ECONOMICS OF VALENTINE’S DAYBolanos - 2013
The Most Wonderful Day!?!?
It's Valentine's Day, and there's nothing that I love more than free markets. In fact, our ability to appreciate and enjoy Valentine's Day is the direct result of the wealth created by markets.
History•Why: Roman pagan celebration called Lupercalia,
•Who: Valentine refused to comply with Claudius II’s decree that young men should not marry
•When: Valentines began gaining steam in the US during the Revolutionary War.• Hallmark!!!!
The Economics
Three economic principles that are illustrated by Valentine's Day:• The importance of free markets and wealth creation• The logic of gift giving and signaling• The seen and the unseen
History again
• As mentioned above, Valentine's Day is only possible because of free markets.
• Prior to the rise of capitalism in the 1700s and 1800s, only wealthy individuals were capable of buying gifts or spending leisure time with their significant others.
• Today, the average citizen can accumulate enough savings to buy a gift or engage in leisure activities on Valentine's Day.
Signaling!!
What signal am I sending?
What gift to give?
• Economists often argue that cash is the most efficient gift, as it can be used by your significant other to purchase whatever they desire.
• However, an important economic concept called signaling explains how purchasing gifts for someone else is actually a signal that proves that you've spent time thinking about them.
The Numbers behind Valentine• The average person will shell
out $116.21• Holiday spending is expected
to reach $15.7 billion• Consumers will spend…
• $3.5 billion on jewelry this Valentine’s Day, up from an estimated $3 billion last year;
• $1.6 billion on clothing vs. $1.5 billion in 2010;
• $3.4 billion on dining out vs. $3.3 billion in 2010;
• $1.7 billion on flowers;• $1.5 billion on candy; and• $1.1 billion on greeting cards.
Men – fork out the cash!
• Men will pick up the majority of the consumption slack on Valentine’s Day, with the average man spending $158.71 to the average woman’s $75.79
Seen and Unseen
• Is Valentine's Day an economic stimulus?
• Many pundits argue that it is. • However, using the concept of
opportunity cost, economists argue that all the money spent on Valentine's Day could just as easily have been spent on something else or saved.
• The right way to think about Valentine's Day is the opportunity to find a gift that matters for the person you care about!!!!.
DEADWEIGHT?
• 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
• Creates inefficiency due to unwanted or underappreciated gifts.
