The Economic Fallacies Of Black Friday: 2017 Edition

Authored by Nullus Maximus via The Zeroth Position blog,

Today, shoppers across America will participate in the largest shopping day of the year: Black Friday.

The National Retail Federation is estimating that 164 million customers will be shopping on Black Friday weekend. For the first time, their estimate includes Cyber Monday, which had previously been treated separately. The 2016 estimates were 137.4 million between Thanksgiving and Sunday, and 122.2 million on Monday. The actual result from 2016 was 154.4 million between Thanksgiving and Sunday. A similar adjustment to the predicted value for 2017 would mean an actual number of shoppers close to 184.3 million.

The NRF estimates that total sales for the holiday season will be between $678.75 billion and $682 billion, up from $658.3 billion in 2016. This would be an annual increase of 3.6 to 4.0 percent. The estimate for 2016 was $655.8 billion, suggesting that the total sales for 2017 may be around $683 billion. This year, the NRF estimates that retailers will hire between 500,000 and 550,000 seasonal employees, compared with the actual 575,000 they hired during the 2016 holiday season versus an estimate of 640,000 to 690,000. We may therefore expect that retailers will actually hire about 453,900 seasonal employees.

On the surface, this may appear to be a marvelous celebration of free market capitalism. But let us look deeper through the lenses of the broken window fallacy and the idea of malinvestment.

To view holiday shopping as a boost to the economy ignores the fact that people could either be spending that money in other ways or saving it.

In other words, such an approach is an example of the broken window fallacy because it focuses only on what is seen and ignores opportunity costs. If people would save their money rather than spending it on various holiday gifts, then this money would be invested in one thing or another. As Henry Hazlitt explains in Chapter 23 of Economics in One Lesson, saving is really just another form of spending, and one that has a greater tendency to allocate resources where they are most needed.

Per capita spending is predicted to be $967.13 in 2017, up from the 2016 estimate of $935.58. The above problems get even worse if people use credit cards to spend money that they do not currently have. With a current credit card interest rate of 16.72 percent and a minimum payment of 4.0 percent, a debt of $967.13 would take 5.5 years to pay off and would cost $1,372.85. This is $405.72 wasted on interest payments that could have been kept in one’s accounts or put toward a productive purpose. Multiply this by the 184.3 million shoppers predicted earlier, and the result is that as much as $74.8 billion could be spent on interest payments.

When people purchase unwanted gifts and/or buy gifts with money they do not currently have, their choices encourage malinvestments. A malinvestment is an investment in a line of production that is mistaken in terms of the real demands of the economy, which leads to wasted capital and economic losses. The holiday shopping season contains a subset of shopping which creates systematic and widespread mistakes in investment and production. Although the effect is not as severe as what occurs during an Austrian business cycle bust and is both caused and resolved in fundamentally different ways, there is a noticeable hangover effect on the economy. A look at the average monthly returns on the Standard and Poor’s 500 shows that while the worst month for investments is September, the next three worst months for investing are February, May, and March. (April would likely be bad as well if not for income tax returns providing an artificial economic boost.) An economic downturn occurs in the historical average following the holiday season, but as this has become an expected annual occurrence, many analysts simply do not look for an explanation of these results, as they are perceived to be natural. Even so, this appears to be a small-scale business cycle that repeats annually.

With these arguments in mind, would we all be better off if we just canceled the holiday shopping season? It is an open question, but the Austrian School of economics suggests that we could have a better economy if the burst of economic activity in late November and December were spread throughout the year and people did not spend money they do not have on items they do not need.

 

Comments

Escrava Isaura JuliaS Fri, 11/24/2017 - 14:53 Permalink

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Krugman? I settle for the little girl determination.That's a funny picture.  

In reply to by JuliaS

Charming Anarchist Fri, 11/24/2017 - 14:18 Permalink

Oh, great!
Now for the next open questions: How does "the Austrian School of economics" propose to achieve such a spread? and Who gets to decide what "a better economy" would be?

HillaryOdor Charming Anarchist Fri, 11/24/2017 - 14:53 Permalink

The Austrian school does not propose to achieve a spread.  Nowhere in the article was that proposed.  The Austrians tend to believe in individual choice, so it's up to each shopper when and where they want to shop.  Pointing out economic fallacies is not a call to action.  It's simply an explanation that this boom to the economy doesn't help as much as people think it does.   I don't know how this is not obvious, especially to someone with the word anarchist in their name.  You seem to think more like a bureaucrat, or you at least assume others do.  Is your name supposed to be ironic or somthing?  Or are you one of these oxymoronic communist anarchists?

In reply to by Charming Anarchist

Bemused Observer Fri, 11/24/2017 - 14:33 Permalink

How could we "cancel the holiday shopping season"? This implies someone to DO the canceling, and no, we do NOT need that. What we NEED is a change of attitudes and values that would make us unresponsive to all the siren calls to spend, spend, spend. When people en masse begin to openly ridicule stuff like the TV ads that show gift-wrapped CARS in driveways, and boycott retailers who insist on remaining open on holidays that should be reserved for family time, then and only then will we be able to retake Christmas from the thieves and grifters.

wmbz Fri, 11/24/2017 - 14:33 Permalink

"ignores the fact that people could either be spending that money in other ways or saving it".~The great Amerikan lard assed consumer, in not "saving it". They go into deep hock each and every year at Christmas time.Chirstmas is all about buying crap they don't need with money they do not have!

338 wmbz Sat, 11/25/2017 - 06:43 Permalink

Christmas is all about buying crap they don't need with money they do not have! To impress people they've never met. It's sick, and each person can be the change they believe in. I bought one thing yesterday. a 12 pack of Bud Light, paid cash for it and said thank you to the person behind the counter when I bought it. sean

In reply to by wmbz

woody188 Fri, 11/24/2017 - 14:35 Permalink

Not sure the Austrians are correct on their assertion that the money saved would be allocated to resources where they are most needed. Seen a few banks get "captured" by their outsized loans to childhood friends that won't ever be repaid.

A1 T Fri, 11/24/2017 - 14:35 Permalink

Good article hedge. I noticed that shitwave  has been predicting markets moves a little to good. They are in on the corrupted markets I believe. Crooked rigged.

. . . _ _ _ . . . Fri, 11/24/2017 - 14:36 Permalink

Illogical.When people spend money they don't have on things they don't need, it essentially moves money up the pyramid to the smart money folks who live at the top. Interest is created and that money also goes up the pyramid so the smart money can better invest it than just gaining some small rate of interest in a savings account or miniscule profit in an index fund.Higher rates of interest generated on credit cards grows the economy more than small rates of interest in bank accounts. GDP = debt, don't forget.Poor people giving their money to rich people (and their corporations) who know what to do with it is therefore better for the economy. So what needs to be said is that the economy itself is bad for most people. So why not just do away with that?This is why the wealth gap has no choice but to increase exponentially in the long run. Financial dependence is built into the system, otherwise there would be no poor, no rich, and only middle-class, hence, no economy per se.The opposite of the system as it exists would be total equality and would do away with the need for money altogether. No need to measure wealth if everybody had the same amount. How is this economics?With higher predicted sales, lower staffing rates, and wage growth out-paced by inflation, the smart money gets an even bigger share. Better for the economy, worse for the average Joe. The left erroneously thinks socialism would fix this. In theory perhaps, but add corruption to the mix - which stems from greed - and it's the same situation as we have today.There is only one way to achieve equality: abolish money, automate everything, and give everyone the rest of their lives off. As popular as that idea may sound, I don't see much support for it at the top of the pyramid where the smart money lives.We're stuck. There is no avoiding the cliff at the end of the road where capitalism finally implodes.

privateparts501 Fri, 11/24/2017 - 14:39 Permalink

The author of the article along with many of the commenters assume that the vast majority of the public at large are indeed rational.I argue that they are not. If 98% of the public were indeed rational, there would be a lot more corrupt politicians hanging from the trees as buzzard food as well as a military without enough soldiers to form a parade.

privateparts501 hannah Fri, 11/24/2017 - 14:53 Permalink

From 1984:It appeared that there had even been demonstrations to thank Big Brother for raisingthe chocolate ration to twenty grammes a week. And only yesterday, he reflected, it had been announced that the ration was to be REDUCED to twenty grammes a week. Was itpossible that they could swallow that, after only twenty-fourhours? Yes, they swallowed it. Parsons swallowed it easily,with the stupidity of an animal.

In reply to by hannah

Deep Snorkeler Fri, 11/24/2017 - 15:23 Permalink

AmericansHuddles of barely-educated suburban lifeforms,without intellect or coherent thought,on downward trajectory, lost in the absurdityof a consumerist unproductive economy,spending themselves into oblivion.