Are seasonal business cycles effcient?
A disproportionate percentage of economic activity — both production and consumption — comes in the fourth quarter as Christmas approaches. Similar trends occur in other economies with major gift-giving holidays. Yet most economic models imply benefits to smoother production and consumption. In fact seasonal business cycles look a great deal like regular business cycles. Major economic variables such as employment, production, and sales move in similar ways across the two kinds of cycles. Yet we typically disapprove of regular business cycles. So does it make sense for so much economic activity to be clustered in seasonal fashion?
Here are some con reasons:
1. Congestion: try parking your car at Tysons Corner on a Saturday afternoon in December.
2. Producers must make all-or-nothing bets on new styles, which then either take off or fall flat. The economy becomes riskier than it need be.
3. The short-run marginal cost curve is (possibly) rising, so it is more costly to produce so much for the final quarter all at once. Overtime rises as well.
4. Gift-giving may be an inefficient form of signaling with high deadweight losses.
5. The Christmas season encourages undue attention to creating "blockbusters" rather than quality niche goods. This trend is evident in the book market.
If these hold, on net, we pay an inefficiently large amount of attention to Christmas. We should tax Santa at the margin.
Here are some pro reasons:
1. Shopping involves fixed costs, so let’s get it all over with at the same time. The same might be said for tracking consumer demands, or even producing the stuff.
2. New ideas have a better chance of getting a start when we bunch demand in concentrated fashion and increase returns. Christmas boosts innovation, which is in general undersupplied.
3. Once the season is over, it is over. We have a simpler mechanism for getting rid of failed products and failed ideas.
4. There is no other way to produce that "Christmas spirit."
I incline toward the "pro" reasons, with emphasis on number two. Though I do not pretend to have a grip on the empirics of this question.) But if seasonal cycles are so good, why do I object to regular business cycles? Can it matter so much that one is anticipated and the other not? If, statistically, they look so much alike, can it be said that one is based on coordination failure and the other not?