A man of our times: the frugal Scrooge helped drive down interest rates

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Yet another film adaptation of A Christmas Carol has arrived on the big screen. The spirit of Scrooge is alive and well in bookshops this season, too, in the form of Scroogenomics, by the Wharton business school economist Joel Waldfogel. It’s a nicely-timed stocking filler from the man who estimates that badly-chosen Christmas presents will waste the equivalent of $25bn across the world this year.

When I met him in early December, Waldfogel mournfully remarked that the chief impact of his work has been to ensure that he receives very few Christmas presents. But before you abandon whatever present you were planning for the economist in your life, bear in mind that most of us could learn some useful lessons from the dismal science of economics at Christmas.

Consider, for example, what Nobel laureate Thomas Schelling had to say about Christmas cards in his 1978 classic, Micromotives and Macrobehavior: “People feel obliged to send cards to people from whom they expect to receive them, often knowing that they will receive them only because the senders expect to receive cards in return.” Schelling goes on to pine for a global “bankruptcy” procedure in which all Christmas card lists were wiped clean, to begin again motivated only by genuine friendship rather than a steady accretion of mutual obligation. I can’t offer that blank slate, but my own small contribution has been to reduce the length of my list, and try to ensure that the people who do receive a card also get a message worth reading, rather than just an illegible signature.

If we should send fewer Christmas cards, perhaps we should buy more gift cards. These pre-paid cash-substitutes have become the most popular category of Christmas gift in the US, and are rapidly catching on here. I, however, am not convinced. About 10 per cent of gift vouchers are never redeemed, because they are lost, expire, or gather dust, demonstrating the overwhelming power of apathy. This is not the vote of confidence we might expect from a gift category that offers none of the emotional resonance of a lovingly-wrapped parcel. And in these straitened times, you may simply be giving the gift of unsecured creditor status: what price now those Borders and Woolworth’s gift cards?

Even the gift cards that are redeemed may not be enjoyed by the intended recipient. Another economist, Jennifer Pate Offenberg, has carefully documented the sad story of unwanted gift vouchers being sold at a loss on eBay. (This is an awfully roundabout way of giving some money to your nephew.) For the curious, the most fungible gift cards are also the least romantic: Office Depot and Starbucks are almost as good as cash, whereas vouchers for lingerie or jewellery trade at a discount of about 15 per cent.

But the most unexpected lesson from economics is that Scrooge himself—the pre-ghosts, unreconstructed Scrooge—was in fact the very model of hidden generosity. Steven Landsburg, an economist at the University of Rochester, is willing to back the miserly Scrooge all the way.

Landsburg has realised that Scrooge’s frugal behaviour helped the community far more than showy profligacy ever could. Whenever Scrooge earned money but did not spend it, he was producing something of value (money) without consuming anything. This feeds resources for other people, a bit like preparing a meal but then letting others eat it.

Of course, Scrooge did not literally head down to the soup kitchens. His 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. How today’s banks would be championing Scrooge’s savings now! How small businesses would crave his investment!

There is a caveat to Landsburg’s praise of Scrooge, however. Sometimes—very rarely—Scrooge-like behaviour becomes so universal that not only does consumption collapse, but so too does business investment. Workers stand ready, raw materials are to be had for a song, but businesses are simply unwilling to invest because they cannot imagine that anyone would ever buy what they are selling. John Maynard Keynes worried about this during the depression. Perhaps Charles Dickens was right to condemn Scrooge after all; if so, he beat Keynes to the punch by about a century.