Merry Christmas!
Wishing you a joyful holiday season, and thanks for continuing to follow along!
Have you ever noticed that every December, something curious happens? Shops fill with harried parents, and casual workers are drafted into Santa’s supply chain.
For a few short weeks, even the most tightfisted of consumers open their wallets, businesses scramble to keep up, and markets bend under the weight of tinsel-covered demand.
Christmas cheer may be sentimental, but its economic effects are very real.
In fact, the holiday season offers one of the clearest examples of how collective behaviour shapes markets.
Ho ho ho! A Christmas Miracle
At a macro level, Christmas is a reliable source of spending that buoys the whole economy. Retail sales spike, hospitality bookings surge, and airlines run at capacity. Keynes would be proud.
When millions of households spend simultaneously, the multiplier effect kicks in. Toy shop owners order more stock, couriers hire extra drivers, and local cafés extend their opening hours to help caffeinate the uptick in activity. Each dollar spent boosts someone else’s income, which leads to further spending as the money flows through the economy. A Christmas miracle!
The Christmas Cantillon Effect
Sectors closest to the Christmas cheer feel the glow of Christmas spending soonest and most directly. Retail, e-commerce, and hospitality enjoy their strongest trading period of the year. Alcohol and luxury goods also do well, fuelled by office parties and impulsive last-minute splurges.
Meanwhile other sectors receive a metaphorical lump of coal. Professional service firms, such those in the consulting sector, see business slow to a crawl as clients disappear over the holidays. Gyms also face an annual December drought, with customers focused on festivities rather than fitness until the new year.
Hidden Gains from Gift Giving
As we’ve explored before, the true value of Christmas defies normal economic logic.
Some economists, like Joel Waldfogel, have argued that gift-giving is inefficient. This argument kind of makes sense when viewed through a traditional economic lense. After all, recipients may not value the gifts they receive, and frivolous spending depletes society’s stock of savings which could have been more productively spent or invested elsewhere.
However, this perspective misses an important point. A gift is not simply a transfer of goods and services. It is a costly signal that the giver cares about the recipient. The act of giving builds social capital, forging stronger relationships. This is the very glue which holds our communities together, and maintains a spirit of trust and good will that makes efficiently functioning markets possible.
The fact that you may not have wanted another pair of socks is outweighed by the good will and renewed relationships that come wrapped up with them.
Merry Christmas!
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