“Is Christmas Efficient?”

Tyler Cowen ponders this question over on MarginalRevolution.com:

As you all probably know, the demand for retail goods and services goes up a lot after Thanksgiving, giving rise to the seasonal business cycle.  Most large economies have a major gift-giving holiday in or near December.  The result is that fourth quarter output and employment expand significantly, and the first quarter of the year brings an inevitable contraction.  Usually we seasonally adjust the data, but seasonal business cycles are not small relative to regular business cycles, for more information see here.

But are these seasonal cycles efficient?  Let’s say that the Grinch really were to steal Christmas, would that be a Kaldor-Hicks potential Pareto improvement?


That’s an interesting question. Now, remember that a K-H Pareto outcome requires that all participants are not worse off when all is said and done, i.e., if a few people get rich from Change A and that change causes a few people to become poorer, then as long as some of the newly rich compensate the newly poor the outcome is efficient. Say the Grinch did steal Christmas, then most people would be worse off (loss of gifts, loss of Christmas “cheer”, loss of vacation days, etc) and only the Grinch would be better off. That’s hardly a K-H efficiency. And I doubt the Grinch would be willing to compensate everyone for their losses, so I think the answer is a resounding “no.” Having Christmas stolen would be an inefficient social development, I think.

In all seriousness, Cowen’s piece does ask some interesting questions, including whether their should be another gift-giving round in June, for purely economic purposes. Maybe we can celebrate Keynes in this holiday? Call it “Keynesmass” and have it funded by a new tax on the 1%. Then again, if two gift-athons are good, why not three or four?

Read more: http://marginalrevolution.com/marginalrevolution/2013/12/are-seasonal-business-cycles-inefficient.html#sthash.bSCPih46.dpuf

Carlos Alvarenga

Founder and CEO at KatalystNet and Adjunct Professor in the Logistics, Business and Public Policy Department at the University of Maryland’s Robert E. Smith School of Business.

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