which represents an increase of 3.4% on 2016. Cheapskates! According to the Christmas Price Index calculated by PNC Financial Services Group, the basket of goods which one’s true love can be expected to send over the twelve days of Christmas (a partridge in a pear tree, two turtle doves etc.) costs a whopping $34,559. If you follow the sequential purchasing of the presents (12 partridges in pear trees, 11 times two turtle doves etc.), the total cost amounts to almost $160,000.

Over the last 33 years, the average cost of Christmas on the basis of this index has risen by 2.9% per year. But significant volatility is introduced by the price of swans. PNC thus suggest that a core Christmas index can be constructed excluding this item, although this does rather change the nature of the index as it is by far the most expensive item, accounting for 50% of total outlays (down from 78% in 1984). If your true love is not particularly partial to swans a-swimming, this reduces the total cost of the basket to just below $80,000. Quite the bargain! In terms of inflation, however, the core index has increased at a rate of 4% per year since 1984. For the purposes of comparison, US headline consumer price inflation since 1984 has averaged 2.6% per year (core: 2.7%).

Assuming that the UK imports all of these goods from the US (I know, but we are not being entirely serious here), the total cost of Christmas in the UK has increased at an average rate of 2.5% per year. However, it probably makes more sense to focus on the core index since the Queen owns all the swans in the UK (technically, she owns any unclaimed mute swan in open water in England and Wales but let’s not split too many hairs). This measure of the UK core Christmas index has posted an average inflation rate of 3.6% per year since 1984. Last year was a particularly painful one given the collapse in sterling which raised the UK Christmas index by 20%. It has since fallen back a bit on the basis of a slight rally in sterling but clearly even Christmas is not immune to the costs of Brexit (so thanks for that Nigel and co). 

Of course you can avoid the whole rigmarole by refusing to play along. Back in 2001,the economist Joel Waldfogel argued that there is a significant deadweight loss associated with Christmas primarily because the consumption choice is made by the giver of gifts rather than the final consumer. As he put it “it is more likely that the gift will leave the recipient worse off than if she had made her own consumption choice with an equal amount of cash.” This deadweight loss is estimated at between 10% and 33% of the value of gifts. So if you are thinking about buying someone a book for Christmas, you should probably follow Waldfogel’s advice and not buy them a copy of his book Scroogenomics.

Indeed, Waldfogel is guilty of making the classic error of focusing purely on those quantities that can be assigned a monetary value. The whole point of giving a gift is a sign of appreciation that we value the recipient, and it should be seen as a signal that the giver is prepared to invest time and effort to demonstrate individual recognition that is absent at most other times of the year. It is thus probably going overboard to purchase the 364 gifts required in the old Christmas carol (assuming a partridge in a pear tree is one gift). Indeed, if someone were prepared to spend the $157,558 that PNC calculates that the basket of goods cost, I think I would rather have the cash if it’s all the same to you.

But even if Santa Claus somehow forgets to bring you an envelope stuffed with that amount of cash, I wish you and yours a Merry and Peaceful Christmas.