This article was originally published in the Daily Caller
This Valentine’s Day, we’ll hear a lot about the economy-boosting powers of the holiday from the usual cast of pundits and media commentators. As an actual economist, however, I can confidently make a more romantic prediction: The annual ritual of treating our beloveds matters more to our social wellbeing than it does to our economy. At a time when all things financial have many of us feeling cold, economics tells us it’s okay to love Valentine’s Day for its own sake. Three key economic concepts tell us why.
First, there’s the basic importance of free markets and the wealth that those markets produce. People may grumble about the “commercialization” of romance, but in centuries past, only the world’s most wealthy and privileged elites could afford to share gifts and leisure time with their loved ones on the scale we’ve grown used to. Today, the average citizen can afford to take time and money to signal their affection in a tangible way. We have free markets to thank for such a huge increase in aggregate wealth.
Opening romantic gift-giving to all is also important for our social relationships because it allows people to engage in signaling. For economists, signaling — the second key economic concept of V-Day — entails sending credible information to someone who doesn’t have it. Think of two people who have just started dating. One sweetheart could give the other an envelope stuffed with cash. Most people think that’s tacky, but why? Perhaps because it’s a worthless signal.
A wad of cash doesn’t really reveal much valuable information about how much somebody loves you. A particular sentimental gift selected specifically for you, by contrast, reveals that your sweetheart has paid close attention to what you value, signaling the depth of their affection. In a free market that creates wealth, the logic of signaling means we’re all more empowered to communicate our affections more strongly, more accurately, and more effectively.
It’s true that spending on Valentine’s Day directs money toward certain industries, such as florists. But this visible effect should not blind us to the unseen effects of our gift-giving — the third economic concept we should bear in mind when buying those roses, that chocolate, or that ring. The money we spend on Valentine’s Day isn’t money we wouldn’t spend or save otherwise. If our pundits and commentators sat through a few lectures in Economics 101, they’d learn the crucial importance of the seen and the unseen.
There is a natural tendency to focus on what is readily observable (in this case, Valentine’s Day spending) while ignoring the unseen (the fact that the Valentine’s Day spending would have been allocated elsewhere if not for the holiday). This isn’t to say that producers of Valentine’s Day-related goods don’t create value, but instead to emphasize that holiday spending is no different from spending — or saving so that others can borrow and spend — on any other day of the year.
That’s a vital insight at a time when politicians struggle to outdo each other with grand schemes to jolt us into one kind of spending or another. Just like we’re individually best equipped to know what makes the perfect gift for our valentines, we’re best empowered by the free market to choose how to efficiently and rationally allocate our resources.
That message is lost when we think about Valentine’s Day as the latest badly needed stimulative shot to our beleaguered economy. When it comes to February’s hearts and flowers, the real economic lesson is that we ought to stay romantic about Valentine’s Day. It’s best understood as exactly what we’d like it to be — an opportunity to find the gift that matters to that person you care so deeply about.
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