The Movie's Not Called "It's A Wonderful Life Of Economic Freedom"

And more from this week...

Programming note: Understanding America will be taking a Christmas break, returning with a probably excessive pile of things you should be reading on January 3. Warmest wishes to you all for the holidays and the new year.

“It’s A Wonderful Life” is the official Christmas movie of Understanding America. It emphasizes local businesses anchoring and nurturing prosperous communities. It warns about the shortcomings of the unchecked pursuit of profit in the “free” market. It celebrates decent lives and strong families built in hometowns atop mutual obligations.

And according to former Senator Phil Gramm, a leading proponent of the Republican Party’s market fundamentalism since the Reagan administration, it’s really a parable about the wonders of “economic freedom.”

So your one thing to read this week is Gramm’s essay from Christmas Eve 2019 in the Wall Street Journal: George Bailey Saw the Miracle of Capitalism.

I recommend this partly because it’s just a lot of fun, and a great illustration of how market fundamentalism truly is a fundamentalism. Obviously, “It’s A Wonderful Life” is a critique of capitalism and an argument that the common good requires placing other priorities above the pursuit of profit. But a fundamentalist cannot “Take the L,” as the kids say. Everything must fit within the reigning orthodoxy or else be condemned as heresy. And who’s gonna condemn George Bailey?! So instead, Bailey must #actually be a stand-in for “real-life Baileys throughout our nation’s history,” like, you know, private-equity baron and Chinese Communist Party partner-in-education Steve Schwarzmann.

Gramm’s commentary inadvertently shows how “It’s A Wonderful Life” does exactly what great art should do, creating accessible abstractions that help people to better understand reality. Mr. Potter, the film’s villain, is a wealthy slumlord, exerting market power against customers and competitors alike to maximize his own profits at the expense of the community’s welfare. This, Gramm says, “epitomizes the Democrats’ caricature of unredeemable capitalism.” But Gramm doesn’t say what, if anything, the caricature gets wrong.

Instead, he proposes contrasting Potter with the Baileys, who are supposedly the True Capitalists(tm). He writes:

By squeezing nickels and dimes, the Baileys made limited resources and labor go further, producing “dozens of the prettiest little homes you ever saw, 90% owned by suckers who used to pay rent” to old Potter.

What the Baileys’ penny pinching accomplished in moving Bedford Falls families out of Mr. Potter’s slums has been achieved by real-life Baileys throughout our nation’s history. Those who were able to save pennies enriched all mankind.

That’s… a different movie. In this one, the Baileys were not effective nickel-and-dime-squeezers. While George does at one point describe running the Building & Loan as, “this business of nickels and dimes and spending all your life trying to figure out how to save three cents on a length of pipe,” in fact the modus operandi of their enterprise was to look beyond the nickels and dimes toward the social value of extending credit to working families, even when that meant lower profit and less capital to deploy in competition with Potter.

As George says in a crucial monologue, after his father has passed away, at the meeting where Potter attempts to dissolve the thorn-in-his-side B&L:

Now, hold on, Mr. Potter. You're right when you say my father was no businessman. I know that. Why he ever started this cheap, penny-ante Building and Loan, I'll never know. But neither you nor anybody else can say anything against his character, because his whole life was...

Why, in the twenty-five years since he and Uncle Billy started this thing, he never once thought of himself. Isn't that right, Uncle Billy? He didn't save enough money to send Harry to school, let alone me. But he did help a few people get out of your slums, Mr. Potter. And what's wrong with that? Why...

Here, you're all businessmen here. Doesn't it make them better citizens? Doesn't it make them better customers? You... you said... What'd you say just a minute ago?... They had to wait and save their money before they even ought to think of a decent home. Wait! Wait for what? Until their children grow up and leave them? Until they're so old and broken-down that they...

Do you know how long it takes a working man to save five thousand dollars? Just remember this, Mr. Potter, that this rabble you're talking about... they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath?

Anyway, my father didn't think so. People were human beings to him, but to you, a warped, frustrated old man, they're cattle. Well, in my book he died a much richer man than you'll ever be!

Potter is the one who most effectively squeezes nickels and dimes. So why can’t Gramm celebrate him? Shouldn’t Potter’s focus on efficiency and profit deliver more social value than the sentimental saps who keep making loans that barely cover their own cost of capital? Just as “Steve Schwarzmann made our pennies work harder so our families didn’t have to,” per Gramm, isn’t Potter’s model of housing development the one generating highest returns for shareholders?

In reality it is not Potter’s but the Baileys’ model of capitalism that yields widespread prosperity by treating people as human beings, respecting their working and paying and living and dying, and taking an interest that they become not only better customers, but also better citizens. If your economic theory leaves you no way to distinguish between the two models, you are left to publish essays like this one, and left plainly in need of a better theory.

BONUS LINK: And speaking of Senator Gramm, I had the pleasure of having a conversation with him last week in New York on free markets and free trade, which he was gracious enough to allow American Compass to record and release as a podcast. You can listen here.

THIS WEEK AT AMERICAN COMPASS

Tax Cuts for the Coalition We Have: “Just because the center of gravity on the Right defaulted to tax cuts that predominantly benefited the well-off in 2017 doesn’t mean the party has to automatically offer that same policy prescription in 2025,” writes EPPC’s Patrick T. Brown. “That’s particularly true when the Republican coalition of today looks meaningfully different. Over the past two election cycles, working-class Americans—many of whom may have dreams of one day making it into the top tax bracket, but are far away from it now—have swung firmly into the GOP camp. Rewarding them by simply extending TCJA as-is, rather than improving how it is designed and implemented, would be using populist political rhetoric to advance a political agenda that reflect yesterday’s Republican coalition.”

Another Window Into America’s Two-Tiered System of Justice: “People say that New York is America’s most powerful and important city in part because of the agglomeration of professional talent that resides there,” observes Aaron Renn. “This is true, but some of that talent is there because New York has been repeatedly bailed out, the most recent occurrence being the 2007 financial crash, when the federal government rushed to provide hundreds of billions of dollars in relief, much of which made its way directly to Wall Street. Where would NYC be today, and where would many of its most talented residents be, if the federal government had simply allowed the finance industry to go under?”

Trump Can Bend Biden’s Industrial Policy to Suit Him: In the Financial Times, I describe a potential path forward for the incoming administration. “Doubling down on industrial investment, rather than disowning it, allows Trump to co-opt one of the Biden economic agenda’s few promising elements to his own priorities. A renaissance in the defence industrial base would align with Trump’s America First agenda. Mike Waltz, the incoming national security adviser, has just introduced the ‘Ships for America Act’ to spur the domestic shipbuilding industry. Developing natural resources, from energy to critical minerals, will fit well too.”

And, as already noted the American Compass Podcast this week features former Senator Phil Gramm talking with me about free markets and free trade.

WHAT ELSE SHOULD YOU BE READING?

Starting off with some pairs of articles, to compare and contrast…

Rebel Yell | Walter Russell Mead, Tablet

The Year of McDonald’s | Chris Arnade, Free Press

Mead gives a wide-ranging and engaging tour through the history of American politics, especially populist politics in the American South, leading up to Donald Trump’s emergence as the dominant figure in the Republican Party. “For the firebrand populists,” he writes of Southern politics in the late 1800s, “shouting the unsayable, proposing the impossible, demanding the unthinkable, and not infrequently doing the deplorable were ways to tell their audiences whose side they were on.”

Read Mead alongside Arnade’s delightful reflection on the role McDonald’s has played in the events of recent months. “Trump’s embrace of McDonald’s becomes a political twofer. It shows he’s one of you: He is a back-row guy at heart. But it also shows that while he should be a member of the front-row, given his education and wealth, he’s not, because such people despise him for many of the same reasons they look down on you: for what he eats, how he talks, for what he believes in, and for how he arrives at those beliefs, which isn’t by spending years reading through approved syllabi.”

How the White House Functioned With a Diminished Biden in Charge | Wall Street Journal

A Weary Biden Heads for the Exit | New York Times

These are not so much compare-and-contrast as two versions of the same piece, spilled to reporters at both newspapers in parallel as the desperate desire of the president’s inner circle for continue relevance and attention began to outweigh any loyalty they still felt to their increasingly irrelevant boss. What’s most apparent is that Biden’s infirmity inhibited his ability to do the job from the very start of his presidency, and in such obvious ways requiring such out-of-the-ordinary accommodations that everyone knew. The level of media collusion needed to hide the state of affairs from the public for so long is likewise shocking.

But worst of all is the reality that there is simply no one in charge of the federal government, there has not been for a long time, and the whole gang thought they were going to run it back for a second term. Their speeches from the past four years about protecting democracy should be packaged and redistributed with a circus soundtrack behind them.

Sudden Loss of Undocumented Workers Threw Tech Supplier Into Upheaval | New York Times

What Really Happens When Illegal Immigrants Leave? | Conn Carroll, Washington Examiner

The Times does its best to paint a dire picture of the threat posed by actually enforcing our immigration laws. What it produces instead is a very dark comedy starring Geetesh Goyal, the CEO of “Human Bees.” Yes, he really decided to call his staffing agency “Human Bees,” and yes, companies really hired temporary workers from an agency with that name. So many, in fact, that it was Inc. magazine’s fastest growing private company in 2021, with a three-year revenue growth rate of 50,000%. Jabil, the electronics manufacturer, discovered its low-cost “Human Bees” were in the country illegally and fired them. This “upheaval” caused it to fall behind on orders and forced it to undertake “expensive and ‘herculean efforts to find replacements, including hosting job fairs and borrowing workers from a client.” Wow, job fairs. Truly herculean.

The story is yet another example of how the supposed parade of labor-market horribles that will accompany immigration enforcement never seems to materialize. Carroll provides an even better example: Florida’s implementation of mandatory E-Verify last year. Illegal immigrants appear to have left the state in droves, yet the fallout never fell. “The most recent data available show Florida’s economy grew 3.2% in the past year, which was higher than the national average, and the state added 133,000 jobs. Florida’s construction industry, which the Left swore depended on illegal immigrant labor, saw the strongest job growth in the past year.” Have you seen any stories about crops rotting in Florida’s fields?

And finally, some singletons…

Bringing Elon to a Knife Fight | Jennifer Pahlka, Eating Policy

This is an excellent analysis of the promise and perils of the DOGE. Plenty of cause for concern, notes Pahlka, but an elite technocracy that has spent recent administrations failing entirely to take on issues of government efficiency and state capacity have limited standing to complain when a new administration at least tries something. I’d just add that I’m hearing frequently, and find amusing, the lamentations from the Left that the sudden presence of people like Elon Musk in the halls of power represents some new and concerning turn toward corporatism. As if we haven’t spent the past 30 years having Goldman Sachs run the government. It’s not suddenly corporatism just because they’re not your corporate executives.

G.M. Led in China for Years. Here’s How It Ended Up 16th in Sales. | New York Times

GM sales in China are down more than 40% this year alone. The story is a how-to manual for the Chinese strategy of luring American capital into the country, blocking imports, stealing technology, and then crushing the no-longer-needed foreign firm with subsidized domestic competition. Hopefully this will help the folks at the Cato Institute understand why “when we hear [‘globalization’] we think of container ships, terms like trade deficit, or dry governmental agreements” and not “the people working at your local restaurant, or the ones behind your favorite TV show.”

A Mysterious Health Wave Is Breaking Out Across the U.S. | Derek Thompson, The Atlantic

Some things are getting better in America—traffic fatalities are down, drug overdoses are down, the murder rate is down, even the obesity rate has ticked down. But the patterns in the data don’t point to easy or consistent explanations. And of course, there’s always the question, “compared to what?” The pandemic and its immediate aftermath yielded unprecedentedly bad readings on these indicators, and part of what’s going on may simply be a return to pre-Covid trends. Still, any improvement is worth celebrating.

And on that happy note, enjoy the holidays!