Valentine's Day: Just Another Liberal Stimulus?

Love, money and manipulating the American spender.


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Economics and Valentine's Day go together like broccoli and chocolate. But we're a business site, so we can't help but see the news through supply and demand -- even when the news is candy hearts and flowers.

The average person will shell out $116.21 on Valentine's Day merchandise this year, up 12.8 percent over last year's $103.00, according to estimates from the; National Retail Foundation. That will bring total holiday spending to about $15.7 billion. Sixteen billion doesn't look like much when you put it next to our $14 trillion economy.

But in some industries, it's absolutely vital. Valentine's Day is Christmas for florists. The same way some electronic stores make up to half their yearly revenue in end-of-year shopping, some florists make up to 40% of their annual haul in February sales. 

You'd think stats like this would make economists fall in love with Valentine's, especially in an economy with skinny wallets. Consumption makes up more than half of GDP by some measures, so what's not to like about a holiday that compels us to spend money -- out of love, out of guilt, or most likely some combination thereof? The Atlantic Wire finds a decidedly unromatic-sounding economist (like finding ice in a freezer, I guess) to break it down:
"There's an underlying level of commercial exchange and if you were an economist, you would just look at that as the main reason that we have Valentine's Day," [Duke professor Dan Ariely] says, reminding us, somewhat tangentially, of why some economists have trouble finding dates on this special day.
In other words, the main reason why have Valentine's Day is to stimulate commerce. It's a dismal view, but hey, it's a dismal science.

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But it's not obvious that a day created to stimulate commerce really stimulates. Think about how Valentine's day encourages you to think differently about buying for that special someone. If I want to buy her a necklace, maybe I'll wait until February 14. If I want to take her to her favorite restaurant, maybe I'll wait until February 14. Seen in this light, we cannot say the Valentine's Day "stimulus" is $16 billion because those necklaces and dinners would have been bought, anyway. Valentine's didn't create economic activity, it just concentrated it.

If this is starting to sound familiar, it's only because Washington has been using stimulus policy to create it own little Valentine's Days for the economy in the last two years. We had a housing tax credit to concentrate home purchases and a Cash-for-Clunkers program to move auto purchases. In December, we got a one-year payroll tax holiday (that word ain't no coincidence) with a special one-year business tax credit to encourage families and businesses to get into the holiday spirit in 2011 and spend, spend, spend.

Some economists will argue that all these Valentine's gifts to the economy do nothing more than steal demand from the past and future. They might be right. Thinking back to February 14, some Valentine's gifts would have happened anyway ... but some couples really are inspired by the invention of Valentine's Day. Can you honestly say that the mythology of the roses and rom-coms and the chocolate rabbits never inspired you to splurge on a nicer hotel room, or order an extra bottle of wine or dessert?

That extra motivation can pay off in two ways down the line. First, it puts more money in the pockets of hotels and restaurants. Second, it might create an expectation for more expensive nights down the road, appreciably raising overall relationship spending.

The bottom line is that we don't know if Valentine's Day really stimulate the economy any more than we know the impact of any other stimulus. Might as well put down our swords for a day, and focus our attention on that special someone -- or maybe just the chocolate bunny.
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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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