The economics of Christmas giving

 Here is Steve Landsburg's Merry Christmas message.

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If you’re wealthy enough to be sure you’ll never spend it all, you might be thinking — especially at this time of year — about giving away some of the excess. Unfortunately, that’s impossible.

What you can do is force some people to give to other people, and you might very well want to do that. But as for your own excess wealth, you can’t give it away, because you already have.

There are two ways to explain this. Pretty much everyone agrees that one explanation is much clearer than the other, but it seems like they’re split about evenly as to which is the clearer one. So I’ll offer both and you can take your choice.

I. Follow the Goods

You give $100 to a guy named Laszlo. Laszlo uses it to buy a turkey. That turkey had to come from somewhere, and it didn’t come from you, so it must have come from someone else.

There are only two possibilities: Either someone somewhere gives up a turkey or someone somewhere raises/butchers/markets an extra turkey.

So here is one scenario: Laszlo buys a turkey that would have gone to Jenny, who instead buys a ham that would have gone to Junfei, who instead buys a rib roast that would have gone to Pablo…and somewhere down the line, someone goes hungry. Your “gift” to Laszlo was not a gift from you at all, but a forced gift from some total stranger. Maybe you feel okay about that, which is fine — but you shouldn’t fool yourself about it either.

Or here is another scenario: Horace the butcher works overtime to provide Laszlo’s turkey, either taking time away from his family, or sacrificing his daily exercises, or maybe spending less time driving his Uber, which means that his would-be passenger Olga waits a little longer for a different Uber, which means someone else misses out on that Uber and so on down the line until either Freddy can’t get an Uber at all and has to walk or his sister Frederika gives him a lift, taking time away from her own family or ….

If you were poorer, it would be easy to give a gift to Laszlo. Give him $100 and you’ll be the one who has to go without a turkey or without an Uber ride or (if you decide to work a little harder to make up that $100) without a little family time. But when you’re rich and you give away $100 you were never going to spend anyway, you’re not really giving anything up — so someone else has to.

(A different, and perhaps slightly cheerier perspective, is that you can’t give away that $100 because you already gave it away on the day you realized you’d never spend it. That was the moment when you decided you wouldn’t be claiming the turkey or the Uber ride or the hour of leisure your $100 entitled you to, leaving that turkey or Uber ride or hour of leisure for someone else. You can’t give away the same thing twice.)

II. Follow the Money

You give $100 to a guy named Laszlo. Where do you get that $100? If you were poor you might get it by working harder or eating a little less. But if you’re rich you probably get it from your bank account, or maybe from that bathtub full of cash you like to swim in.

If you take it from your bank account, you’re making it harder for someone to get a loan. That person, whose name might be Jenny or Pablo or Horace or Freddy, is now short of funds, and responds by buying one less turkey or one less rib roast or one less Uber ride, or by taking time away from family to work overtime.

If you take it from your cash pile, you put more cash in circulation, which drives up prices and has the same effect — Jenny or Pablo or Horace or Freddy responds with either less consumption or more work.

You might be wanting to object that injecting an extra $100 bill into the US economy is going to affect prices by such a minuscule amount that it will be impossible for almost anyone to notice. You’re right about that, but that’s actually why the story works — the effect only has to be large enough (and no larger!) so that one person out of three hundred million gives up a turkey.

Coda

The two stories — the ones I’ve labeled “follow the goods” and “follow the money” — are two different correct perspectives on the same situation, so they have to lead to the same conclusion, and they do.

It’s not giving unless it hurts.