Christmas is the greatest economic stimulus

Christmas is a miraculous season. In terms of cold, hard numbers — cash, jobs, and economic output — it's the happiest time of the year. A period when prosperity surges and all are filled with cheer.

But this fundamental reality is typically obscured from view by a tacit conspiracy between government statisticians, academics, and financial reporters who insist on using seasonally adjusted data to wipe the Christmas Miracle off the face of the economy. This is helpful when assessing public policy, because it lets you distinguish the impact of new policy ideas from the normal ups and downs of the calendar. But the tyranny of seasonally adjusted data does obscure some things that are quite important and have potentially useful lessons for the future. If the economy can boom each year at Christmastime, why can't we keep it in a Christmas-like state all the time? As great as Christmas is, we could all be living in a richer happier country if we added a second one.

The economic miracle of Christmas

Here is a standard seasonally adjusted chart of employment growth in the United States during the years 2011, 2012, and 2013:

Pretty boring stuff. But what if instead of using the standard seasonally adjusted data, I were to show you the actual data (red line)? It's much more dramatic:

What you are seeing here is a striking fact about the economy that you never see reported in the newspaper — every January, 2 million to 3 million Americans lose their jobs. The Bureau of Labor Statistics uses its algorithmic magic to make this annual depression go away. If "only" 2 million people are laid off this January, the seasonally adjusted statistics — the ones reporters write up — will say there was an employment boom, with hundreds of thousands of jobs created. It then typically takes until April or May for the economy to re-obtain the level of employment it enjoyed during the previous November and December.

Merry Christmas!

Gift-giving is amazing

I was raised in a Jewish household, and I'm a bit of a cold-hearted rationalist, so I am absolutely the jerk who was very impressed with Joel Waldfogel's article on the "Deadweight Loss of Christmas" when it first came out. His idea is pretty simple. If I buy you a $100 gift and you buy me a $100 gift, the odds are very good that we will end up worse off than we would have been had we each kept our $100 and just made our own purchasing decisions. The inefficiency introduced when people try to guess what other people want is the deadweight loss of his title.

Of course in the real world, nobody finds this persuasive because feelings blah blah blah.

But there's no reason to be fuzzy about it. The economic data shows clearly that the seasonal surge in demand — for presents, for travel to see family, for stuff to serve at holiday parties — is an unmitigated boon for the economy. It is true that the Christmas boom entails a certain amount of waste, but waste amidst a surge of prosperity is clearly preferable to the bleak austerity of January and February.

Now what is true is that this seasonal boom-and-bust cycle is highly inefficient, as George Mason University's Tyler Cowen has argued. But as the great British economist John Maynard Keynes argued decades ago, "the right remedy from the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom." Keynes was talking about monetary policy rather than Christmas presents, but the same principle applies. We ought to add a second Christmas sometime in the spring  to keep us permanently in a quasi-boom.

Second Christmas is affordable

The biggest skeptical reaction I get about my plan for a holiday-induced permanent boom is that people simply imagine themselves spending more cash on presents, and in exchange receiving more gifts. This conjures up a world of lower savings, higher credit card debt, and (whether they use the term or not) more deadweight loss.

This reaction ignores the systematic impact of Christmas. Every dollar you spend is a dollar of income for someone else. This is most obvious in the case of the millions of people disemployed by the annual January bust, or for service workers who enjoy holiday tips. Those incomes, when earned, would be spent on buying goods and services from other people, increasing the overall level of prosperity.

Indeed, even industries that don't exhibit an obvious seasonal character are influenced by the Economic Miracle of Christmas. Here in the Content Game, for example, we normally experience holidays as a lull in the news cycle and web readership. But advertising revenue inevitably peaks in the fourth quarter (as brands try to capture holiday shoppers' eyes) and craters in the first. A Second Christmas would stabilize ad revenue and allow higher editorial budgets all year round. Airlines and hotels would invest to add capacity to meet this higher level of year-round demand. The overall national rate of consumption needn't rise, just its level, with incomes rising in tandem.

Yes, I am serious

It's important to recognize that for tens of millions of observant Christians around the world, the day is first and foremost a religious holiday that can't be replicated. Christmas-wise, we are talking pretty strictly about the gifts-and-family aspects of the holiday, and this can all sound a bit silly. So let's return to something very serious. In November, the (seasonally adjusted) unemployment rate was 5.8 percent. Everyone can agree, I think, that if the unemployment rate were to spike to 6.3 percent that it would be a bad sign for the American economy. People would complain — loudly — that something had gone wrong. And yet the seasonal adjustment algorithm expects a 0.5 percentage points increase in the unemployment rate each and every January.

The only reason people don't freak out is that the algorithm makes this rise vanish in a puff of smoke. But simply pointing at the calendar and calling it "seasonal" doesn't change the fact that this is a tragic loss of human potential and possible prosperity. If it were just too cold in January for people to work (or something) then we might just have to accept it as another unpleasant fact of winter. But it's not the weather that drives this seasonal downturn (it's also cold in December), it's Christmas. And if human ingenuity was capable of devising one economy-boosting celebration, surely we have it within us to create a second.

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