Undercover Economist

In praise of Scrooge

‘Scrooge didn’t waste his money on extravagances for people whose desires he didn’t really understand’

Ebenezer Scrooge is underrated. Literature’s most notorious misanthrope gets no respect from anyone. He’s a miser, a bully and a sociopath. Only with the most strenuous pleading from three supernatural mentors does he embrace the spirit of Christmas and, in so doing, join the human race. Dickens’s story is viewed as a journey of redemption; I am not so sure.

In his original, miserly form, Scrooge actually gives us much to admire. He was a model of inadvertent benevolence. He earned vast sums and avoided spending so much as a farthing if he could help it. The economic implication of this? Regardless of Scrooge’s motives, because he spent little, everyone else enjoyed more, as surely as if Scrooge had divided his fortune and sent a few coins to everyone in the country. As the economist Steven Landsburg once wrote: “There is nobody more generous than the miser — the man who could deplete the world’s resources but chooses not to.”

This isn’t an intuitive proposition but it is true. Scrooge reminds me of Bill Drummond and Jimmy Cauty, formerly of successful dance band The KLF, who in the summer of 1994 filmed themselves burning 20,000 £50 notes — £1m — on an island in the Inner Hebrides. People who wouldn’t have batted an eyelid if Drummond and Cauty had blown the cash on fast cars and drugs were outraged at the waste. As the Ghost of Christmas Yet To Come might have pointed out, the money could have been spent on a worthy cause. On a chat show, in front of a jeering audience, Drummond explained that “burning that money doesn’t mean there’s any less loaves of bread in the world, any less apples, any less anything. The only thing that’s less, is a pile of paper.”

Drummond was quite right. He had a claim on £1m worth of goods and services and by burning the money, he didn’t destroy those goods and services — he merely relinquished his claim and let others enjoy them instead. The likely economic effect is that everything in the country became a tiny bit cheaper. If the Bank of England had worried about the (minuscule) fall in the money supply, it could have printed replacement banknotes for a couple of grand.

Scrooge’s self-denial had a similar effect: he could have splashed his money around buying houses and sweets and anything else Victorian London might offer but, in doing so, he would have denied those pleasures to others. In a deep recession, one might be concerned that Scrooge was failing to support aggregate demand but in normal economic times the effect of his skinflintery was to ensure that everyone else was able to enjoy a little more.

Ah, but we might claim: it is the thought that counts, and Scrooge thought of nothing but workhouses and humbug and himself. True. But are the rest of us really any better? We engage in a seasonal fit of generosity but generosity is not the same as empathy — as thinking deeply about what someone else might want.

Loyal readers will know that 22 years ago, Joel Waldfogel, an economist, wrote an article titled The Deadweight Loss of Christmas, in which he quantified something we all instinctively know: a lot of the presents that people give and receive aren’t terribly well chosen. We spend money on things that people don’t really like — and thereby we waste energy, material resources and labour that could have been far better deployed making something people did want.

More recent research by psychologists — notably Gabrielle Adams and Francis Flynn of Stanford, and Harvard’s Francesca Gino — has revealed a startling lack of self-awareness in our gift giving. A few of their results:

● Gift givers believe that spontaneous gifts are as welcome as those on a wish list, while wish list gifts seem charmless and impersonal. Recipients feel otherwise — they have no problem being given something from a list, and often lament the poor choices when people venture away from it.

● People feel awkward giving money yet are perfectly happy to receive it.

● Gift givers think more expensive presents are appreciated more yet gift recipients don’t care about the expense either way.

It is hard for us to grasp the discrepancy between how we see the world when giving gifts and when receiving them. Recipients may appreciate cash or presents from a list and not fuss too much about expensive gifts; gift givers, in contrast, imagine that the ideal present is an expensive surprise. It isn’t. All this suggests we should probably be spending less on presents, and thinking a lot more about the presents we do buy.

Which brings us back to Scrooge himself. When he finally did decide to embrace the conventional spirit of Christmas, he didn’t waste his money on demonstrative extravagances for people whose desires he didn’t really understand. Instead, he gave three superb gifts. First, a prize turkey that he knew — thanks to a ghostly premonition — was much needed by the Cratchit family. Second, the gift of his time and attention, playing games and making merry with his nephew. Finally, he gave Bob Cratchit the greatest Christmas gift of all: a pay rise.

As I say: underrated.

Written for and first published at ft.com.