Uh-oh! Valentine's Day 2012. What should you get for your sweetheart(s)? Jewelry, dinner, flowers, clothing, candy, and greeting cards are the usual suspects. What's not on the list?
Cash. Some economists say it is the most efficient gift to give. Think back: How many times have you smiled awkwardly when realizing you were receiving another tie, instead of the Madden NFL video game you would have bought with a cash gift? When giving her lingerie (again), do you add, "The gift receipt is there, you can return it if you don't like it."
In some cases, you and your sweetheart may be exchanging unwanted gifts. Cash then is a better gift because the recipient can buy what he or she wants (giving gold may be the most efficient of all because governments reduce the value of your money with deficit spending).
Let's say the economists are correct ¡ª do you want to follow their cold calculations on a day meant for lovers? Economists, predictably, say: "It depends." In an interview on the site LearnLiberty.org, George Mason University economics professor Chris Coyne argues that a spouse or a long-term mate can get away with giving cash or a gift certificate. But at the start of the relationship, the sender may still need to demonstrate seriousness by sending a thoughtful or expensive gift.
As Coyne explains it in economic lingo, a gift is a "signal" that the sender gives to the recipient of serious intentions when there is "asymmetrical information" (that is, one person has more information than another person in an exchange, such as a car salesman and prospective buyer).
Let's continue assuming that economists like Coyne are correct. Wouldn't giving cash undercut the boost that Valentine's Day gives to the economy, as cited favorably by Duke University professor Dan Ariely?
Not so. Giving cash may even make the economy more efficient than gift-giving. Florists love Valentine's Day ¡ª according to the Society of American Florists, they can make 40 percent of their annual income during February. The National Retail Federation estimates that the average Valentiner in America spent $116.21 on traditional Valentine's Day merchandise (almost $16 billion) last year.
But economists often refer to the "substitution effect." That is, one purchase may be a substitute for another. Derek Thompson of the Atlantic Wire puts it well: "Valentine's didn't create economic activity, it just concentrated it."
You know February 14 is coming up, so you may hold onto to a gift, skip taking your sweetheart out to a concert in September, or save up so you can nibble on overpriced food at a fancy French restaurant on Valentine's Day. By giving cash, the recipient is more likely to spend the money well, a better boost for the economy than wasted gifts.
Ryan Swift, host of the popular site swifteconomics.com, goes one step further, even denouncing Christmas and other special gift-giving days as a "deadweight loss." He cites Joe Waldfogel of the University of Pennsylvania's Wharton Business School, who estimated in his 2009 book "Scroogenomics" that Americans spent $66 billion on gifts in 2007, but that recipients only valued them at $54 billion, producing a deadweight loss of $12 billion to the economy.
So if you receive a gift for Valentine's Day this year, be sure to thank the giver for the deadweight loss that is dragging down the economy. When you hand the person cash or gold in return, be sure to note that you are helping the economy. Even better ¡ª buy a gift for yourself on Valentine's Day that you really wanted and advise your (perhaps soon-to-be-ex) sweetie to do the same.
Casey Lartigue, Jr., is director for International Relations at the Center for Free Enterprise in Seoul.
This article originally appeared in the Korea Times on February 13, 2012.
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