Christmas now is drawing near, and it is time once more for seasonal advice from economics — the dismal science. Readers may be aware that I feel that the “Bah! Humbug!” reputation of economics is ill-deserved.
True, economist Joel Waldfogel did much to justify the label of “dismal science” with his notorious article, ‘The Deadweight Loss of Christmas’. (This year, it will be of the order of £3-5bn in the UK alone.)
Then there is Jennifer Pate Offenberg, an economist who carefully documents the sad story of unwanted gift vouchers being sold at a loss on eBay.
Moving on from such tales, I would like to follow Steven Landsburg, an economist at the University of Rochester, in arguing for the rehabilitation of Ebenezer Scrooge, the anti-hero of Charles Dickens’s A Christmas Carol, who is widely reviled for his miserliness.
Brilliant storyteller he might have been, but Dickens was a poor economist. Scrooge’s miserly behaviour benefited the entire community.
Here’s why. Whenever Scrooge earned money but did not spend it, he was producing something of economic value but not consuming anything of economic value. This freed up resources. It’s like cooking a meal and serving it to others rather than eating it.
Scrooge’s benevolence was more widely distributed. By earning money and then depositing it in a bank, Scrooge helped drive down interest rates and create credit for entrepreneurs or other borrowers elsewhere in the economy. The more money he saved, the more credit was available to others, for spending or investing. (As Landsburg points out, Scrooge’s namesake Scrooge McDuck doesn’t bank his money. He has a large vault full of dollar bills that he swims around in. No matter. This reduces inflationary pressures and allows central banks to print cash and dole it out.)
In very rare circumstances, miserliness breaks out so widely that not only does consumption collapse but so does investment — even though workers stand ready to work, and raw materials are cheap, businesses dare not invest in an uncertain future. Such demand collapses are very rare indeed, but the sort of thing Keynes worried about during the Great Depression.
There’s a thought. In blaming Scrooge, perhaps Dickens wasn’t a bad economist at all — just a Keynesian who beat Keynes to the punchline.
Tim Harford is a Financial Times columnist and bestselling author of The Undercover Economist and The Logic of Life
blog comments powered by
