“While for many, the holiday season is a time of joy, for some it is filled with frustrations over gift buying for friends and family” ~David Kyle Johnson
(Holiday season sees people queuing up in huge numbers, which is seen as a positive sign by the investors and this pushes for the Santa Rally on Christmas Day.)
Christmas is here, and it is that time of the year when we get to hear cackles of laughter over Christmas crackers watching people savouring over elaborate feasts. It is the time when friends and family come together, and spend quality time together. Gift giving has been the favorite part for Christmas not just for kids, but for adults as well. Giving a gift brings pleasure to the giver as well as the recipient. Giving a gift allows the giver to experience the joy of generosity. Choosing a gift to give allows us to think about what the recipient might like and it serves as an opportunity to reflect, imagine, and organize something special for the recipient.
But it might surprise you that this gift giving has given birth to a debate and the very idea of it even being needed is being put into contempt due to holiday consumerism, with our society often being intoxicated by consumerism: wealth and extravagance.
The common wisdom might suggest to us that Christmas is good for the economy. There are various pointers that back this common thought. Quite literally there is a term “Santa Rally” a sustained increase in the stock market that occurs in the week leading up to 25th December. If we look at past prices, the analysis shows that in the weeks leading to Christmas, the markets are notoriously quiet and prices tend to move sideways in very narrow ranges, but then there is a sudden jump on Christmas. This might falsely lead us to believe that Christmas is good for the economy by these indicators of the stock market. But then it needs to be considered that because stocks represent the non-stop exponential upward sweep of the collision of innovations, contributing to higher earnings over time, it can’t capture the gross overall economic growth which is also referred to as the Stock-GDP Mismatch Crash by the experts. People tend to paint the picture of the positive impact of Christmas by ignoring the bigger picture. The week after Christmas is equally as quiet if not more than the week before Christmas. The lull is most probably due to participants taking a break between Christmas and New Year. There are numerous explanations for the causes of a Santa Claus rally, which include tax considerations, a general feeling of optimism and seasonal happiness on Wall Street during the festive season, and the investment of holiday bonuses. Another theory is that some very large institutional investors, many of which are more sophisticated and pessimistic than retail investors, tend to go on vacation at the time, leaving the market to retail investors, who tend to be more bullish, or positive, toward the market. Looking back at the last 20 years of performance of the Standard & Poor’s 500 (S&P 500) in the week leading up to Dec. 25, based on a review of the data, it can be stated that there is minimal evidence of any discernible Santa Claus rally. The average return over the time period was +0.385%, which is effectively flat.
(Stocks represent the non-stop exponential upward sweep of the collision of innovations, contributing to higher earnings over time, you can’t capture the gross overall economic growth which is also referred to as the Stock-GDP Mismatch Crash by the experts. People tend to paint the picture of the positive impact of Christmas by ignoring the bigger picture. The week after Christmas is equally as quiet if not more than the week before Christmas.)
The economics of Christmas is a very complicated affair. Most people harbor a secret frustration with the holiday season. The most common of them is the obligation to buy gifts. It looms over like the sword of Damocles. It’s no secret that people are frustrated with the commercialization of Christmas. October Christmas ads seem to be stupid, and the frustration brings us to convince ourselves to maybe dial back a notch- at least reduce the obligation of gift-giving.
“No” comes as the answer to the question in the mind of most consumers. The common belief says that “Our economy depends on festive season spending”, it boosts production, creates jobs and it increases the GDP. In her book Good Tidings and Great Joy, Sarah Pulin suggests that “Christmas helps to employ millions of people and props up our entire retail economy.” As frustrating as the Christmas spending obligation is to the consumer, it’s all worth it because of its economic benefits.
(The belief that Christmas spendings helps the economy is a myth perpetuated by capitalistic forces designed to keep the common man from buying presents to justify their existence)
But guess what? That’s a myth – a myth perpetuated by capitalistic forces designed to keep the common man from buying presents to justify their existence. It’s a myth that generates the demand for spending that hurts, rather than helps the economy. As the philosopher, Tyler Durden once said, “it’s a myth that keeps us working at jobs we hate so we can buy stuff we don’t need.”
The realization that Christmas spending doesn’t help the economy is obvious. Although spending is good for the economy no matter when it happens, if the money is not spent at the end of the year on Christmas, it will probably just be spent on something else at some other time by people. So at best, Christmas just concentrates spending at the end of the year. Besides, Christmas spending is just an indicator of the economic health of an individual, not the cause of it. A healthy economy generates Christmas spending by giving people extra money to spend, not the other way around.
(The modern idea of gift-giving has pushed the common man into materialistic slavery, and this is not what the real Christmas spirit was about. People are pushed into spending more due to the obligation of buying Christmas presents and causes them to spend money they don’t actually have.)
People may spend more because they feel obligated to buy Christmas presents, which causes them to spend money they don't actually have. But how exactly is that beneficial? Although it might result in gains in the short term, in the long run, it just serves to expand the credit bubble, which increases the likelihood that it will burst. It does raise GDP, but the US GDP was already high prior to the Great Recession of 2008, and a collapsing economy is hardly a strong economy. The economy may be "propped up" by the two-thirds of Christmas purchases made on credit cards, but this just serves to create a huge bubble.
Some people might decide to invest, boost their savings, or make an extra mortgage payment if they are not required to buy Christmas gifts. It begs the question, "How is that a bad thing?" Although short-term declines in retail sales would occur, saving money has no negative economic effects. Investments support the growth of enterprises. The less debt a family has, the more purchasing power it has. The more money a bank has in savings and mortgage payments, the more it can lend to new and growing firms to spur additional growth. Actually, there is no such thing as the "paradox of thrift."
One could definitely argue that spending money on luxury instead of wisely saving or investing is decidedly not a smart investment. Buying luxury goods can jeopardize the future health of the country. Consumer capitalism and civic virtue are not commonly associated with each other.
(In 2014, Pope Francis likened the obligation to buy gifts at Christmas to “ material slavery.”)
In addition, as Economist Joel Waldfogel argues in the book Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays, Christmas spending creates a huge deadweight loss. Shockingly, each year people are spending about $12 billion more on gifts than they are worth to their recipients. That’s more wasted money than all the American government’s pork barrel spending combined! And the consumer is wasting that money propping up nonessential industries (e.g., electronic entertainment) while things like the infrastructure crumble.
It is for the people to learn how gifts can create economic value and change our habits accordingly. In 2014, Pope Francis likened the obligation to buy gifts at Christmas to “ material slavery.” The sooner we learn and transform our idea of gift giving from an obligation to an actual joyful activity, the sooner we can set ourselves free and get back to actually enjoying the real Christmas Spirit.
- SHASHWAT JHA & VEDANT GUPTA