Is Santa a deadweight loss?

ECONOMICS has long been known as the dismal science. But is any economist so dreary as to criticise Christmas? At first glance, the holiday season in western economies seems a treat for those concerned with such vagaries as GDP growth. After all, everyone is spending; in America, retailers make 25% of their yearly sales and 60% of their profits between Thanksgiving and Christmas. Even so, economists find something to worry about in the nature of the purchases being made.

Much of the holiday spending is on gifts for others. At the simplest level, giving gifts involves the giver thinking of something that the recipient would like—he tries to guess her preferences, as economists say—and then buying the gift and delivering it. Yet this guessing of preferences is no mean feat; indeed, it is often done badly. Every year, ties go unworn and books unread. And even if a gift is enjoyed, it may not be what the recipient would have bought had they spent the money themselves.