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December 24, 2013

Why Exactly Did She Give Me That?

Writing about web page http://ideas.repec.org/s/eee/givchp.html

It's sometimes suggested that festivals of giving and receiving challenge the theoretical foundations of mainstream economics. Not so. Christmas is a challenge, but it isn't abstract or theoretical; it's empirical and deeply personal.

How would Christmas be a theoretical challenge to economics? Most economists build their models on rational actors that pursue self-interest. I give you a gift. If my giving benefits you at my own expense, does giving undermine the axioms of the model? Not really. There are many ways to interpret giving in terms of rational choice. Here's a few.

  • Love. I love you, so my utility internalizes yours. If my gift makes you happy, I'm happy too.
  • Commitment. I signal my commitment to you by giving you an expensive gift. If you accept my commitment, we can do things together (like rearing a family) that we couldn't do separately.
  • Competition. I compete for your affection by displaying my surplus resources. By making you a gift more expensive than any my rivals can afford, I can win the contest.
  • Signalling. By selecting particular gifts (or store vouchers), rather than money, we signal particular types of affective relationships. Some gifts are considered romantic, and other utilitarian. When exchanges match, your position in my world is confirmed; when they are discrepant (you give me perfume, I give you a scrubbing brush) it is undermined. Either way, I learn something useful.
  • To create an obligation (as Sheldon says in The Big Bang Theory, "You haven't given me a gift, you've given me an obligation"). I make you a gift, in return for which I will call in a favour at a time of my choosing.

These are a few possible explanations of giving and receving in general. One might also want to explain festivals of giving and receiving when everyone does it together:

  • Herding. I gain utility from doing what everyone else does. If everyone else is giving and receiving, I'm happy to feel part of it by doing the same. (Not everyone is like this; a minority will gain utility from standing aside.)
  • Coordination. It's more fun if we all do it at the same time; also, devoting a few days each year to systematic giving may reduce the chances of anyone being left out of our circles of commitment and obligation by mistake.

In other words, relatively simple extensions of the basic economic model based on rational individual choice can easily support explanations of giving, including festivals of giving and receiving. So the challenge of Christmas is not theoretical; it's not hard to explain the general phenomenon. The challenge is to explain giving in particular: For any specific gift, which is it, of these (or many other) possible explanations that applies?

Christmas is a challenge for everyone, not just for economists. Tomorrow, as you sit amidst the wrapping paper, ask yourself: Now, why exactly did she give me that?

Merry Christmas!


December 16, 2012

The Census of 2011: Some Christmas Stories

Writing about web page http://www.coventrytelegraph.net/news/coventry-news/2012/12/12/one-in-five-people-living-in-coventry-born-abroad-2011-census-reveals-gallery-92746-32411647/

The results of the U.K. census of 2011 have been published. They carry three messages for Christmas. One is a tale of foreigners bearing gifts. Another concerns the decline of Christian belief. Finally, the first two stories are connected, but not in the way you might think.

To start at the beginning, the Coventry Telegraph reported (on 12 December):

ALMOST one in five people living in Coventry were born abroad [...] When the last census was carried out in 2001, about 10.35 per cent of the population of Coventry was born abroad.

  • The first Christmas story in the census is that migrants bring us a gift: the gift of diversity.

Migrants are different from us in skills, talents, ideas, and culture. By being different, they open up new cultural, technological, and business possibilities. At higher skill levels, they increase the variety of skills and talents. At lower skill levels they reduce business costs. They increase diversity and, by increasing diversity, they make us all richer.

One result is that the places where migrants cluster become rich. You can see this clearly by setting two maps side by side. The one on the left, courtesy of The Guardian, shows the proportion born here (darker is more) and the one on the right from the Office of National Statistics shows average incomes (darker is richer). Basically, the map on the right is darker where the map on the left is lighter.

Born in the UK, 2011Incomes, 2011

It's clear that richer places have more immigrants. You might worry about causation, because richer places also attract more migrants. The fact is that the advantages of cities like London that attract migrants don't decline over time, and if anything increase, which suggests strongly that immigration promotes prosperity.

(The maps are just for illustration. There's harder evidence on this, for example Gianmarco Ottaviano and Giovanni Peri, "The economic value of cultural diversity: evidence from US cities," Journal of Economic Geography 6(1) (2006), pp. 9-44, Repec handle http://ideas.repec.org/p/cpr/ceprdp/4233.html.)

It follows that I have little time for two commonly held beliefs: that immigrants take our jobs and that our island is so overcrowded that it cannot take any more. Rather, immigration brings mostly benefits, and cities are our way of accommodating them.

It is true that immigration is not a unmixed blessing for everyone. Diversity makes some people uncomfortable. I do not belittle this. I believe that people should generally be free to choose their neighbours. Some people like to mix and share cultures and some don't. It's a fact.

You might expect the problem of different preferences to be solved by sorting, so that people that prefer sameness live in one place (e.g. villages) and people that prefer mixing live in another (e.g. cities). Then, everyone could have what they want.

One difficulty is that societies with a lot of immigration are also very dynamic, and this imposes continual change on the character of neighbourhoods that is often unanticipated by those that have chosen to live there. You think you’ve settled down in a quiet village full of people like you; the next thing, the town next door has turned the village into a suburb, and after that come the immigrants (who may come equally from Romford or Romania). So people don't always get what they bargained for.

Finally, Britain as a society has not reached a consensus over the terms on which we are willing to live alongside large numbers of new immigrants. At one extreme are backward-looking nativists who wish to protect a mythical “indigenous” community at any price, including isolation and stagnation. At the other extreme are cringeing multiculturalists who think suicide terrorism is okay if it’s your culture.

Somewhere in between there might be a less defensive, more confident national culture that knows what being British means and accepts immigration on the basis that immigrants make a free choice to both to join our society and contribute something of their own to it. But we are a long way from this. And it is fair to add that countries that have achieved this are the exception, not the rule.

The Coventry Telegraph reports:

The census also showed that a majority of Coventry residents describe themselves as Christians – but only just. It found that 53 per cent of the population were Christian, while 7.5 per cent were Muslims, 3.5 per cent were Hindus and five per cent were Sikhs.

  • The second Christmas story in the census is the decline of Christian belief.

The decline over time is illustrated in the next two maps, both courtesy of The Guardian; the one on the left shows the proportion of the population professing Christian belief in 2001 (darker is more) and the one on the right shows the same in 2011. You can see how the map has become lighter over the last ten years.

Christianity 2001Christianity 2011

The history of the Christian church in England began with migration. Christianity was originally an imported idea and so it was a gift of migration. In other words, as well as skills and talents, migrants bring us new beliefs, and this also can be fruitful.

Two thousand years later, what explains the decline of Christian belief? There are several possible explanations; the one we hear most frequently is clearly wrong. We often hear that the spread of secularism is an inevitable concomitant of modernity. Yet a counter-example suggests this is wrong; America shows the opposite.

Another explanation might be that today's migrants are responsible for importing non-Christian beliefs. Yet migrants from Easterrn European and West Africa are often more enthusiastic and committed Christians than the congregations of our own Church of England.

A more plausible explanation lies in a market failure. The transplant of Christianity to the British Isles was so successful that the church won a monopoly. In the long run this has been bad for Christianity.

By law, the Church of England is the church of the nation. Its head is the English monarch. The Crown appoints its prelates who sit in the House of Lords. What incentive do they have to fight for their beliefs? What need to they have to put real demands on their members? Evidence from the United States shows, in contrast, that Christian churches do best when they have to compete for a congregation. (The standard reference is Laurence R. Iannaccone, "Introduction to the Economics of Religion," Journal of Economic Literature 36(3) (1998), pp. 1465-1495, Repec handle: http://ideas.repec.org/a/aea/jeclit/v36y1998i3p1465-1495.html.)

  • Thus the third Christmas story in the census is that the privilege of an established church is bad for the religious meaning of Christmas.

I'm not sure how much I care, exactly. I will celebrate the non-religious meaning of Christmas, which is family, children, loving, and giving.

Merry Christmas!


I am a professor in the Department of Economics at the University of Warwick. I am also a research associate of Warwick’s Centre on Competitive Advantage in the Global Economy, and of the Centre for Russian, European, and Eurasian Studies at the University of Birmingham. My research is on Russian and international economic history; I am interested in economic aspects of bureaucracy, dictatorship, defence, and warfare. My most recent book is One Day We Will Live Without Fear: Everyday Lives Under the Soviet Police State (Hoover Institution Press, 2016).



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