Economics Takes a Holiday

It began as an innocent love affair between an economist and the calendar. Named (unintentionally) after Mother Holle, an ancient Celtic goddess of the underworld who gave good things to good people and left coal for the bad ones, I was destine to have a fascination with holidays. As a child, I loved Christmas, 4th of July, first day of school, Valentine’s Day, Halloween, New Year’s Day, and Thanksgiving. And as I grew up, earned college degrees and became an economist, and married and had children, I continued to discover appealing holidays, including some fairly obscure ones like Imbolc, a Celtic purification festival held on the first of February in anticipation of spring. But it wasn’t until the early 1970s that I connected holidays to my profession of economics.

It was 1973, and Russell Shannon, my friend and colleague in the Clemson University Department of Economics, was coordinating a series of weekly columns in a regional newspaper. One day, I told him I wanted to write a column for Valentine’s Day and call it “Heartless Capitalism.” When he asked what it was about, I said, “I don’t know, I only have a title.” It wasn’t a particular topic that had captivated my attention, but rather the idea of linking economics with holidays.

And so my Holley-days, as Russell calls them, were launched. He suggested that they be collected in a book, but they never were. By the time I considered the idea again, more than three decades had elapsed, and I was a different kind of economist. Neo-institutional and behavioral economics had begun to take hold in certain parts of the profession, challenging many of the conclusions that traditional (or neoclassical, as they are known) economists drew from their abstract models and statistical analyses. This shift suited me. It addressed some of the limitations of the abstract by grounding the field more in the real world. It also made me rethink the power of holidays as a tool for exploring human behavior.

Neoclassical economics relies heavily on a rather simple but quite serviceable model of human behavior: the rational, self-interested individual who uses his resources and skills to maximize his personal well-being and in the process (but as an incidental byproduct of self-interest) benefits society as a whole. This rational, economic man is a calculating machine with perfect information and tastes and preferences that are impervious to change. Furthermore, the principles of neoclassical economics are timeless and universal. They should apply as well to choices in an Inuit village or a Chinese megalopolis as they do to the Western culture in which they were developed. The laws of traditional economics mimic the laws of physics as natural and immutable.

Behavioral economics, drawing heavily on psychology, suggests that human motivation is more complex than simple self-interest. Preferences or tastes are not fixed; they change with a person’s experience, with advertising, and with the opinions of friends and family. It turns out that humans are not such simple calculating machines as the model of rational, economic man might suggest. Our motives include concern for the well-being of others as well as ourselves. Our search for meaning is at least as deep as our search for comfort, security, and other economic goods. Our preferences are not entirely inborn—infants are not born with a craving for Big Macs—but influenced to a large degree by our cultures. Our processes of gathering and digesting information are subject to our limits of time and mental capability. In practice, we operate with less than perfect information and rely on rules of thumb in many of our market choices.

Neo-institutional economics reminds us that we and the economies/societies in which we live exist in a historical and cultural context, not in a vacuum. That context limits the range of options we consider and influences both our preferences and our choices. One of the insights of neo-institutional economics is the path-dependent state. In simple English, a path-dependent state means that we are where we are largely because we have been where we have been, and that limits the options we have at this choice point.

Both behavioral and neo-institutional changes to the dominant economic model suggest that choices and outcomes are, in many cases, likely to be quite different from what the traditional model would predict.

What does this have to do with holidays? Rather than being about the individual in the abstract, holidays are about communities, cultures, history, and our relationship with the natural world. Both altruism—concern for the well-being of others—and cultural and historical influences on tastes and preferences come to the fore when we look at the rational, calculating self-interested individual in a context of community, history, and the natural world. Holidays offer a way to highlight that context--the history, culture and geography within which we make our choices. And since holidays are scattered throughout the year, this book offers a chance to explore some of the emerging ideas of behavioral and neo-institutional economics in small, seasonal doses.

So put on your party hat and allow me to introduce you to the new world of behavioral, contextual, interpersonal, historical economics, one holiday at a time.