When I was a kid in Minnesota my family had a huge Scandinavian feast every Christmas Eve, complete with two dozen relatives, three feet of snow, a mountainous evergreen trimmed to the top, a six-course dinner with lutefisk and turkey and eight or ten pies, long-winded after-dinner stories about baseball and World War II, and, of course, lots of brightly wrapped presents. It has taken me three decades of rigorous economics training and life on the East Coast to shake off the warm nostalgia of those holidays. But I am now willing to say out loud what I suspect many Americans are muttering all across the country at this time of year: Christmas has become a net loss as a socioeconomic institution.



Although for many years Christmas has been justified on the grounds that it is “merry,” rigorous quantitative analysis establishes that the opposite is the case. Despite claims advanced by proponents that the holiday promotes a desirable “spirit,’’ makes people “jolly,” etc., the data show that the yuletide time period is marked by environmental degradation, hazardous products and travel, and—perhaps most important—inefficient uses of key resources. The holiday is an insidious and overlooked factor in America’s dwindling savings rates, slack worth ethic, and high crime rates. Nor does Christmas truly fulfill its purported distributional objective: the transfer of gifts to those who need them. Moreover, the number of people rendered “joyous” by Christmas is probably equaled or excelled by the number made to feel rather blue. In short, as shown below, although Christmas is an important religious observance that provides wintertime fun for children (who would probably be having fun anyway), it fails the test of cost-effectiveness.

Christmas consumes vast resources in the dubious and uncharitable activity of “forced giving.” First, it is necessary to factor in all the time spent searching for “just the right gifts,” writing and mailing cards to people one ignores the rest of the year, decorating trees, attending dreary holiday parties with highly fattening, cholesterol-rich eggnog drinks and false cheer, and returning presents. Assuming conservatively that each U.S. adult spends an average of two days per year on Christmas activities, this represents an investment of nearly one million person-years per season. Just as important is the amount that Americans spend on gratuitous gifts each year—$40 billion to $50 billion, according to the U.S. Commerce Department’s monthly retail trade sales. Extra consumer spending is often considered beneficial because it stimulates the economy, but the massive yuletide spike creates numerous harmful externalities.

Mistargeted giving is one indication of this waste. According to New York department stores, each year about 15 percent of all retail dollar purchases at Christmas are returned. Allowing for the fact that many misdirected gifts are retained because people feel obliged to keep them (such as appliances, tablecloths, etc., which must be displayed when the relative who gave them to you comes for a visit), and allowing for the widespread inability of children to return gifts, this indicates that up to a third of purchases may be ill-suited to their recipients. Christmas is really a throwback to all the inefficiencies of the barter economy, in which people have to match other people’s wants to their offerings. Of course, money was invented precisely to solve this “double coincidence of wants” problem. One solution would be to require people to give each other cash as presents, but that would quickly reveal the absurdity of the whole institution.

“Forced giving” also artificially pumps up consumption and reduces savings, since it is unlikely that all the silly and expensive presents given at Christmas would be given at other times of the year. One particularly noxious aspect of Christmas consumption is “conspicuous giving,” which involves luxury gifts such as Tiffany eggs, crystal paperweights, and $15,000 watches that are designed precisely for those who are least in need of any present at all (“the person who has everything”). Most such high-priced gifts are given at Christmas; the fourth quarter, according to a sampling of New York department stores, provides more than half the year’s diamond, watch, and fur sales.