Joel Waldfogel, a University of Pennsylvania professor, has written an interesting and controversial little book called Scroogenomics. His central premise is that every holiday season we Americans waste about 12 billion by buying gifts for people who place a value on the gifts that is less than what we actually paid for the gifts. How he goes about calculating this figure is simple, if somewhat controversial. The crux of his theory revolves around the economic concept of “dead weight loss”. Looked at from a macro-economic perspective dead weight loss is the cost to society created by inefficiency in the market. Professor Waldfogel posits that this waste occurs because “when other people do our shopping, for clothes or music or whatever, it’s pretty unlikely that they’ll choose as well as we would have chosen for ourselves. We can expect their choices, no matter how well intentioned, to miss the mark. Relative to how much satisfaction their expenditures could have given us, their choices destroy value.”

He triumphantly makes his point by closing the above paragraph with “Take that, Santa.”

This was not the good professor’s first donnybrook with Santa. In 1993 he wrote a paper that would form the basis of his Dickensian musings. And over the intervening years he has improved his empirical studies and in so doing honed his argument. Had this little book been published a few years ago it might have been met with a collective yawn from us as we crammed another Christmas cookie into our mouths. But given the mood in our country against spending (at least wasteful spending) his book has gotten some traction.

As we know Santa (and the Spirit of Santa) goes shopping for more than just toys. Each year franchised businesses throughout the country take in billions in revenue during the holiday season. Go into any mall in the country and with the exception of the anchor stores most of the shops are franchises. Franchises also eagerly await Black Friday. So when Professor Waldfogel holds forth on the wastefulness of holiday giving he is not simply attacking some wasteful government-spending program in Nome, Alaska; rather, he is knocking back some hot toddies and taking a few roundhouse punches at franchising as well.

Franchising as model of product distribution is dependant on the product selling in the first instance. The less Americans spend from November to December the fewer the number of greenbacks the franchise community puts in its pockets. Of course, some franchised industries are more susceptible to seasonal spending than others. And some sectors do better than others within a given industry. But on the whole when the average consumer spends less this year than he did last year the franchise community tastes the bitter drink of recession.

Timed as it was for release around Christmas, and given the fact that we are in the middle of a serious recession, Scroogenomics sets forth some thought provoking studies around this area of behavioral economics. In fine, the point of his book is to get us to ask ourselves: do we needlessly waste money at Christmas? If so, what are the alternatives? He suggests that to eliminate the annual 12 billion in dead weight loss we should give more gift cards. Acknowledging the stigma associated with giving cash and its derivative the gift card, he suggests that we should give “charity” gift cards.

From a franchising perspective, the substitution of gifts or gift cards will probably not be dramatic. In fact, one could make the argument that buying a McDonald’s gift card for your uncle would provide a better result for franchising than buying a toilet plunger that has a golfer on the handle just because your uncle might play golf. In the former case you have the chance of building some brand loyalty for McDonalds; whereas in the latter case the purveyor of plunger is likely forgotten with ease.

But what of his suggestion that we need to give more to charity in order to fix the dead weight problem? And do so in the form of charity gift cards. While on the surface his suggestion clearly reinforces our internal belief that it is good that the new Ebeneezer Scrooge intends to help Tiny Tim out with his ailment and plans to give to the poor. But what would be the economic impact to the franchising community if billions each year were actually spent on Tiny Tim and his confreres in misery? What exactly are the implications for franchising if American’s decide that we do produce an unacceptable amount of dead weight loss every November and December? Should franchising promote the Professor’s “do good” answer to the problem? Is there even a problem at all? Scroogenomics is, one might argue, proof positive that economics truly is the dismal since.

It is quite irrelevant, the argument runs, whether there is economic waste so long as the cash registers are humming and you and your uncle both walk away from the holidays knowing that you each cared enough about the other to give the other gift? Sure, you did not want and/or need a sweater from the circa 2003 bin, and he has absolutely no use for a golf themed toilet plunger. But you both can go to the locally franchised business and get what you really need. Moreover, how does one create consumer surplus in the franchising community by giving a charity gift card for mosquito netting for some children in Sudan?

To be fair, the questions he poses are legitimate questions. The fact that the answers to the questions make us a little uneasy does not invalidate the questions. In our zeal to consume we have become an annually inebriated irrational economic actor. Sobering up to the reality that all good things must come to an end is, in some ways, the germ seed for a new economic bonanza. And so if the way out of our recession is by getting the rest of the world to spend some money on our products for a change, then what better mode of distribution then perhaps the greatest system of distribution yet devised—franchising.

So as we look confidently to the future perhaps charity gift cards are not such a bad idea after-all. For perhaps what Sudan really needs is a franchised mosquito netting business.