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Thursday, December 20, 2012

Economics and Holiday Cheer

Two weeks ago I asked, What are some of your favorite holiday movies or songs that demonstrate economic principles? Here are the three responses I thought best exemplified holiday cheer and economic analysis. Enjoy!


Stephen Kokoska:
I like the competition between Macy's and Gimbel's in Miracle on 34th Street as an illustration of self-interest benefiting the customers. The department stores compete with each other to offer better customer service, sending customers their competitors for the better product or price. Mr. Macy says something to the effect of, “By putting the Christmas spirit ahead of profit, we'll make more profit.”
Jonas PinkiePie Kölker:
If you'll allow me to broaden the scope from catallactics to praxeology, I have plenty to say.
“Last Christmas I gave you my heart // but the very next day you gave it away // this year to save me from tears // I'll give it to someone special” very succinctly illustrates the discipline of repeat dealings: if you betray a trading partner (I'm not saying this is a zero-price organ market) they'll stop trading with you, so it's in your interest to play fair. David Friedman applies this principle in his defense of anarcho-capitalism.
“Let It Snow” illustrates the nature of normal goods: if you value staying over going elsewhere in a world of no snow, making it more expensive through more snow isn't going to make those options more attractive, so you're indifferent to the amount of snow.
“All I Want for Christmas Is You” illustrates substitution of goods, or rather the lack of substitution: if there is only one thing which can satisfy you, you don't care *how* many presents you get. The mirror reflection of this is that if an intermediate good can only be used in the production of one final good, you don't need a market price to tell you how to allocate it; otherwise you do.
Rob Szarka:
One of my favorite holiday songs is Allan Sherman's 1963 novelty hit, “The Twelve Gifts of Christmas”. On the first day of Xmas, Sherman's true love gives him “a Japanese transistor radio”. (At the time, of course, Japan was not as known for producing high-quality electronics as it is today.) On subsequent days he receives green polka dot pajamas, a calendar book with the name of his insurance man, a simulated alligator wallet, a statue of a lady with a clock where her stomach ought to be, and other equally disappointing gifts. The song, of course, demonstrates what Joe Waldfogel called “the deadweight loss of Christmas.”

Thanks to all of our holiday economics geeks!

  • Anna is currently the Educational Programs Manager at the Charles Koch Institute where she oversees KIP, KAP and experimental programs.