Scroogenomics
Give gold, not myrrh
Dec 21st 2009
From Economist.com
Ban presents. Give money instead
DECEMBER dismays Joel Waldfogel, an economist at the University of Pennsylvania’s Wharton School and the author of a new book called “Scroogenomics”. Mr Waldfogel objects to the ritualised frenzy of shopping for gifts that precedes the enormous meals and awkward family reunions that are the other hallmarks of Christmas in the Western world.
Such complaints are hardly new. Harriet Beecher Stowe, an American abolitionist, grumbled in 1850 about “worlds of money wasted, at this time of year, in getting things that nobody wants and nobody cares for after they are got”. But unlike most criticisms of festive wastefulness, Mr Waldfogel’s objections are based on economic theory rather than morality or taste. When people buy something for themselves, they believe that their purchase is worth at least the price paid. But most gift-givers are only dimly aware of the desires and tastes of the beneficiaries of their largesse. As a result, they often give people presents that are worth far less to the person getting them than the gift-giver paid for them.
Presents? Humbug!The result of all these inappropriate presents—ranging from the sweaters that people will never wear to games they will never play—is what Mr Waldfogel calls a “deadweight loss” from Yuletide generosity. This is the difference between the satisfaction a person gets when she spends a dollar on herself and when a well-meaning benefactor spends that dollar on a present for her. Over a period of time, a series of surveys have led him to conclude that the average deadweight loss from gift-giving is around 18%. Given his estimate that Americans spent $66 billion on Christmas presents in 2007, this amounts to a whopping $12 billion of lost value. Where others see generosity, Mr Waldfogel sees an orgy of value destruction.
Of course, not all presents are such bad value for money. What matters is how good people are at anticipating what others want. People who are in close contact with recipients usually do a very good job when it comes to choosing presents. Gifts from siblings, Mr Waldfogel’s research has found, create only a tiny deadweight loss, creating $0.99 in satisfaction for every dollar spent. Partners are excellent gift-givers; parents, reassuringly, do better than average. Unfortunately, aunts and uncles (like others who are only in occasional contact with the beneficiaries of their festive largesse) tend to give gifts that create only about 75-86 cents in satisfaction per dollar spent.
So what should people, especially those obliged to bestow holiday gifts on those whose tastes they do not know well, do? Since the best a gift-giver can do is give the recipient exactly what he wants, economic theory has a simple solution: give cold, hard cash. However, social norms make it a bit awkward to give money to all but a small subset of (usually much younger) relations in most societies.
But there may yet be hope. Gift vouchers are close to cash in that they leave the choice of exactly what to buy in the hands of the recipient, and have increased in popularity in recent years. Unfortunately (except for the retailer), human forgetfulness and the propensity to procrastinate mean that about 10% of such vouchers are never actually redeemed.
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Tidings of Comfort
Indulge me while I tell you a story — a near-future version of Charles Dickens’s “A Christmas Carol.” It begins with sad news: young Timothy Cratchit, a k a Tiny Tim, is sick. And his treatment will cost far more than his parents can pay out of pocket.
Paul Krugman
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Fortunately, our story is set in 2014, and the Cratchits have health insurance. Not from their employer: Ebenezer Scrooge doesn’t do employee benefits. And just a few years earlier they wouldn’t have been able to buy insurance on their own because Tiny Tim has a pre-existing condition, and, anyway, the premiums would have been out of their reach.
But reform legislation enacted in 2010 banned insurance discrimination on the basis of medical history and also created a system of subsidies to help families pay for coverage. Even so, insurance doesn’t come cheap — but the Cratchits do have it, and they’re grateful. God bless us, everyone.
O.K., that was fiction, but there will be millions of real stories like that in the years to come. Imperfect as it is, the legislation that passed the Senate on Thursday and will probably, in a slightly modified version, soon become law will make America a much better country.
So why are so many people complaining? There are three main groups of critics.
First, there’s the crazy right, the tea party and death panel people — a lunatic fringe that is no longer a fringe but has moved into the heart of the Republican Party. In the past, there was a general understanding, a sort of implicit clause in the rules of American politics, that major parties would at least pretend to distance themselves from irrational extremists. But those rules are no longer operative. No, Virginia, at this point there is no sanity clause.
A second strand of opposition comes from what I think of as the Bah Humbug caucus: fiscal scolds who routinely issue sententious warnings about rising debt. By rights, this caucus should find much to like in the Senate health bill, which the Congressional Budget Office says would reduce the deficit, and which — in the judgment of leading health economists — does far more to control costs than anyone has attempted in the past.
But, with few exceptions, the fiscal scolds have had nothing good to say about the bill. And in the process they have revealed that their alleged concern about deficits is, well, humbug. As Slate’s Daniel Gross says, what really motivates them is “the haunting fear that someone, somewhere, is receiving social insurance.”
Finally, there has been opposition from some progressives who are unhappy with the bill’s limitations. Some would settle for nothing less than a full, Medicare-type, single-payer system. Others had their hearts set on the creation of a public option to compete with private insurers. And there are complaints that the subsidies are inadequate, that many families will still have trouble paying for medical care.
Unlike the tea partiers and the humbuggers, disappointed progressives have valid complaints. But those complaints don’t add up to a reason to reject the bill. Yes, it’s a hackneyed phrase, but politics is the art of the possible.
The truth is that there isn’t a Congressional majority in favor of anything like single-payer. There is a narrow majority in favor of a plan with a moderately strong public option. The House has passed such a plan. But given the way the Senate rules work, it takes 60 votes to do almost anything. And that fact, combined with total Republican opposition, has placed sharp limits on what can be enacted.
If progressives want more, they’ll have to make changing those Senate rules a priority. They’ll also have to work long term on electing a more progressive Congress. But, meanwhile, the bill the Senate has just passed, with a few tweaks — I’d especially like to move the start date up from 2014, if that’s at all possible — is more or less what the Democratic leadership can get.
And for all its flaws and limitations, it’s a great achievement. It will provide real, concrete help to tens of millions of Americans and greater security to everyone. And it establishes the principle — even if it falls somewhat short in practice — that all Americans are entitled to essential health care.
Many people deserve credit for this moment. What really made it possible was the remarkable emergence of universal health care as a core principle during the Democratic primaries of 2007-2008 — an emergence that, in turn, owed a lot to progressive activism. (For what it’s worth, the reform that’s being passed is closer to Hillary Clinton’s plan than to President Obama’s). This made health reform a must-win for the next president. And it’s actually happening.
So progressives shouldn’t stop complaining, but they should congratulate themselves on what is, in the end, a big win for them — and for America.
