Today, shoppers across America will participate in the largest shopping day of the year: Black Friday. The National Retail Federation is estimating that 137.4 million customers will be shopping on Black Friday weekend, down from the 2015 estimate of 135.8 million customers. The actual result from 2015 was 151.4 million shoppers. A similar adjustment to the predicted value for 2016 would mean an actual number of shoppers close to 153.1 million.

The NRF estimates that total sales for the holiday season will be $655.8 billion, up from $633.0 billion in 2015. This would be an annual increase of 3.6 percent. The estimate for 2015 was $630.5 billion, suggesting that the total sales for 2016 may be around $658.4 billion. This year, the NRF estimates that retailers will hire between 640,000 and 690,000 seasonal employees, compared with the actual 675,300 they hired during the 2015 holiday season versus an estimate of 700,000 to 750,000. We may therefore expect that retailers will actually hire about 619,400 seasonal employees. On the surface, this may appear to be a marvelous celebration of free market capitalism. But let us look deeper through the lenses of the broken window fallacy and the idea of malinvestment.

To view holiday shopping as a boost to the economy ignores the fact that people could either be spending that money in other ways or saving it. In other words, such an approach is an example of the broken window fallacy because it focuses only on what is seen and ignores opportunity costs. If people would save their money rather than spending it on various holiday gifts, then this money would be invested in one thing or another. As Henry Hazlitt explains in Chapter 23 of Economics in One Lesson, saving is really just another form of spending, and one that has a greater tendency to allocate resources where they are most needed.

Per capita spending is predicted to be $935.58 in 2016, up from the 2015 estimate of $805.65. The actual result from 2015 was $952.58. A similar adjustment to the predicted value for 2016 would mean an actual per capita spending close to $1,106.21. The above problems get even worse if people use credit cards to spend money that they do not currently have. With a current credit card interest rate of 16.28 percent and a minimum payment of 4.0 percent, a debt of $1,106.21 would take almost six years to pay off and would cost $1,567.57. This is $461.36 wasted on interest payments that could have been kept in one’s accounts or put toward a productive purpose. Multiply this by the 153.1 million shoppers predicted earlier, and the result is that as much as $70.6 billion could be spent on interest payments.

When people purchase unwanted gifts and/or buy gifts with money they do not currently have, their choices encourage malinvestments. A malinvestment is an investment in a line of production that is mistaken in terms of the real demands of the economy, which leads to wasted capital and economic losses. The holiday shopping season contains a subset of shopping which creates systematic and widespread mistakes in investment and production. Although the effect is not as severe as what occurs during an Austrian business cycle bust and is both caused and resolved in fundamentally different ways, there is a noticeable hangover effect on the economy. A look at the average monthly returns on the Standard and Poor’s 500 shows that while the worst month for investments is September, the next three worst months for investing are February, May, and March. (April would likely be bad as well if not for income tax returns providing an artificial economic boost.) An economic downturn occurs in the historical average following the holiday season, but as this has become an expected annual occurrence, many analysts simply do not look for an explanation of these results, as they are perceived to be natural. Even so, this appears to be a small-scale business cycle that repeats annually.

With these arguments in mind, would we all be better off if we just canceled the holiday shopping season? It is an open question, but the Austrian School of economics suggests that we could have a better economy if the burst of economic activity in late November and December were spread throughout the year and people did not spend money they do not have on items they do not need.

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