Here is my gift to you for this Christmas season and the ones to follow. If you have friends and relatives for whom it's hard to buy holiday gifts, you'll find economic thinking helpful indeed.

But you may wonder how economists, followers of the "dismal science," can contribute to the holiday season? Surely not by calculating changes in retail sales and the like. Though economics is perceived as calculating not compassionate, economic analysis can offer great insight into even the warmest, most spiritual holidays, like Christmas. This logic applies to all occasions meriting meaningful gifts.

Gift-giving presents challenges to friends, family, co-workers, and business associates. What to get someone who has everything or the ability to buy themselves far more than you could possibly afford? Or someone who says "anything would be fine, it's the thought that counts"? Everyone gets stumped over gift ideas, whether you are a child giving to your parents, an employee shopping for your boss, or giving to wealthy friends. Economics can help with those hard choices which plague us each time of gift giving.

A well known economist at the University of Washington, Robert Thomas, recommends to give cash. Then, everyone could buy that which they value most. But unless it implies genuine sacrifice, cold cash from cold calculists demeans the Christmas spirit, so I recommend a different approach.

Giving cash is not stupid, but a bit insensitive and definitely sub-optimal when the recipient is not genuinely poor. While convenient, giving cash neglects a key economic principle dear to economists, "comparative advantage". Everyone has their own niche, something that they are just much better at than anything else. Nobel laureate economist Milton Friedman reminds us, "we should concentrate on doing those things we do best, those things where our superiority is the greatest." It could mean cross-stitching a pillow, or getting excellent tee times at a favorite course. That in which you have an advantage makes for ideal gifts, because they cost you much less than other, comparable gifts would. The Microsoft employee has a huge comparative advantage in getting discounted software, so we'll expect "Win 95" in his friend's stockings.

If your comparative advantage wouldn't make a good gift, then look towards the "comparative disadvantages" of the receiver. If the recipient has a relatively tough time doing something, then their disadvantage can be turned into great gift ideas. Applying this principle requires knowing the recipient's interests and tastes. Fortunately, these are exactly the people we want to please, those we know and care about. This could mean setting up your technologically inept parents' home computer with all the bells and whistles, or sending Levis to friends overseas. These gifts, while quite easy for one person, can be extra valuable to others.

Economists also recommend taking advantage of knowledge differences. Friedrich A. Hayek notes that "practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made." For example, an old friend and business associate had long wanted a certain antique China pattern, but always thought it was no longer available. I knew better, and tracked down what became a very memorable Christmas gift for him. Some of the best presents are gifts that others wouldn't have thought of getting themselves, either because they weren't aware of them, or because you have a particular expertise in that field. Giving someone with similar tastes a book you've already read and enjoyed takes advantage of this technique.

Comparative advantages, disadvantages, and knowledge differences are things that successful parents and businesspeople use every day, usually unconsciously. In doing so, they increase their wealth and the goods and services available to others. By thinking about these principles and applying them to gift giving, their tasks will be easier and their friends and loved ones more pleased.