Economists’ guide to Christmas (redux)

23 Dec 2020 - Dario Perkins

This was something we published back in 2013 – the Economists’ guide to Christmas. But we made a serious omission, by leaving out Modern Monetary Theory. So here’s an update, incl. MMT:

‘If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three. Economists famously never agree on anything. And the topic of Christmas should be no different…

Keynesians – place a lot of emphasis on the ‘macro stabilization’ properties of Christmas. Ideally, they would vary the number of Christmases each year according to the state of the economy. This is best summarized by Paul Krugman’s depression paper ‘Wish it could be Christmas every day’, in which he also acknowledges his love of British glam rock. The Keynesians would like to see a larger role for the state, including publically-funded Santas.

Austrians – Believe Christmas is dangerous because it inevitably ends with a nasty January hangover [especially this year… 2020 update]. Also worry about the moral hazard implications of gift-giving and the propensity for overinvestment in Christmas decorations. Reject the idea of ‘public’ holidays, arguing the free market would lead to a better outcome.

Monetarists – Convinced they are the only ones who know how Christmas ‘really works’ and quickly become frustrated with other economists’ lack of understanding. Their thinking can be reduced to a simple identity, though this is vulnerable to shifts in the velocity of Santa’s circulation. Hardcore monetarists believe in the tight control of chocolate coins to prevent the hyper-inflation of waist lines and the hyper-activity of small children.

Chicago School – argue Christmas has no meaningful impact because gift-giving nets out. Fully rational individuals will anticipate this and adjust their behaviour accordingly.

Macroprudentialists – busy thinking up ways to ‘smooth out’ Christmas. They would like to ‘lean against’ the festive season, perhaps by tightening credit and raising alcohol prices in mid-November and reversing these policies in early January. Some hardliners would like to introduce quantitative controls on Santa’s toy factory.

Secular stagnationists – claim Christmas hasn’t been as much fun since the mid-1990s, but can’t really explain why. Perhaps it has something to do with the music.

MMT - Takes a bunch of stuff we already knew about Christmas from the “mainstream” and repackages it as "modern". Similar to the Keynesian view but more radical. MMT economists argue the rest of the economy only functions because of Christmas - people work dreaming of mince pies and roast Turkey. (MMT "proves" this with a simple chart showing Santa's net investment as a mirror image of the economy-ex Santa.) Argue that having Christmas every day would ensure perma full-employment. Are there no limits? Not on Santa's side, where the fairies are always willing to fund his production line and the “elf vigilantes” disappeared long ago. But monitor the price of Christmas trees for emerging capacity constraints...

And, of course, the central banks are equally divided:

The Federal Reserve – big fans of Christmas, even though their own Santa lookalikey has long since retired [NB we wrote this when Bernanke was still in charge…] and Jay Powell’s fake beard isn’t fooling anyone. Becoming frustrated that Santa’s sleigh isn’t one of their policy tools and that they can only influence Christmas indirectly by giving presents to bankers and hoping they re-gift them to the rest of society.

The ECB – Generally in favour of Christmas but have a small and powerful minority who believe gift-giving is immoral and must eventually lead to hyper-inflation. President increasingly frustrated with this group’s sobering impact on their annual Christmas party.

The Bank of Japan – spent 20 years telling everyone Santa didn’t exist and that Christmas was a waste of time. Have now changed their minds, but seem to have a credibility problem.

And not forgetting:

The UK government – See Christmas as a good opportunity for the Queen to educate the masses, but worried about its intrinsic ‘socialist tendencies’. Ideally would like everyone to work on Christmas day [not this year!] so the UK can better compete with China. (Plutocrats are excluded, to support the demand for yachts/jets/country houses.) Believes Santa should be re-deployed to take money from poor benefit recipients and re-gift it as state-subsidized mortgages to potential voters.

US Congress – Never fail to deliver their version of the traditional Christmas family row.

#Central Banks #Federal Reserve #European Central Bank #Bank Of England #Bank of Japan #Modern Monetary Theory


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