It’s trendy to get your economist on around the holidays and complain about the inefficiency of gift exchange.  Giving money is a more efficient way to make the recipient better off.  But that’s a fallacy that only trips up poser-economists.  To a real economist, that’s like observing that eating an omelette is an inefficient way to get all of the nutrients we need in our breakfast.  Yeah, so?  That’s not why I ate it.

A real economist recognizes unregulated, voluntary exchange when he sees it.  He doesn’t bother inventing some hypothetical motivation for the exchange because he understands revealed preference. If they are doing it voluntarily then it is efficient, regardless of what they think they are getting out of it.  Indeed, the pure consumption value of buying a plaid sweater for somebody is a perfectly good motivation.  And since the recipient voluntarily accepts the gift, even better.  If there was a Pareto superior alternative they would have done that instead.

So this holiday, swat that poser economist in red off your left shoulder, hold hands with the real economist in white on your right shoulder and give to your hearts’ content.  (Oh and I am very easy to shop for.  Just don’t forget to include a gift receipt!)

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