Why would an economist say that gift giving is less inefficient than transfer of cash?

Question

A friend of mine ask yesterday and I couldn't give an answer...so would somebody help the both of us out.

Answer 1

When a gift is purchased, the money spent has contributed to the economy.

A gift of cash, can be saved and do nothing to contribute to the economy

This is what is meant by inefficiencies between the two

Answer 2

I suspect what he means is that the recipient can use cash to purchase that which he wants the most. The gift might not be at the top of his list and therefore he "spends" the value of the gift less efficiently than he would cash. A fine distinction to say the least, and it leaves out the intangible value of giving a thoughtful gift.

Answer 3

Because the value of the gift to the recipient may not be as high as what the giver paid.  So if your aunt paid $20 for a sweater that you value at $5, there is a loss of $15 that could have been avoided if she had given you the $20.

Answer 4

That is one of the theories of how to best use the welfare system. It is less inefficient to have persons get the hard goods than it is to give them cash. The hard cash can be spent, while necessities are not provided.  An example of the hard goods transfer is housing subsidy. Another is Medicaid.

Answer 5

I've never heard the term "transfer of cash" so I'm assuming you're saying: to give a tangible gift is more efficient (for the economy) than to give cash.

An economist might say this because of the time value of money. In a period of rising inflation (like now) the purchasing power of a dollar is more today than it will be tomorrow. So if you give cash as a gift, by the time the recipient recieves it, the cash may not be worth as much as a gift of equal cost.