Wednesday, December 30, 2015

“It's a Wonderful Life” Rebroadcast

It’s the holiday season, but what holiday

It’s that time of the year.  The movie “It's a Wonderful Life” has proved to be a fruitful source for observations about personal finance, economics, and financial policy.  This year, like the networks, this blog has resorted to a rebroadcast.  However, as we all know, before every broadcast there has to be a commercial.  So before delving in to the rebroadcast, we first should address something new and trendy.  Even here, “It's a Wonderful Life” can provide a convenient foil.

A populist approach that overlooks facts and shoots from the gut is very trendy in some quarters.  A good illustration of that populist approach is vague references to Glass-Steagall by various politicians.  The first reference to "It's a Wonderful Life" (DECEMBER 25, 2009) in “Did the repeal of Glass-Steagall create big banks and lead to the financial crisis?” discussed policy.  

Interestingly enough those closest to the financial crisis and with access to the best information (e.g., Henry Paulson, Timothy Geithner, most recently, Benjamin Bernanke) as well as numerous financial analysts and economists were able to see the simple truth the movie presents.  But, it is so much trendier to ignore the fact that Bear Stearns, Lehman Brothers and Merrill Lynch were investment banks defined along the traditional lines of Glass-Steagall.  It's also convenient to ignore the fact that Countrywide, IndyMac, and Washington Mutual were not traditional banks.  Heaven forbid that one should note that Wells Fargo and J.P. Morgan Chase, which were big enough to absorb the losses of some of the non-bank financial institutions as defined by Glass-Steagall, were, in fact, the antithesis of the romanticized Glass-Steagall bank.

The next year (DECEMBER 19, 2010) in “Investing Part, 3: Setting the volume” the focus shifted to personal finance, and perhaps the most important and overlooked lesson from the movie.  When addressing personal finance, we must turn to another trendy phenomenon.  We find it in the form of the worship of the consumer.  How many pundits point out that about two thirds of Gross Domestic Product is represented by consumption?  They don't bother to note that it is previous investment and labor that produces 100% of Gross Domestic Product.  One can’t consume what isn't produced.

“It's a Wonderful Life” is subtle and the relevant point it makes is easy to overlook.  One would think that life's experience would make the point far less subtly, but perhaps for that very reason noting that it shows up in the movie might be what's required for many people to see the point: budgeting is important.  

It's absurd for people to worry that the public might be saving the money they're not spending now that gas prices are lower or to fret that corporations have liquid assets on their balance sheet.  Such phenomena only indicate that both consumers and businesses are positioning themselves to be able to consume in the future.  Perhaps, they will take on the counter cyclical spending patterns the economist John Maynard Keynes thought should be filled by the public sector.  Heaven knows, the public-sector is certainly not positioning itself to fill that role.  Politicians can't seem to resist the urge to spend other people’s money, including their future earnings.

Those two themes, appropriate policy and personal financial management spilled over into January of 2012.  Regarding personal finance, “If the Plan Is Right, Stick to It” pointed out the folly of letting financial market performance dictate personal investment behavior.  While “The Role of Banks” pointed out how easy it is for policy to ignore the simple truths about banking that the movie illustrates.

The movie illustrates so many points about personal finance that in December of 2012 there was a whole series of articles concluding with “It's a Wonderful Life’ is truly a gift that doesn't stop giving.”  In the following month of January 2013, regulatory developments were so silly they cried out for references to a more rational approach.  As a consequence, a series of blogs ending with “It's a Wonderful Life’ On Regulatory Policy: Crimes Verses Mistakes” were used to illustrate a number of points about policy mistakes and their implications.

Every year since then it's been possible to illustrate some other lesson the movie holds. In 2013 “It's a Wonderful Life’:How to” trying to put a summary on the points it illustrates about personal finance. As a consequence, in 2014 in “It's a Wonderful Life’versus ‘The Interview" turned to the folly of pop culture’s focus on things that are totally irrelevant.

So, for this year perhaps it's appropriate to turn from pop-culture to what is supposedly serious social thinking.  It's a wonder that “It's a Wonderful Life” is still being broadcast.  There are so many points at which the movie portrays behavior that in the current environment are inappropriate to even discuss if one wants to remain politically correct.  Right from the start it refers to Christmas rather than a non-descript holiday.

It has to be frightening to those who think of themselves as the PC police to have to tolerate a movie that advances the idea that one could be politically incorrect and at the same time have a wonderful life.  However, it is also interesting that the movie is so politically incorrect and, yet, provides so many examples of intelligent and successful personal finance. It raises the interesting question:  Is the same mentality that insists upon PC behavior also hostile to individuals successfully managing their personal finances?  It raises the question why so many of the same individuals who insist upon PC behavior also advocate a culture of dependency.  To them it seems as if feeling victimized may be politically correct.  So, this year instead of being a victim, take the time to watch “Its Wonderful Life.”