MARKET REASONING RENDERS MORAL CONSIDERATIONS IRRELEVANT --- Episode 13

                 CONTINUING ON WITH A DISCUSSION 
                 OF THINGS THAT MONEY SHOULDN'T
                 BE ABLE TO BUY 


                                     WEDDING TOASTS 

      Consider another social practice closely connected to friendship -----a wedding toast to the bride and groom. Traditionally, such toasts are warm, funny, heartfelt expressions of good wishes delivered by the best man, usually the groom's closest friend. But it's not easy to compose an elegant wedding speech, and many best men don't feel up to the task. So some have resorted to buying wedding toasts online. 
   ThePerfectToast.com is one of the leading websites offering ghostwritten wedding speeches. It's been in business since 1997. You answer a questionnaire online --- about how the bride and groom met, how you would describe them, whether you want a humorous speech or a sentimental one --- and within three business days you receive a professionally written custom toast of three to five minutes. The price is $149, payable by credit card. For those who can't afford a bespoke wedding toast, other websites, such as InstantWeddingToasts.com sell standard prewritten wedding speeches for $19.95, including a money-back guarantee.
   Suppose on your wedding day, your best man delivers a heartwarming toast, a speech so moving it brings tears to your eyes. You later learn that he didn't write it himself but bought it online. Would you care ? Would the toast mean less than it did at first, before you knew it was written by a paid professional ? Most of us would probably say yes, the bought wedding toast has less value than an authentic one. 
   It might be argued that presidents and prime ministers routinely employ speechwriters, and no one faults them for it. But a wedding toast is not a State of the Union address. It is an expression of friendship. Although a bought toast might "work" in the sense of achieving its desired effect, that effect might depend on an element of deception. Here's a test : If, seized with anxiety at the prospect of giving a speech at your best friend's wedding, you purchased a moving, sentimental masterpiece online, would you reveal this fact, or try to cover it up ? If a bought toast depends for its effect on concealing its origin, thats a reason to suspect it's a corrupt version of the real thing. 
   Apologies and wedding toasts are goods that can, in a sense, be bought. Buy buying and selling them changes their character and diminishes their value. 

                             THE CASE AGAINST GIFTS 


   Consider now another expression of friendship --- gift giving. Unlike wedding speeches, gifts have an unavoidably material aspect. But with some gifts, the monetary aspect is relatively obscure ; with others, it is explicit. Recent decades have brought a trend toward the monetization of gifts, yet another example of the increasing commodification of social life. 
   Economists don't like gifts. Or to be more precise, they have a hard time making sense of gift giving as a rational social practice.  From the standpoint of market reasoning, it is almost always better to give cash than a gift. If you assume that people generally know their own preferences best, and that the point of giving a gift is to make your friend or loved one happy, then it's hard to beat a monetary payment. Even if you have exquisite taste, your friend may not like the tie or necklace you pick out. So if you really want to maximize the welfare your gift provides, don't buy a present ; simply give the money you would have spent. Your friend or lover can either spend the cash on the item you would have bought, or (more likely) on something that brings even greater pleasure. 
   This is the logic of the economic case against gift giving. It is subject to a few qualifications. If you come across an item that your friend would like but is unfamiliar with --- the latest high-tech gadget, for example --- it's possible this gift would give your ill-informed friend more pleasure than something he or she would have bought with the cash equivalent. But this is a special case that is consistent with the economist's basic assumption that the purpose of gift giving is to maximize the welfare, or utility, of the recipient. 
   Joel Waldfogel,an economist at the University of Pennsylvania, has taken up the economic inefficiency of gift giving as a personal cause. By "inefficiency," he means the gap between the value to you (maybe very little) of the $120 argyle sweater your aunt gave you for your birthday, and the value of what you would have bought (an iPod, say) had she given you the cash. In 1993, Waldfogel drew attention to the epidemic of squandered utility associated with holiday gift giving in an article called "The Deadweight Loss of Christmas." He updated and elaborated the the theme in a later book, Scroogenomics : Why You Shouldn't Buy Presents for the Holidays : "The bottom line is that when other people do our shopping, for clothes or music or whatever, it's pretty unlikely that they'll choose as well as we would have chosen for ourselves. We can expect their choices, no matter how well intentioned, to miss the mark. Relative to how much satisfaction their expenditures could have given us, their choices destroy value." 
   Applying standard market reasoning, Waldfogel concludes that it would be better, in most cases, to give cash: "Economic theory --- and common sense --- lead us to believe that buying stuff for ourselves will create more satisfaction, per euro, dollar, or shekel spent, than does buying stuff for others. . .Buying gifts typically destroys value and can only, in the unlikely best case, be as god as giving cash. 
   Beyond playing out the economic logic against gift giving, Waldfogel has conducted surveys to measure how much value this inefficient practice destroys. He asks gift recipients to estimate the monetary value of the gifts they've received, and the amount they would have been willing to pay for them. His conclusion: "We value items we receive as gifts 20 percent less, per dollar spent, than items we buy for ourselves." This 20 percent figure enables Waldfogel to estimate the total "value destruction" brought about, nationwide, by holiday gift giving :"Given the $65 billion in U.S. holiday spending per year, that means we get $13 billion less in satisfaction than we would receive if we spent that money the usual way---carefully, on ourselves. Americans celebrate the holidays with an orgy of value destruction."
   If gift giving is a massively wasteful and inefficient activity, why do we persist in it ? It isn't easy to answer this question within standard economic assumptions. In his economics textbook, Gregory Mankiw tries gamely to do so. He begins by observing that "gift giving is a strange custom" but concedes that it's generally a bad idea to give your boyfriend or girlfriend cash instead of a birthday present. But why ?
   Mankiw's explanation is that gift giving is a mode of "signaling," an economist's term for using markets to overcome "information asymmetries." So, for example, a firm with a good product buys expensive advertising, not only to persuade customers directly but also to "signal" to them that it is confident enough in the quality of its product to undertake a costly advertising campaign. In a similar way, Mankiw suggests, gift giving serves a signaling function. A man contemplating a gift for his girlfriend "has private information that the girlfriend would like to know : Does he really love her ? Choosing a good gift for her is a signal of his love." Since it takes time and effort to look for a gift, choosing an apt one i a way fr him "to convey the private information of his love for her." 
   This is a strangely wooden way to think about lovers and gifts. "Signaling" love is not the same as expressing it. To speak of signaling wrongly assumes that love is a piece of private information that one party reports to the other. If this were the case, then cash would work as well---the higher the payment, the stronger the signal, and the greater (presumably) the love.  But love is not only, or mainly, a matter of private information. It is a way of being with and responding to another person. Giving, especially attentive giving, can be an expression of it. On the expressive account, a good gift not only aims to please, in the sense of satisfying the consumer preferences of the recipient. It also engages and connects with the recipient, in a way that reflects a certain intimacy. This is why thoughtfulness matters.
   Not all gifts, of course, can be expressive in this way. If you are attending the wedding of a distant cousin, or the bar mitzvah of a business associate's child, it is probably better to buy something from the wedding registry or give cash. But to give money rather than a well-chosen gift to a friend, lover, or spouse is to convey a certain thoughtless indifference. It's like buying your way out of attentiveness. 
   Economists know that gifts have an expressive dimension, even if the tenets of their discipline can't account for it. "The economist in me says the best gift is cash," writes Alex Tabarrok, an economist and blogger. "The rest of me rebels," He offers a good counterexample to the utilitarian notion that the ideal gift is an item we would have bought for ourselves : Suppose someone gives you $400, and you buy a set of tires for your car. This is what maximizes your utility. Still, you might not be terribly happy if your lover gave you car tires for your birthday. In most cases, Tabarrok points out, we'd rather the gift giver buy us something less mundane, something we wouldn't buy for ourselves. From our intimates at least, we'd rather receive a gift that speaks to "the wild self, the passionate self, the romantic self."
   Tabarrok is probably on to something. The reason gift giving is not always an irrational departure from efficient utility maximizing is that gifts aren't only about utility. Some gifts are expressive of relationships that engage, challenge, and reinterpret our identities. This is because friendship is about more than being useful to one another. It is also about growing in character and self-knowledge in the company of others. As Aristotole taught, friendship at its best has a formative, educative purpose. To monetize all forms of giving among friends can corrupt friendship by suffusing it with utilitrian norms. 
   Even economists who view gift giving in utilitarian terms can't help noticing that cash gifts are the exception, not the rule, especially among peers, spouses, and significant others. For Waldfogel, this is a source of the inefficiency he decries. So what, in his view, motivates people to persist in a habit that produces a massive destruction of value ? It's simply the fact that cash is considered a "tacky gift" that carries a stigma. He does not ask whether people are right or wrong to regard cash gifts as tacky. Instead, he treats the stigma as a brute sociological fact of no normative significance apart from its unfortunate tendency to reduce utility.