The Company That Cancelled Christmas
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Now in her late 30s, she was still being treated for depression and anxiety, trying to keep it all together as the single mother of two young children. But Susie was determined to make the most of things. She was studying law. She knew that could be a pathway to a steady, well-paid job. And she had a side hustle. She worked as a sales agent for a company called Fairpack. It was a Christmas savings club.

People would save a little money each week with Fairpack, prudently planning for the expenses of the holiday season. And then, a few weeks before Christmas, a year of thrift would be rewarded. Fairpack would send out vouchers, Christmas hampers and gifts. Fairpack's customers didn't have to worry about how they'd pay for seasonal gifts and treats. They didn't stretch themselves with credit cards or payday loans. It was all taken care of.

Fairpac was a word-of-mouth business. Agents such as Susie Hall would save up themselves, but they'd also go around collecting money from colleagues, friends and family. Everyone was saving together. That wasn't easy, because most of Fairpac's customers had precious little money to spare. But saving alongside other people provided some friendly peer pressure. It was encouragement to make the sacrifices necessary to set that cash aside. So...

No. Susie Hall wasn't expecting any bad luck on Friday, October 13th, 2006. But Fairpack had folded, entering bankruptcy proceedings. My heart just sank completely, she said. The message on the website said that no hampers, no vouchers, no goods would be sent out. I know quite a bit about company law and insolvency law. I knew right away it was really bad. I wasn't sure how bad.

I was to find out over the next few days. I'm Tim Harford and you're listening to Cautionary Tales. Christmas is a time for laughter and friendship, for making merry and giving generously, for gathering close with family and for that little touch of Christmas magic. I love Christmas as much as anyone.

So it feels rather harsh to point out that Christmas is expensive. Nobody really knows how expensive, but the economist Joel Waldfogel has spent years studying the economics of Christmas, and I trust his estimates. He looks at how much people spend in shops and restaurants in typical months and compares that spending to the blowout in December.

That gives a pretty good estimate of how much extra people are spending because it's the holiday season. When his book about the economics of Christmas was published over a decade ago, Professor Waldfogel reckoned that Americans spent about $66 billion extra in the run-up to Christmas. The figure today would be around $100 billion.

A sum so vast, it's literally a meme from Austin Powers. $100 billion.

And this isn't just the American consumer gone wild. Around the world, countries which celebrate Christmas see large booms in spending in December, including the UK, my home country, and also home to Fairpack and its unlucky customers. The United States is just one of many such countries. And although not everyone, and not everywhere, celebrates Christmas, depending on your beliefs and on where you live...

You might instead expect to give and receive gifts for Diwali, Eid, Hanukkah, or even St Basil's Day. Then there are birthdays, baby showers and weddings. There are many occasions on which we might want to give gifts, or where, even if we don't want to give gifts, we kind of have to anyway. And if the economist Joel Waldfogel is right, we're all trapped by these gift-giving traditions.

Consider the central problem of Christmas. Choosing the right gift. We all appreciate receiving gifts, even bad ones. It's nice to know someone cares. But, says Waldvogel, let's set aside the gratitude and the pleasure of giving and all the other sentiments for a moment. Let's ask whether we actually give good gifts.

I think we carry around in our heads a kind of fantasy version of what gift-giving can be. The dream gift will surprise and delight and be so perfectly chosen that it's vastly better than the recipient could have imagined. It might even change their lives. I've received such gifts myself. Perhaps you have too.

Thinking back to Christmas 1984, I remember opening the wrapping paper hurriedly with nervous hands, excited to get the gift inside. Little did I know that disaster was about to enter my previously happy childhood. Don't worry, it wasn't a disaster for me. It was a catalogue of disasters for everyone else. The gift was a book titled The World's Greatest Mistakes.

Some of the stories were absurd. The bride who accidentally married the best man. Some of them were famous tragedies, like the Titanic swallowed up by the ICC. All of them fascinated me, and I realised learning from other people's mistakes is a lot less painful than learning from your own. Goodness me. Without that Christmas gift, cautionary tales might not exist. But let's be realistic.

The gifts we usually buy are much less successful. For example, let's say that you give me a tin of really lovely speciality tea for Christmas and it costs you $20. I'd really appreciate the gift. It's so kind of you to think of me. You've noticed that I appreciate the finer things in life, so your gift really is very thoughtful. But unfortunately, I don't like tea at all. I can't stand the stuff.

So while the sentimental value of the gesture is high, the actual value of the gift to me is zero. Maybe negative, because now I have the hassle of figuring out how to get rid of this tea. So while we fondly dream of transcendently brilliant gifts, it's a lot more common to receive a gift like that. A book you never read, a sweater you never wear, tea you never drink.

and most common of all, is the "meh" gift. You know, I like coffee, so you get me some ground coffee. It's not my favourite, and I prefer to ground my own, but it's fine, I'll use it. And I'm grateful to have a friend who took the trouble, but you spent $20 on the coffee, and if I'd bought it for myself, I wouldn't have paid more than, say, $16. The point, says Waldfogel, is that if you spend $20 on yourself,

you're only going to spend it on something worth at least $20 to you. Probably more. But if you spend $20 on someone else, there's no guarantee that what you buy will be worth $20 to them. You might do the equivalent of buying me a tin of tea. Joel Wollfogel didn't want to settle for hypothetical examples. He wanted data.

So in the spring of 1993, he gave a short survey to his Econ 150 students at Yale. They were willing participants, he recalls. Better to spend 10 minutes filling out a questionnaire than 10 more minutes listening to Professor Waldfogel droning on about the demand curve. What Waldfogel wanted to know was simple. What gifts had these young people received over the holiday season?

For example, a CD for a band they didn't like, or perhaps a CD they already had. A blouse, wrong size, wrong colour. A garden gnome. How much had the givers paid for the gifts? And leaving aside those questions of gratitude and sentimental value, how much did the recipients value the gifts? And what he found was, well, it was kind of obvious and kind of sacrilegious all at the same time.

A gift that costs $20 is worth only about $17 to the recipient on average. The other $3 is just wasted. Friends and boyfriends and girlfriends do a bit better than this. Grandparents and distant elderly relatives do much worse. Economists have a technical term for this kind of waste. It's called a deadweight loss. It happens when markets don't work properly.

Usually a deadweight loss happens because a big company is abusing its dominant market position, or because a government has intervened in the market in a clumsy way. These are issues economists take seriously. But when Waldfogel published his results in an academic journal with a suitably festive title, The Deadweight Loss of Christmas, it all seemed like a bit of a joke.

Most people cast Waldvogel in the role of Scrooge, someone who just doesn't understand the true spirit of Christmas. He leaned into the hate when he published his book Scroogenomics, with a revised estimate that the deadweight loss of Christmas was actually closer to 20%. That's $4 of waste, $4 of deadweight loss for every $20 of gift-giving. In other words...

The average Christmas gift is like my so-so bag of coffee. I don't mind getting it. I won't throw it out. It's just vaguely disappointing. Every year, Christmas brings the same traditions. Chestnuts roasting on an open fire, Jack Frost nipping at your nose, and a seasonal flurry of media interest in Joel Waldvogel's research. I often write about it in my newspaper column at the Financial Times,

And I always get the same response. Most people don't take me seriously. They laugh at economists' warning of bad Christmas gifts. Christmas is magical, after all. It's that magic that motivates people like Susie Hall and her friends and family to spend the whole year scrimping and saving and making little sacrifices to put a few more pounds a week into their fair-pack savings plan. And then came that Friday the 13th.

She was going to have to call round her friends and family and tell them that all the Christmas money she had collected from them as a FairPak agent, it looked like all that money was gone. Cautionary Tales will be back in a moment. AI might be the most important new computer technology ever. It's storming every industry and literally billions of dollars are being invested. So buckle up.

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Lee Stuardson and Margaret Trimble had been looking forward to Christmas. Like Susie Hall, they hadn't had easy lives. Their daughter, Laura, had been diagnosed with a brain tumour at the age of five. She died on Christmas Eve 2004. She knew it was Christmas, Lee told the journalist Steve Bird. She was very brave. What do you do after a loss like that?

For a lot of people, the urge is to keep the old rituals going. My mother died in December, many years ago, when my sisters were still children. We buried her on Christmas Eve. But we didn't turn each Christmas after that into a kind of remembrance day for my mother. We wanted it to be normal. Lee and Margaret seem to have had the same instinct.

Two years after Laura's death, they were saving up for Christmas with Laura's younger sisters, six-year-old Amy and baby Alia. With it being Alia's first Christmas, we decided this year should be special. And that means presents. But Lee wasn't lavishly paid. He worked at a seafood processing plant. So to make sure they had that special Christmas, Lee and Margaret had been saving with Fairpacq.

And now, most of their Christmas money was gone. Maybe all of it. Most experts would advise against saving up for Christmas with a company like Fairpack. There are three reasons why. First, you can often get a better price for those Christmas treats if you just go to a regular supermarket or store and keep your eyes open for bargains. Locking up your money with a savings club means you don't have the ability to shop around. Second, you don't usually earn interest with a savings club.

If you save your money in a bank account, instead, you earn a little extra on top. It might not be much, but it's something. Third, if your bank goes bankrupt,

you get your money back from a government-backed compensation scheme. That's true in the US, it's true in the UK, it's true in most rich countries. But the same protections didn't apply to people who paid money to FairPak. FairPak wasn't regulated as a bank. It didn't have customers' money ring-fenced and set aside. In fact, because it operated to a network of agents, it wasn't clear who the ultimate customers even were.

Legally speaking, Fairpac customers hadn't made deposits, they'd paid in advance for goods, those gifts and hampers and vouchers. And if you pay in advance for something and then the company goes bankrupt before you get what you paid for, well, you might get a little back when the bankruptcy proceedings are finished, but probably not very much.

Or, as Susie Hall put it, "I know quite a bit about company law and insolvency law, and you right away, it was really bad." It wasn't clear how much Fairpax customers would get. Maybe 50 pence for every pound they'd saved? Maybe just five pence? One thing was clear: there was no way they'd get that money in time for Christmas. It would take months. Probably years.

After Fairpac collapsed, there was a lot of commentary lamenting the fact that if only Fairpac's unlucky customers had understood more about finance, they would never have trusted their savings to the company. And maybe that's true. Or maybe it isn't. Fairpac's customers might not have thought about the possibility that the company could simply go belly up, but they did understand what the business model offered them.

One big insight from behavioural science is that we tend to value rewards in the present more than rewards in the future. That means we struggle with temptation. It's tough to motivate yourself to go out for that morning run when it's dark and drizzling. It's tough to say no to dessert. It's tough to resist the impulse to put your hand in the cookie jar if you know the cookies are right there.

Fairpax customers were families who didn't have much and who rarely got the chance to treat themselves or their children. They understood that they'd be tempted if the Christmas money was just in a regular bank account. But that's not the only clever bit of psychology at play.

When we know we might need to resist temptation, one good strategy is to make a commitment to someone that we don't want to let down. I'm more likely to go for that run on a dark and drizzling morning if I've arranged to run with a friend. I'm more likely to resist dessert if I've explicitly promised my wife that I'm not going to eat dessert for a month.

It was the same with Fairpack. Being part of the club imposed a little extra social pressure to save. When an agent like Susie calls past to collect your weekly subscription, you don't want to have to tell her that you don't have the money. So you make sure you do. Heather Skinner was a Fairpack agent like Susie. A bank savings account was too much temptation. It's easier to take money out of the bank. You'd always be dipping into it.

Heather lost £1,100 of her own money. At the time, that was about $2,000. But she was also an agent like Susie. Her colleagues, friends and family lost a total of £10,000 or nearly $20,000. And she had to call round and tell each of them. Heather's main job was as a part-time shop assistant. It wasn't going to be easy to make up for the money she'd lost.

But she was determined that her children would get the gifts they'd been hoping for. A computer and a bike. I've had to get debt, and I know a few of my customers have. So she took out a payday loan, fully expecting that she'd pay dearly for it because of the painful interest rates. She'd saved with Fairpack because she'd been desperate to avoid getting into debt. Christmas loses some of its magic if you're stressed about how much you've borrowed.

But after the collapse of Fairpack, she changed her mind. Next Christmas, she vowed, she would get the money first, pay it back later. Pay for Christmas after, not before. Can you blame her? And she's not the only person who pays for Christmas after, not before.

The economist Joel Waldfogel found that in the US, two-thirds of December spending is charged to credit cards, and that many people roll over that credit card debt into January and February. This is much more common than it was, say, back in 1980. And it's an expensive way to pay for Christmas. But given the situation Fairpax customers found themselves in, you can well understand why, like Heather, some people would rather borrow than save.

The suffering of Fairpax customers was particularly cruel. They were vulnerable and desperate to do right by their children, and this was money they couldn't afford to lose. It was sudden and unexpected and horrible. But I think it also tells us something important about the economist Joel Waldfogel and his idea of deadweight loss.

Remember, Americans alone spend $100 billion on Christmas every year. If Waldvogel's estimates are in the right ballpark, that's $20 billion of waste just in the United States. Around the world, it's perhaps $50 billion. Not quite a Dr. Evil meme, but still an astonishing sum.

Just how astonishing becomes clear when you consider that it's a thousand times more than Fairpax customers lost. Or, to put it another way,

If a company like Fairpack went bankrupt every hour of every day, day and night, from Thanksgiving until Christmas Day, all the unlucky customers of all the bankrupt Fairpacks still wouldn't have lost as much as we collectively destroy every year just by picking bad Christmas gifts.

Those bad Christmas gifts can seem inherently comical. The tasteless cardigan that will never get worn. The golf souvenir that gets put in a drawer and forgotten. No wonder it appears churlish for economists to look at these individual bits of nonsense and insist on adding up the deadweight loss. A silly statistic from the ivory tower. I think that's a mistake. That $50 billion is being spent on real resources.

Energy that's contributing to climate change and which instead we could be using to heat our homes. Scarce raw materials. Land and water and labour. All these valuable inputs could be used to produce things that we really need. Or at the very least, things that we really value. This is real money being spent on real scarce resources and it's really being wasted.

And yet when I write columns in the Financial Times about the deadweight loss of Christmas, people struggle to believe that I'm really being serious. But I am. And I want to help us all solve the problem after this break.

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People have been complaining about the Christmas shopping frenzy for a long time. There are worlds of money wasted at this time of year in getting things that nobody wants and nobody cares for after they're got. That's a character in a short story by Harriet Beecher Stowe, the author of Uncle Tom's Cabin. It was published in 1850. And if that seems early, well, the commercialisation of Christmas came early too.

Santa Claus was regularly appearing in advertisements by the 1840s. In 1867, Macy's department store in Manhattan announced it would stay open until midnight on Christmas Eve to accommodate that last-minute gift-buying spree. We've been trapped by the obligation to exchange gifts at Christmas for a long time.

In Beecher Stowe's story, The Good Fairy, one character makes the simple and obvious point that Christmas gifts don't have to be expensive to carry all the sentimental value of something flashy. After all, if it's the thought that counts, why do we often spend so much and think so little? And here's a conversation from The Good Fairy in which young Ella and her aunt ponder last year's gifts.

That ring I gave Mrs. B was twenty dollars. And do you suppose Mrs. B was any happier for it? No, really. I don't think she cared much about it. But I had to give her something because she had sent me something the year before.

That one hard, cold, glittering ring that now cheers nobody and means nothing, that you give because you must, and she takes because she must, might, if broken up into smaller sums, send real warm and heartfelt gladness through many a cold and cheerless dwelling, through many an aching heart.

I just love the way that the Christmas gift dilemma is so perfectly observed here. Ella spent $20 on Mrs B for a useless gift because Ella had to give something and Mrs B had to graciously receive it. It's all so pointless. And remember, it's one fair pack, an hour's worth of real resources being wasted. When Fairpack collapsed, the nation rallied round.

Sort of. A fund was set up to replace the lost vouchers. Some supermarkets threw in a few hundred thousand dollars. Some members of parliament donated a day's salary in solidarity. Mylene Klaas, a pop star, raised money for the compensation fund by auctioning off a white bikini that she'd worn to great effect on a reality TV show. All very jolly.

But in the end, Fairpack's customers only got about half their money back. And they didn't get it until almost six years after the company collapsed. The loss was a hammer blow for many savers. Riku Shah, a taxi driver from Stockton-on-Tees in northern England, had given £600 to Fairpack to buy presents for his three stepchildren. And after Fairpack folded, he was stunned.

He became quiet and withdrawn. Then, a month after the bankruptcy, with Christmas just around the corner, he was found dead in the River Tees. Debbie Shah, his widow, told the local papers that Riku had killed himself. She wondered whether the shock and shame of being unable to provide a proper family Christmas had contributed to the tragedy. "'I think it's played a part in it,' she said. "'But how much of a part?'

I'm never going to know. It's clear that people feel real pressure to spend money at Christmas, and some feel ashamed if they don't have it. People laugh at economists' warning of bad Christmas gifts. Maybe it's because we've got it wrong, but I suspect it just highlights that we economists have bad branding and poor communication skills.

because other people seem to get away with delivering the same message, and not just characters in Harriet Beecher Stowe's stories. When religious leaders such as the Pope warn that grotesque commercialisation is obscuring the true spirit of Christmas, nobody says they're being like Scrooge. In fact...

we celebrate the idea of transcending the commercial urges of Christmas. For example, in the book How the Grinch Stole Christmas, Dr Seuss offers us a fable in which all the gifts and all the food are stolen by the Grinch, in the classic reverse Santa Claus move of sneaking down every chimney in the little town of Whoville. But the theft doesn't prevent the Who's of Whoville gathering together to sing in celebration.

He hadn't stopped Christmas from coming. It came. Somehow or other, it came just the same. So why didn't Christmas come just the same for Susie Hall and Heather Skinner and Riku Shah? Why didn't they just forget the presents and sing carols instead? Because the difference between Fairpack and the Grinch is that the Grinch stole everyone's gifts.

But Fairpack just let down isolated families here and there. All around them, everyone else was still giving and receiving gifts. Maybe if the whole country had been saving with Fairpack, we could have made like the Who's down in Whoville and all sung together. But that's not how it works. Instead, being unable to provide for your family and give to your friends at Christmas is a source of isolation and shame.

One disappointed Fairpack customer put it best. Most people say kids get too much these days anyway, but I have got four children, all at various ages. Like I say, you can't tell the little two. Father Christmas can call next door, but he can't call here, you know? Exactly. So what can we do? One answer is suggested by a set of studies conducted by researchers from Stanford and Harvard, Francesca Gino, Frances Flynn and Gabrielle Adams.

They asked people to imagine themselves either giving or receiving a gift, expensive or token, from a wish list or a surprise. Givers thought that an expensive surprise would be most appreciated.

They thought picking from a wish list would come across as lazy and impersonal. But recipients didn't see it like that at all. Not only did they prefer to get something from their wish list, they also said it was more thoughtful. And they were just as happy with inexpensive gifts as pricey ones. This study shows that givers and recipients of gifts see the world very differently.

But what's strange about that is that, of course, at Christmas, we're both givers and receivers. We should put ourselves in the shoes of the people receiving our gifts. And since we receive gifts ourselves, it really shouldn't be too hard. Shortly after the Christmas that Fairpack ruined, I was touched when I read a letter to a newspaper, which said...

Tucked inside the gift card attached to the present from one of my closest friends was a letter in which she ventured to suggest that as neither of us really has a need for anything, this should be the last time we exchange Christmas presents. She went on to say that she had been very affected by the collapse of Fairpack with all its consequences.

Mentioning that some had lost as much as £2,000, she asked what pressure people are under that makes them feel Christmas should cost them so much. Has Fairpack at least left a legacy that could make enough of us stop and think what we are doing? One does not simply cancel Christmas unilaterally, but we can all play our own little role in shaping the Christmas culture.

we can start conversations with our loved ones about the kind of Christmas we want to have. I suspect lots of us don't do that for the reason revealed by the Stanford-Harvard study. We think, I'd be happy to get a small gift from a wish list, but I can't suggest that to others because I'm sure they prefer expensive surprises. But if we do raise the subject, we might just find that others are making the same mistaken assumptions about us.

In Harriet Beecher Stowe's story, The Good Fairy, her characters decide to stop giving Christmas presents altogether and make charitable donations instead. That's a step too far for me. I still buy Christmas presents. Most of us are going to keep on buying Christmas presents. But I think we should be spending a bit less and thinking a great deal more.

Or perhaps we should take our lead from the reformed Ebenezer Scrooge. He knew how to keep Christmas as well as anyone, didn't he? But if you go back and re-read A Christmas Carol, you'll see that Scrooge didn't waste his money on extravagant and showy gifts for people who didn't need them. Instead...

He gave the Cratchit family food that they desperately needed in the form of a prized turkey. And he gave his nephew the gift of his time and attention, playing games and making merry. Finally, he gave Bob Cratchit the greatest Christmas gift of all, money. That's the Christmas spirit. God bless us, everyone. MUSIC

For a full list of our sources, please see the show notes at timharford.com. Portionary Tales is written by me, Tim Harford, with Andrew Wright.

It's produced by Ryan Dilley, with support from Courtney Guarino and Emily Vaughan. The sound design and original music is the work of Pascal Wise. It features the voice talents of Ben Crow, Melanie Gutteridge, Stella Harford and Rufus Wright.

The show also wouldn't have been possible without the work of Mia LaBelle, Jacob Weisberg, Heather Fane, John Schnarz, Julia Barton, Carly Migliore, Eric Sandler, Royston Besserve, Maggie Taylor, Nicole Murano, Daniela Lacan and Maya Koenig.

Cautionary Tales is a production of Pushkin Industries. If you like the show, please remember to share, rate and review. Tell a friend, tell two friends. And if you want to hear the show ads-free and listen to four exclusive Cautionary Tales shorts, then sign up for Pushkin Plus on the show page in Apple Podcasts or at pushkin.fm slash plus.

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So I have some big news for vegans and vegetarians everywhere. It's Hellman's plant-based mayo spread and dressing. Made for people with a plant-based diet or anyone really who wants to enjoy the great taste of Hellman's real without the eggs. Hellman's plant-based is perfect for sandwiches, salads, veggie burgers, or any of your family favorites.

To celebrate, Hellman's is sharing some easy, delicious plant-based recipes at hellmans.com. Hellman's Plant-Based Mayo Spread and Dressing. Same great taste, plant-based.

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