Tag Archives: economics

Should you really buy a Christmas gift for your second cousin twice removed?

When it comes to gift giving, it’s the thought that counts, right?

Maybe, maybe not.

Don’t get me wrong: I really love giving gifts around the holidays and at other times (usually birthdays), and I naturally love receiving them as well. At least certain gifts.

When a gift is something that someone really wants or needs — or if you have a true burst of inspiration, it’s a wonderful, exciting feeling for the giver and the recipient. It’s not about how much money you spend, it truly is the thought that counts. Usually these are gifts for people we know very well…our immediate families, significant others, and an inner circle of friends. I have gotten some really great gifts over the years, usually from people who know me very well and often from those who have asked what I wanted to get.

But then there are the gifts we give to people who don’t really meet that criteria. You buy a token gift for the mail carrier, another token gift for your second cousin twice removed, and a third token gift just to prevent an unanticipated gift-giving emergency faux pas. It’s often considered to be more polite to buy a bad gift than no gift at all. I’ve certainly done it many times, so I’m just as guilty as anyone.

Even for the people we know best, we sometimes buy filler gifts. In addition to the nice, thoughtful gifts you have bought, you buy more little token gifts as stocking stuffers. Sometimes these are cute and good for a brief laugh or a small indulgence like candy. Sometimes there are some legitimate big-ticket gifts that just happen to be small enough to fit inside of a stocking. Jewelry comes to mind. But, most of the time it’s just filler. (Even the phrase stocking stuffers literally says that the gifts are purchased for the sole purpose of taking up space.)

We all get things that we don’t particularly like, and we all give things that we don’t really have high hopes for the recipient liking because we don’t really know most of them very well. But we do it just to be polite because, well, it’s the thought that counts. We feel guilty or awkward if we overlook someone, especially if we are going to see them in person, and advertisers prey on this.

It’s actually a substantial economic problem, and University of Pennsylvania economist Joel Waldfogel has been on a mission to help us fix it. His book, Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays, explains that holiday gift-giving is actually quite wasteful.

What’s distinctive about all of this [holiday] spending is that, except for the prearranged gifts for teenagers, the choices are not made by the ultimate consumers. For the rest of the year, the people who will ultimately use the stuff choose what they buy. As a result, buyers normally choose things they correctly expect to enjoy using. But not at Christmas. As a result, the massive holiday spending has the potential to do a terrible job matching products with users. Throughout the year, we shop meticulously for ourselves, looking at scores of items before choosing those that warrant spending our own money. The process at Christmas, by contrast, has givers shooting in the dark about what you like, recalling the way the imaginary red tornado distributes gifts.

Joel Waldfogel, Scroogenomics: Why You Shouldn’t Buy Presents for the Holidays

Every year, the media talks about the importance of the holiday shopping season as an indicator of the nation’s economic health. The logic goes that more consumer spending is a cause for optimism. But do they ever stop and ask if consumers are spending their money wisely? Do they stop and ask how much credit card debt they are in come January? According to Waldfogel, Americans waste about $85 billion each winter on gifts that people don’t even want.

Unfortunately, when people cut back on holiday spending in tougher economic times, they might still buy just as many gifts for just as many people but just buy less expensive or token gifts (again, just due to social pressures).

It’s not just a matter of money, it’s also a matter of time. Shopping is time-consuming, and homemade gifts are even more so. Aside from the financial drain, so many people feel overstressed and overcommitted during the holidays. They have too many people to shop for, and they often wander about aimlessly in search of inspiration they will probably not find…so they settle for just giving something in order to be expedient. Really, if it’s the thought that counts, how much thought was involved in buying a candle for ten different people on your list? These social pressures actually suck the joy out of gift giving and even gift making.

As a gift recipient, I’d prefer that the same amount of money be spent on fewer, bigger-ticket gifts — or even on necessities for people who are less fortunate than I am. I’d rather not feel obligated to give a bad gift to someone I don’t know that well and give better gifts to the people I do know well.

Wouldn’t you? So let’s put an end to the social pressures of obligatory filler gifts. Doesn’t your mail carrier have enough returns to deal with as it is?

Marketplace bullies strangleholding innovation

Progress is almost always a good thing for humanity. But there are always winners and losers. The automobile not only made travel much faster and more efficient, but it improved public health by reducing the need for horses to get from point A to point B. (Horses are beautiful animals and usually enjoy being ridden, but their leavings presented real disease problems in large cities when everybody needed one.) Unfortunately, for blacksmiths, the demand for horseshoes dropped significantly as more and more people bought cars. Such is the price of progress, but I think most people will agree it was worth it.

Fast forward to 2012, and we are faced with innovation happening at breakneck speeds. If you purchased a then-revolutionary iPad in 2010, you are now three versions behind. All in all, this rapid innovation brings us better and better consumer products. Couple that with changes in how content is delivered, and you can find most things to watch on demand, from pretty much any device for a low subscription price. (And, of course, there are plenty of people who use the Internet to download content illegally, but that is a different conversation.)

Unfortunately there is one industry that does not like this at all: the cable/satellite providers. For decades they have had a cash cow in requiring people to pay hefty fees for a lot of channels that they don’t watch. Some monthly cable bills are higher than an annual subscription to Amazon Prime.

So why doesn’t everybody just cut the cord on cable and satellite? The barrier that comes up for most people is the ESPN family of networks and, to some extent, the NFL Network.

I get it. People want to watch live sports. So do I. But what I dislike is the business model. Rather than giving consumers what they want, which is a direct subscription to the content provider, ESPN is choosing to milk the cash cow by only allowing cable and satellite subscribers access to content. They have even built the online architecture to enable live streaming, so they know it can be done.

I get that ESPN pays handsomely for its exclusive rights to televise big-time sporting events, and they need to earn good returns on that investment in intellectual property. But they are not serving their true customers — the viewers — well by refusing to offer other subscription models because they would rather deal with the cable and satellite companies who know how crucial ESPN is to their very survival.

Why can’t Amazon Prime or Netflix try to negotiate a deal with ESPN? Why can’t ESPN sell online live streaming plans directly to consumers who want the access?

If ESPN decides to wield some monopoly power and gouge customers, it should present an opportunity for a new competitor to emerge who can bid for some of these broadcast contracts and create a pricing model that is more efficient for everyone.

But ESPN (actually its parent company Disney) will fight it tooth and nail, flexing its muscles to preserve its stranglehold on the market for sports broadcasting. Consumers will lose, and there may be justification for antitrust action just like what happened with Microsoft bundling Internet Explorer with Windows to drive out Netscape in the 1990s.

New contenders emerged in the browser wars, and now we have real choices like Google Chrome and Mozilla Firefox. Hopefully new contenders will emerge that allow us to cut the cable cord forever. Anybody want to watch Monday Night Football on Hulu?

Have you driven a Mercury lately? Neither has anybody else…

There have been many unfortunate casualties of the recent economic downturn. Companies have folded. People have lost their jobs and their homes in appalling numbers.

So in the midst of all that, it’s hard for me to be wistful about the demise of Mercury. For those of you who aren’t quite as attuned to all things automobile, Mercury is a not only a planet and an element, but also a brand of car under the umbrella of Ford Motor Company.

You can be forgiven for not knowing that because somewhere along the way, the Mercury brand became irrelevant to Ford in much the same way that Oldsmobile became irrelevant to General Motors and Plymouth became irrelevant to Chrysler.

Quite simply, a Mercury Milan is a Ford Fusion with a Mercury badge. A Mercury Sable is essentially a Ford Taurus. A Mercury Mariner is mechanically identical to a Ford Escape.

Mercury used to stand for something. It used to be Ford’s slightly more refined (but not pretentious) cousin. It used to be to Ford Motor Company what Buick was to General Motors…nicer than a Chevrolet but not quite a Cadillac. It had its place.

But then the weird economics of the automobile industry took over, and brands ceased to have meaning. Ford repackaged its Pinto as the Mercury Bobcat: an affront to the upmarket image Mercury was made to convey. Chrysler rebadged the low-rent Dodge Omni (I have firsthand experience with this horrible car) as the Plymouth Horizon. GM secretly swapped out the Oldsmobile engine for a Chevy power plant in the 1977 Delta 88 and ruffled the feathers of more than a few loyal Oldsmobile customers – after they had purchased the Delta 88.

The most egregious example I have seen in recent years is the Pontiac G3: a rebadged Chevrolet Aveo that offers not the tiniest shred of “driving excitement.” The only reason this car existed was so Pontiac dealers could have a “value leader” vehicle, regardless of how meaningless it made the Pontiac arrow.

For the nostalgic car people out there, the end of Plymouth, Oldsmobile, Pontiac and Mercury may be painful to watch, but the mourning should have started a few decades ago when their parent companies started committing slow brand suicide.