“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
—Nobel Prize-winning economist F.A. Hayek, The Fatal Conceit (1988)
Every few years, around Christmas time, I have to haul out Frank Capra’s classic film It’s a Wonderful Life.
The first several times I viewed it, I perceived it purely as the timeless story of an everyman who gradually gives up on his big dreams and his grand plans to realize in the end that the best dreams and plans consist of family, love, friends and doing good in the world.
But on each viewing I notice something different or see things from a different perspective. For example, on the latest viewing my wife was with me. Somehow she had never seen the whole thing through to the end before—despite being around me for two decades now.
When we got to the part where George Bailey gets to see the world as if he had never been born, he goes running in a panice through the streets of his home town, now called Pottersville. The reaction of my European spouse, who is unburdened by American sentimentality, was a revelation. She commented matter-of-factly, “Oh, so the town was better off without him.”
I looked at the screen to see what she was seeing. And there it was. Pottersville was vibrant with crowds on the street and all kinds of businesses going full blast. Yes, they were mostly gin joints and strip bars, but the place was booming.
I tried to explain that the town had decayed morally without the influence of George Bailey. Yes, it was thriving, but it wasn’t a good place for families anymore.
“It looks like Las Vegas,” she said, still looking impressed.
The more I looked at it, the more I realized that the philosophies of good ol’ George Bailey and mean old Mr. Potter were really representative of Milton Friedman and John Maynard Keynes, respectively. George was pushing the economics of lending other people’s money to try to get a bit of construction activity going. Potter was pushing the economics of sound money and balanced budgets. As a consequence, George and his customers were barely getting by, while Potter was wealthy.
Of course, Capra stacks the deck by making Potter completely unpleasant and, in the end, venal and dishonest. When Potter’s policies have full sway in Pottersville, the town is booming, but this is shown to be a bad thing because it is no longer family friendly and public morality has declined.
One area where time has not really treated the film well is in the way it regards women. In the alternate timeline without George, we are meant to cringe because George’s poor wife has become an old maid and his friend Violet has become an out-and-out party girl.
In George Bailey’s world, things are more family-oriented but less prosperous. His Building and Loan is only able to finance homebuilding as long as savers do not come looking for their money. In financial terms, this is only a few short steps removed from a pyramid scheme—the kind of operation that cost Bernard Madoff’s customers their life savings. Just as banks made too many dodgy loans and precipitated the 2008 financial crisis, so in the film’s happy ending does George have to get bailed out. And who bails him out? Well, all the friends he made through a lifetime of being a nice guy. But all of their contributions are dwarfed by that of George’s childhood friend Sam Wainwright, who has gone off and made a fortune (and created jobs) by innovating and investing.
Wouldn’t George Bailey have done more good for his town by using his talents to start a business that provided jobs to the locals—instead of trying to create the illusion of financial security where none actually existed? It’s the same kind of mindset that focuses more on tax revenues than on jobs—inevitably resulting in the stunting of both. The movie offers the false choice between a wholesome life in which we struggle economically and a prosperous life in which we become morally depraved.
The film’s dodgy economics do not take away from its greater themes of family, friendship, loyalty, honesty and trying to do the right thing. And nothing makes one feel more like an old Scrooge than the idea of rooting for mean old Mr. Potter instead of nice guy George Bailey. But the fact that its story has become so ingrained in American culture has almost certainly had a down side. It is as though the continual viewing of stories like this have programmed us to think that a happy ending is one where our problems are solved with someone else’s money.
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