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Speaker 1: When there are these camera shots on news Bulleton's around

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Speaker 1: the world of crazy people lined up thousand steep just

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Speaker 1: waiting for best buy our target to open. You're there.

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Speaker 1: I have been known to frequent those sorts of events.

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Speaker 1: This episode is brought to you by nat X, the

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Speaker 1: Binary Options Exchange. Binary Options let you limit your risk

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Speaker 1: exchange with transparency, free market data, and fairness guaranteed. The

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Speaker 1: e X dot com futures, options and swaps. Trading involves

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Speaker 1: risk and may not be appropriate for all investors. Hi,

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Speaker 1: and welcome back to Bloomberg Benchmark, a podcast about the

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Speaker 1: global economy. I'm Tory Stillwell in Economics reporter with Bloomberg News.

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Speaker 1: It is Wednesday, November, that day before Thanksgiving here in

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Speaker 1: the US, and I am with my colleagues and co

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Speaker 1: hosts Dan Moss in d C and Akido in San Francisco. Hey, guys,

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Speaker 1: Hey guys. Hi, And before we get the show started,

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Speaker 1: very important. We are hosting a cocktail party next Tuesday,

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Speaker 1: December one in d C to celebrate benchmark. It's going

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Speaker 1: to be a bunch of economists, policy experts, journalists, and

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Speaker 1: we're holding a couple of free tickets for our listeners.

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Speaker 1: So if that guest list doesn't excite you, we three

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Speaker 1: will be there. How about that. So if you're in

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Speaker 1: d C and you'd like to come, please let us

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Speaker 1: know via Twitter and we'll be happy to send you

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Speaker 1: the details. We're skipping our usual chatter today about the

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Speaker 1: global economy so we can all head out for Thanksgiving

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Speaker 1: a little early. But we do have a funch show

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Speaker 1: for you, especially as many of you think about braving

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Speaker 1: the Black Friday crowds or not for the kickoff of

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Speaker 1: the holiday shopping season. All right, Tori, So let's set

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Speaker 1: the stage here. The holidays are a huge deal for

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Speaker 1: the US economy, and it's an especially big deal for retailers.

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Speaker 1: First of all, Black Friday is the single busiest shopping

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Speaker 1: day of the year, that's right, And for our international listeners,

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Speaker 1: this is the day after Thanksgiving when everything goes on

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Speaker 1: sale just about and people have been shop for Christmas presents.

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Speaker 1: A little known fact about me, I actually love Black Friday.

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Speaker 1: It's like a guilty pleasure of mine, even though everyone

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Speaker 1: touts its demise. When there are these camera shots on

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Speaker 1: news bulletons around the world of crazy people lined up

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Speaker 1: thousands deep just waiting for Best Buy or Target to open,

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Speaker 1: you're there. I have been known to frequent those sorts

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Speaker 1: of events. And are you going this week? Um to

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Speaker 1: be determined, but there is a strong chance that I

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Speaker 1: will be there. In Hickory, North Carolina, Wow and Holliday

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Speaker 1: sales and total are estimated to reach six hundred thirty

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Speaker 1: billion dollars this year. According to the National Retail Federation,

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Speaker 1: holiday shopping accounts for as much as thirty of annual

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Speaker 1: sales for retailers and for person consumers end up spending

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Speaker 1: about eight hundred dollars and holiday shopping. The vast majority

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Speaker 1: of that goes to gifts, and the rest is spent

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Speaker 1: on little things like food and decorations. And it seems

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Speaker 1: like that it's almost ingrained in the DNA of the U. S. Economy.

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Speaker 1: We love giving gifts, we love getting gifts. But there's

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Speaker 1: one guy who thinks that all this might be a problem.

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Speaker 1: He thinks it results in a quote deadweight loss, which

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Speaker 1: is economics jargon for any kind of waste resulting from

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Speaker 1: economic inefficiency. It can stem from things like bad monopolies

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Speaker 1: or bad government regulation, but in our case, it's bad presence.

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Speaker 1: We have Joel Walt Fogel on the line with us.

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Speaker 1: He's a professor at the University of Minnesota Carlson School

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Speaker 1: of Management and the author of a book called screw Genomics. Yeah, really,

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Speaker 1: screw Geonomics, Why you shouldn't buy presents for the Holidays,

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Speaker 1: which basically explains our show for us. Joel High, how

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Speaker 1: did you come up with that term? Well, you know,

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Speaker 1: it really just follows very naturally, sad to say, from

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Speaker 1: from economic theory. You know, a basic tenet of microeconomic

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Speaker 1: theory and frankly common sense is that people do pretty

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Speaker 1: well when they buy things for themselves because when they

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Speaker 1: do that, well, they know what they want, they know

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Speaker 1: what they need, so they'll only spend a dollar if

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Speaker 1: they get something that's worth at least a dollar for them.

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Speaker 1: Gift giving is kind of different. You know, I go

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Speaker 1: out to spend a dollar on you, and I probably

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Speaker 1: don't know what you want or need, so I could

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Speaker 1: easily spend a dollar on you to buy something that's

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Speaker 1: worth Oh, this is the worst case nothing and You've

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Speaker 1: actually found a way to quantify that waste, right I have.

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Speaker 1: I mean, over the years, I've done a lot of

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Speaker 1: surveys of various kinds of recipient populations, and what I

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Speaker 1: ask people is, think about some item you're received as

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Speaker 1: a gift. You know what's the most you would have

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Speaker 1: been willing to pay for that item? And just think

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Speaker 1: about the item, not you know, put it put aside

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Speaker 1: for a moment, the sentimental value, just the item. Then

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Speaker 1: think about stuff you bought for yourself, and what's the

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Speaker 1: most you'd be willing to pay for that. It turns

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Speaker 1: out that if you look at what people are willing

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Speaker 1: to pay for stuff in relation to what it costs,

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Speaker 1: that per dollars spent, gifts deliver about less value to

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Speaker 1: the recipients than money spent for one's self. You know,

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Speaker 1: in short, gift giving, whatever it's wonderful qualities might be,

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Speaker 1: is a poor method of resource allocation. So, Joel, when

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Speaker 1: I spend twenty dollars on this box of chocolate, I

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Speaker 1: know it's worth at least twenty dollars for me. Otherwise

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Speaker 1: I never would have bought the box of chocolates in

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Speaker 1: the first place. But when I spent twenty dollars on

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Speaker 1: this box of chocolate for Dan. Let's say he doesn't

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Speaker 1: really like chocolate, it could only be worth ten dollars

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Speaker 1: to him. So there's ten dollars waste it right there, exactly. Now,

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Speaker 1: It's not to say that we always do poorly. If

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Speaker 1: you know somebody really well, you might do quite well.

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Speaker 1: And in fact, givers who are in frequent contact with

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Speaker 1: their recipients tend to do pretty well. But folks who

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Speaker 1: aren't and who therefore don't really know what their recipients

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Speaker 1: want or need, tend to do pretty poorly at resource allocation.

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Speaker 1: So you first published something related on this more than

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Speaker 1: twenty years ago, and your book came out gosh, I

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Speaker 1: guess six years ago at this point. So since then,

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Speaker 1: you've given a lot of media interviews, You've taken a

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Speaker 1: little bit of heat on this. Right, Have your views

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Speaker 1: on this topic changed at all or any of the

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Speaker 1: points that you make change at all? Well. One of

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Speaker 1: the things I think is important to say is that

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Speaker 1: gift giving. I keep saying gift giving is a poor

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Speaker 1: method of resource allocation. That doesn't mean, though, that gift

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Speaker 1: giving necessarily is a bad thing to do. I mean

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Speaker 1: it could be that the good things we accomplished through

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Speaker 1: gift giving our value and that they couldn't be reproduced

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Speaker 1: by other means. So I think it one has to

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Speaker 1: be careful to say, look, gift giving is a kind

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Speaker 1: of a bad way to choose stuff, But then the

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Speaker 1: tough question is, well, what else might we do instead.

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Speaker 1: One thing that really has happened over time is that,

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Speaker 1: you know, twenty some years ago, gift cards were pretty rare.

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Speaker 1: Most giving took the place, or took the form, I

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Speaker 1: should say, of giving stuff, And in the past twenty

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Speaker 1: some years there's been enormous growth in the use of

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Speaker 1: gift cards instead of using particular gifts. Now my wife

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Speaker 1: thinks this is my influence. I'm not that grandiose, but

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Speaker 1: whatever the cause, but there's really been a shift towards

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Speaker 1: worrying about value in gift giving and gift recipiency. I

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Speaker 1: mean the National Retail Federation typically they do surveys asking

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Speaker 1: what items do people want as gifts, and it turns

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Speaker 1: out that gift cards are really high on the list. Now,

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Speaker 1: I don't it's not my job or my role to

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Speaker 1: advocate that people should do something other than what they're

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Speaker 1: currently doing. I mean, economists are more observers, but it

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Speaker 1: is interesting to observe that there's been a huge shift

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Speaker 1: away from giving stuff and towards giving things that gives

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Speaker 1: some choice to the recipient, namely to give gift cards.

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Speaker 1: But macro economically, the money is still spent. You've still

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Speaker 1: spent the same amount of money. Does it really matter

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Speaker 1: it matter whether we buy stuff people do or don't

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Speaker 1: want exactly? Well, yes, here and here's why. If you

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Speaker 1: think about the reason why we care about spending is

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Speaker 1: because spending typically delivers satisfaction. If people go out and

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Speaker 1: spend stuff that is of no use to anyone, it

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Speaker 1: is true the sellers get something, The sellers get some

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Speaker 1: revenue and some profit, but it generates none of the

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Speaker 1: stuff that consumers actually care about. So if you think

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Speaker 1: about a well functioning economy, revenue is an interesting measure

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Speaker 1: because it's an understatement typically of the amount of value

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Speaker 1: that's being delivered to ultimate consumers. It is true even

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Speaker 1: if we buy stuff no one wants that there's revenue,

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Speaker 1: but there's no happiness on the consumer side, or happiness

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Speaker 1: is too lofty a term. No satisfaction on the consumer side,

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Speaker 1: So I think it does really matter. It wouldn't matter

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Speaker 1: to the g MP statistics. But after all, we don't

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Speaker 1: care about them in and of themselves. We care about

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Speaker 1: them inasmuch as they reflect some happiness or satisfaction being

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Speaker 1: generated for consumers. This is fascinating, and let's pick this

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Speaker 1: and it's year now at n A d e X,

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Speaker 1: dot com, futures options and swaps. Trading involves risk and

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Speaker 1: may not be appropriate for all investors. So Joel, it's

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Speaker 1: really interesting your discussion of gift cards, how they have

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Speaker 1: become less stigmatized than before UM in Japan New Year's

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Speaker 1: is the big family holiday. And when I was a child,

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Speaker 1: I got an envelope of cash from my parents, my

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Speaker 1: uncle's aunts and grandparents, and I got to go out

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Speaker 1: to spend that extra allowance money on candy and things

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Speaker 1: like that. I heard there's a similar custom in China.

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Speaker 1: I'm wondering, you know, since you started this research, have

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Speaker 1: you tried to give gifts of cash to any of

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Speaker 1: your relatives or your friends. Well, I'm a pretty conservative

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Speaker 1: gift giver, and I tend to give gifts to people

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Speaker 1: I know well, and so maybe we all kind of

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Speaker 1: overestimate our our efficacy as lovers and as gift givers.

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Speaker 1: But you know, I think I'm good at it, and

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Speaker 1: so when I give gifts, I give gifts in situations

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Speaker 1: where I think I'm giving something they actually want. What

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Speaker 1: strikes me as the problem with obligatory gift giving as

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Speaker 1: happens that big holidays is that there's a mandate to

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Speaker 1: buy something for each of well, let's make up a

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Speaker 1: number twenty seven different people. It's possible you have a

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Speaker 1: good idea about what those people want, but it seems

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Speaker 1: unlikely the person you know really well, maybe you have

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Speaker 1: a good idea, So in my own case. As I say,

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Speaker 1: I'm pretty conservative, and I tend to buy gifts for

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Speaker 1: people who are pretty close to me. And so my

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Speaker 1: strategy is to listen during the year to what I

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Speaker 1: get some hints so I can buy something that might

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Speaker 1: actually want. So, what's the most recent gift that you've given. Gosh,

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Speaker 1: that's a toughie. I don't remember, you know, But it

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Speaker 1: does sound like you actually do gift gifts that you

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Speaker 1: haven't imposed this ban on yourself. No, not at all.

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Speaker 1: I mean I I give gifts to my to my

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Speaker 1: family and uh. And actually I have this habit of

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Speaker 1: giving gifts spontaneously. If I happen to see something that

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Speaker 1: strikes as a good match for some friend or family member,

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Speaker 1: I'll just go buy it. Oh, I love that idea.

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Speaker 1: That's a good one. I know. With my two closest

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Speaker 1: friends and I, we have this practice where for Christmas

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Speaker 1: we send each other long lists and everyone is allowed

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Speaker 1: to pick something off of that list and that's it.

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Speaker 1: You're not allowed to stray from the list. And it

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Speaker 1: seems early, I don't know, it seems kind of sad

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Speaker 1: to a certain extent, because we're not allowing ourselves to

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Speaker 1: be surprised, YadA, YadA, YadA. But at the end of

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Speaker 1: every Christmas, we've always been very happy with all of

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Speaker 1: our gifts. I love that's interesting. I mean, I don't

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Speaker 1: want to suggest that people should abandon practices that they

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Speaker 1: really enjoy. And I think that, especially for young kids,

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Speaker 1: the traditional way of doing it via surprise works fine.

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Speaker 1: But people get to a certain age and they're harder

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Speaker 1: to please. And I think this, this idea we have

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Speaker 1: to go out and buy stuff, ends up creating a

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Speaker 1: lot of both anguish on the part of givers, but

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Speaker 1: you know, kind of value destruction for recipients. And it's

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Speaker 1: those situations where people I think might want to consider

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Speaker 1: doing something different and where in fact they have. And

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Speaker 1: it's two things. It's both the gift cards that have grown,

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Speaker 1: but also in recent years there's been a lot of

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Speaker 1: talk about giving to charity holidays. Now. I don't think

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Speaker 1: most little kids would would like an empty box with

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Speaker 1: a note saying that, you know, get money was given

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Speaker 1: to charity, But for a lot of grown ups, I

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Speaker 1: think that might be just fine. M that's right, And Joel,

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Speaker 1: how much do you think we're actually wasting in the

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Speaker 1: US economy as a result of holiday gifts giving. Well,

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Speaker 1: if you take the numbers, you know, if stick the

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Speaker 1: numbers literally, I'm saying people kind of do. The value

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Speaker 1: of what's given through gifts is less valuable per dollar

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Speaker 1: spent than stuff one buys for oneself. My more conservative,

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Speaker 1: my conservative way, or I think reasonable way of measuring

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Speaker 1: the volume of holiday gift giving is not kind of

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Speaker 1: the full spending in November and December that the Retail

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Speaker 1: Federation says. But rather if you look at the spike

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Speaker 1: in spending in December relative to the months around it

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Speaker 1: in recent year, if you get a number like about

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Speaker 1: eighty billion in the US per year, eighty billion time,

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Speaker 1: you know, fifteen sixteen billion would be I guess the

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Speaker 1: back of the envelope estimate of the volume of value

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Speaker 1: destruction per year. So but one thing I should be

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Speaker 1: careful about again, though, is that it's not clear even

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Speaker 1: though I say that there's value being destroyed to this

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Speaker 1: process of gift giving, it's not clear that the solution

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Speaker 1: is to stop giving. After all, givers may get some

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Speaker 1: benefit out of giving a sentimental value, right they might,

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Speaker 1: and it might not be reproducible if they were to

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Speaker 1: give different things. So it does you know it's a

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Speaker 1: bit of a conundrum. Is there a way to quantify

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Speaker 1: that sentimental value of this gift giving? Maybe that's your

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Speaker 1: next study for you. Well, I think one way to

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Speaker 1: think about um the sentimental value is kind of the

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Speaker 1: flip side of it, which is that why don't people

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Speaker 1: just give cash? Yeah, there is a stigma with cash,

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Speaker 1: though we exactly know exactly I mean, But what you

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Speaker 1: see is that if you look at give were recipient combinations,

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Speaker 1: and you look at contexts where people tend where a

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Speaker 1: dollar given tends to produce a lot less than a

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Speaker 1: dollar's worth of satisfaction if the giver or choose and

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Speaker 1: choose as an item. Givers in that circumstance are much

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Speaker 1: more likely to choose instead to give cash or gift cards.

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Speaker 1: So you see individuals responding to the prospect of value

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Speaker 1: destruction by instead choosing to give cash. The interesting thing is,

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Speaker 1: on the one hand, that's like, okay, good, that's people

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Speaker 1: responding in a way that kind of preserves value, and

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Speaker 1: that's good. But on the other hand, people give cash

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Speaker 1: less often than they would if there were no stigma,

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Speaker 1: and that actually tells you there's a stigma, which I

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Speaker 1: guess is a flip side of saying there's some maybe

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Speaker 1: some enjoyment in giving non cash gift. That's a good point,

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Speaker 1: Very interesting, Tori. I have a question for you. Okay,

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Speaker 1: So a couple of months ago, I got you a

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Speaker 1: vegetarian cookbook by the famous chef for your birthday and

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Speaker 1: cost thirty three dollars. So, knowing all of this research,

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Speaker 1: would you have preferred that I emoed you thirty three

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Speaker 1: dollars in cash or given you a thirty three dollar

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Speaker 1: gift card to Starbucks? Or would you have still preferred

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Speaker 1: this cookbook in physical form? I actually am going to

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Speaker 1: go with the cookbook. I first of all, I don't

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Speaker 1: have venmo, so run into a little bit of books

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Speaker 1: and like such an old soul um and I don't

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Speaker 1: drink coffee, so I would have felt like the Starbucks

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Speaker 1: gift card was a little wasteful, But like, looking more broadly, yeah,

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Speaker 1: I loved the gift because it was something I never

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Speaker 1: would have bought for myself if I had thirty three dollars,

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Speaker 1: you know, extra dollars just laying around. But I don't

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Speaker 1: think I like undervalued that book. I don't think I

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Speaker 1: was like, oh, this is like a fifteen dollar book,

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Speaker 1: you know, Um, because the pictures were great, so I

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Speaker 1: think I would still choose the cookbook. Wow, that's great.

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Speaker 1: That warms my heart. Yeah. Um, that's probably a great

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Speaker 1: note to end the show today. Joel, thank you so

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Speaker 1: much for joining us, and happy holidays. They likewise, thank

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Speaker 1: you so to our listeners. If you'd like to ignore

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Speaker 1: everything we just talked about and go brows for gifts anyway,

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Speaker 1: we have a beautiful holiday gift guide up on Bloomberg

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Speaker 1: dot com right now, photographed by the famous photographer William Wagman.

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Speaker 1: He's the guy who takes all those pictures with the

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Speaker 1: skinny dogs. Haven't actually never seen those, and I'm gonna go,

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Speaker 1: like spend the next couple of minutes being really productive

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Speaker 1: and looking at them. Thanks again for listening to Bloomberg Benchmark.

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Speaker 1: We'll be back next week and until then, you can

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Speaker 1: please take a minute to rate and review the show

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Speaker 1: us and follow us on Twitter at Daniel molto see

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