The Trouble With Christmas

This is an edited/improved version of a comment I made on Matthew Campbell's blog a day or so ago:

I prefer to refer to Christmas as capitalist appreciation day, where we can all rejoice in increased consumer spending. However, there is a slight problem that Christmas causes to the economy. It forces companies to stock up on goods for a very seasonal period for no real reason (there are seasonal reasons for stores to have more snow shovels in winter). This artificial seasonality causes inefficiencies for many companies. A company may have to increase its capacity for a short term by having some other type of temporary expansion. An example of this would be Canadian Tire having make an extra tent room off the side of their store. Per square foot, this extra tented area costs more to heat, not to mention employee cost of set up. Or instead of an temporary expansion, a company may just increase their fixed capacity. This creates a problem for other parts of the year where demand will be less. Some costs, such as staffing, can be reduced, but the fixed costs will persist all year. Without Christmas, people will still buy many of the consumber goods purchased, but they will be spread out throughout the year. This has the advantage of smoothing out the production scheduling (anyone that has taken an operations management course can explain some obvious benefits here!).

This can also benefit consumers in that they get their goods sooner. If I want something in October, I may hold off until Christmas to get this. If I could get it in October, there is extra time I have with the good. Free trade benefits both parties - or else why do you trade? So if I can do a transaction sooner, there is economic growth at an earlier point in time, which makes both parties richer. So this added wealth sooner leads to greater economic growth. Think of a transaction as in compound interest where the total economy grows by X. Now this X happens at an earlier time in the year, so it interest accumulation period. If a transaction happens on June 25th (my birthday!), this is exactly 6 months from Christmas.

Let i be the economic growth rate, P is total economy at Dec 25th 2003, X is amount of only purchase during year, so the economy at December 25th, 2004:

Without Christmas: P(1+i) + (X)(1+i)^1/2.
With Christmas: P(1+i) + X

I showed the 2 equations this way for easy comparison. The first term of each is equal, so of little interest to us. The 2nd term without Christmas allows for interest to accumulate for half a year on top of purchase X. This accumulated interest is economic growth that is sadly missed due to Christmas!

So to sum up, Christmas seems great for capitalism, but really hampers ecnomic growth. Next time you wish a libertarian "Merry Christmas", remember that they are really dying a little inside each December.