Christmas & Star Wars: a tale of economics

The deadweight loss of Christmas

With Black Friday as the starting point of retailers’ Christmas season and mythically their starting point for making a profit over the whole year, the December period seems like a blessing for economists. If wishing made it so.

All those gifts that you just bought, do the recipients really want them? Maybe yes, but more important for your favourite sleigh-borne economist is the following question. Would they have paid the same amount of money for it? According to a study by Joel Waldfogel, they wouldn’t. He calculated the gap between the money spent and the value it has for the receiving one to be around 10-20%. This percentage is what economists call a deadweight loss and it amounts to billions of dollars in the US alone.

Additionally, Christmas buying does not add pure extra revenue to the stores, as the money for presents is saved up during the rest of the year. Christmas therefore, is an “orgy of wealth destruction”.

Your friend studies Economics; what can you expect from them, and what to give?

Economists may shun gift giving, but even they want to be socially accepted as well. This poses a moral dilemma for them. Giving cash is the best rational option, as it can then be used to buy something really valuable without any loss. Gift cards are second best, albeit less versatile.

However cool the ratio, economists are humans in the end and will value the human touch of gifts. The economist’s inability to quantify this emotional value drives them mad. It therefore depends on their level of believe in the invisible hand of the market what you will get, but you can expect the receipt to come along just in case you just don’t value it as much as expected.

Christmas therefore, is highly confusing for the economist. Besides the gift giving torture, he will be torn apart by the loss of GDP caused by the few days of public holiday. He’ll be glad when it’s all over and everybody is at work again, fighting for a future with more holidays (huh?!).

The economics of Star Wars

Even though it is far, far away and happened a long time ago, the world of Star Wars exhibits remarkable similarities to ours in terms of the annals of their economy. As your editor has not seen the new episode yet, this piece is on the first two trilogies.

The Economist points out that much like our own lands, the Star Wars galaxy has advanced technology while at the same time sustainable economic growth is lacking and inequality mounting. Even though droids and robots are omnipresent, Anakin Skywalker still had to work as a slave before he was freed to become a Jedi master. This has much to do with inefficiencies (the hyperdrive to travel at light-speed is for example not widely available), but also with the power of the Trade Federation.

At the beginning of Episode I: The Phantom Menace, The Trade Federation has become a powerful organization. Where on earth we have trade between countries (which have their own saga), trade between planets (and systems) helped spawn a merchant conglomerate and lobby group that controls whole planets and even solar systems. A conflict with the government started the Clone Wars, after which Darth Vader managed to consolidate power.

Free trade, as on earth, has the power to develop the economies of poorer planets by letting them focus on their strengths. Star Wars takes the theory of comparative advantage one step further where it applies to planets rather than countries. Tatooine, the desert planet where Luke and Anakin both grew up, has resources to mine. Coruscant, the Empire’s capital, is literally a planet-sized city, devoted to politics and bureaucracy. Planets with more favorable climate, such as Dagobah perhaps, could devote themselves to agriculture.

The power of the Trade Federation however, makes this free trade not as efficient as it might be. It charges high monopoly prices and leaves Tatooine as poor as it is, while simultaneously giving rise to smugglers such as Han Solo.

Luckily, the much more social-minded-looking rebels take over control and might be able to distribute wealth more equally.

So what predictions can we make on the state of the economy in the new film?

In a recent paper, Zachary Feinstein, professor at Washington University, gives an explanation why the dark side is able to return to the stage. The initial building of two Death Stars and the countless wars may have contributed to economic growth as the building of the pyramids might have done in Egypt by stimulating industry. The bank loans needed to provide capital for the two moon-sized ships are estimated to be at least $419 quadrillion.

The following destruction of the death stars was thus such a capital destruction that the Rebel Alliance wouldn’t be able to bailout the galaxy, and so, presumably overseen by an intergalactic Yanis Varoufakis, the loans would become unbearable and result in the new government defaulting. The banking crisis that followed would have fuelled discontent and provided a way to return for far-right actors like the First Order.

Joris Bucker, Business & Economics Editor

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