Two visions of America: Bedford Falls and Pottersville

You can have an economy that grows families or one that grows billionaires.

The holiday favorite 1946 film It’s a Wonderful Life is about a man named George Bailey who is contemplating suicide in the face of a business catastrophe, George’s guardian angel Clarence is sent to try to stop him; success means he finally gets his wings. The film then provides an account of George’s life in his hometown of Bedford Falls up to the event causing him to consider ending it all. Clarence had an idea on how to help George; he offers George a chance to see what the world would look like without him. We then see “Pottersville,” what Bedford Falls would be had George never been born. The Pottersville business district is full of honkytonks, burlesque joints, and other dens of iniquity, while the Bedford Falls downtown is a rather sleepy place with most of the businesses closed for the evening except for a movie theatre showing “The Bells of St. Mary” on the marquee. Watching the movie in my teens in the 1970’s I preferred Pottersville, which was cool and edgy relative to Bedford Falls. The one tavern we see looks like a neighborhood pub, probably served food too, owned by an Italian guy named Martini and his bartender, a big guy named Nick. The version of this place in Pottersville is a bar run by Nick (Martini is apparently out of the picture) where Nick informs George that “we serve hard drinks in here for men who want to get drunk fast.”

It’s a Wonderful Life is readily seen as allegorical, and a quick check with Google shows many interpretations have been made. My take is George represents the New Deal. Bedford Falls represents New Deal America (the actual world of 1946) while Pottersville represents an America where business culture continued its evolution into finance-centric shareholder primacy (represented by private equity investor Henry Potter). Pottersville is the outcome of post-1980 economic cultural evolution, just happening fifty years early. Pottersville’s dens of iniquity today would be things like meth labs, sports betting, and hookup aps.

The film’s message is that the efforts of a single man can make an enormous difference in the life of many others. In the film, an early 1930’s banking panic results in the failure of the only bank, which is acquired by Potter for a fraction of what it would be worth under normal times. He makes a bid to acquire the Building and Loan (B&L) that George manages and would have succeeded without the injection of George’s private savings ($170K in today’s money) to stem the panic. This was money newlywed George and Mary Bailey had planned to use for their honeymoon. The cash injection was successful, the B&L was saved and went on to flourish, financing a whole new development called Bailey Park. We are informed that some of these homes had tripled in value in the years after they were built, demonstrating that the loans made by the B&L (that the bank would not make) were well secured, the collateral was worth far more than the loan, and the wealth of the homeowners (and of Bedford Falls) had increased. What George did though the B&L is economic stimulus, is analogous to what the New Dealers did to reflate the economy out of the Depression. George built Bedford Falls into a microcosm of postwar America. Similarly, Pottersville is a microcosm of what happens without New Deal policy.

 At one point, Potter, alarmed by the threat the B&L represented to his business interests, tried to get George to sell out by offering him a position paying more than eight times what he was earning at the B&L. The implication is, had he did so, the result would have led to Pottersville. In the real world, the Democratic heirs to the New Deal did sell out in the 1960’s and as a result, we live in the 21^st century version of Pottersville. 

The depiction of Pottersville versus Bedford Falls is an artistic, not scientific one. The fact that this film so easily fits into a socialistic allegorical framework would make one think that the director of It’s a Wonderful Life, Frank Capra, was a socialist as were many artists in the 1930’s. Before I started this piece, I had thought he was, having read something to that effect at some point in the past. Yet Capra was a conservative Republican and opponent of the New Deal. I think he was trying to show that the sort of beneficial outcomes that came from the New Deal could also be achieved through the efforts of individuals like George Bailey working at the local level. Capra was also a Catholic, and his vision may reflect the principle of subsidiarity in Catholic social teaching, which holds “no higher level of organization should perform any function that can be handled efficiently and effectively at a lower level of organization by human persons who, individually or in groups, are closer to the problems and closer to the ground.”

Bedford Falls and Pottersville as artistic visions of SC and SP economic culture.
SC and SP are shorthand for Stakeholder Capitalism and Shareholder Primacy business culture variants. They culturally evolve in each other depending on economic policy, as described here. I use an income inequality statistic, the share of all income received by the top 1%, as a proxy for culture as shown in Figure 1. The figure shows high levels of inequality (SP culture is prevalent) before around 1940, low levels of inequality (increasing prevalence of SC culture) over 1940-80, and rising inequality after 1980 (increasing prevalence of SP culture). The trends in inequality (shifting cultural type) is explained using an evolution model in which inequality gradually adapts to an economic environment defined as a function of top tax rate, strike frequency, and interest rate. Changes in environment are caused by economic policy set by the politically dominant party.

Figure 1. Cultural evolution of SP into SC and back 1913-2022.

So before 1933 (outside of the WW I era) the economy evolved under low-tax, anti-union policies during the era of Republican dominance since the Civil War. Inequality was either rising or high (except during the WW I era) over this time. The New Deal radically changed the environment and the culture began to shift towards the SC variant according to the model. Economic inequality did not begin to materially decline until WW II, but then continued to fall after the war in alignment with the model. Thus, although the political “order” that created the environment allowing SC culture to evolve began in 1933, an “SC economy” did not arise until after 1940. Hence, I date the SC economy as 1940-80, and the SP economy as 1980 to the present.

Social characteristics of SC (Bedford Falls) and SP America (Pottersville)
With these preliminaries established I now delve into how the SC and SP culture produce different societies that mesh with Capra’s Bedford Falls and Pottersville. The most glaring difference between the two is nighttime Pottersville was bursting with activity, full of light and sound, the sort of place that would appeal to a single man, while Bedford Falls at night was a sleepy place, the proverbial “good place to raise a family.” America under an SC economy (1940-80) was much the same. It showed an average birth rate of 2.1 per 100 people, compared to 1.4 under SP since 1980. As I have previously written, the marriage rates for men, black and white were highest under SC culture and have fallen under SP since 1980. Graphs about Religion author Ryan Burge has analyzed a large amount of survey data pertaining to marriage and family formation and noted:

I’ve taken a good hard look at the data and here is what I’ve found: men are the real problems here. They have basically abandoned two of the major life milestones in an incredibly rapid fashion - marriage and family. Even if women seek to find a spouse, the pool of prospective suitors has largely dried up. And when it comes to children, good luck. Men are walking away from that possibility, as well.

Burge finds that at any age, women are less likely to have never married than men. This difference between the sexes is larger for religious nones and political liberals. Burge observes:

So, not only are women much more likely to get married, they are also much more likely to become parents, as well. In essence it’s like women are trying to maintain some of the traditional familial institutions in American society while men have decided that this is not the direction they want their life to go.

Burge also finds a generational shift. I summarize some of the data he presents in Figure 2. Each solid-line curve shows marital and parental status for men at age 30, 35, and 45 as a function of birth cohort. Shown as dashed lines is census data on the percent of men aged 35 and 45 who were never married over time. I note that the census data show different, lower values than the data Burge cites. Since I am interested in the trends over time as opposed to the absolute values, I plot the census data on a different scale adjusted to match up the two data sets in order to provide a sense of the long-term trends. The census data show a minimum in the fraction of men who never married for birth cohorts over 1930 to 1955. These cohorts were in their twenties, when most people pair off, over the 1950-75 period, in the middle of the New Deal economy, when America was like Bedford Falls. The cohorts since 1955, who entered the adult world in the late 1970’s and after, have shown declining rates of marriage.

Figure 2. Fraction of men around age 30, 35, and 45 who have never married and are not parents of young children as a function of birth cohort. Also shown is percent of men never married by birth cohort.

If we assume that men who have not married by age 45 are probably never going to, the closeness of the dashed lines during the minimum period shows that during this era, just about every guy who was interested in marriage and family had done so by age 35. After the end of the New Deal economy the fraction of men who had never married by age 35 and 45 began to widen as did the difference between age 30 and 35. This implies that more men are delaying marriage. This trend shows up as the median age at first marriage, which the census report shows rose from age 24 to 28½ over 1970 to 2010 and is probably over 30 today. Burge focused on people aged 35-50, by which time, he reasoned, almost everyone who would ever marry and start a family will have done so. He looked at the likelihood of being unmarried and childless in this group, considering factors such as race, income, education, political ideology, and religious affiliation. He found white men and college educated men were more likely to be married with children, while non-religious and liberal men are less likely. Burge notes that education has the opposite effect for women, educated women are less likely to be married or have children. This is easy to explain by the increasing fraction of college graduates who are women. If college men and women pair off, there will be many women left over.

Looking into interactions between education, gender, and income Burge finds:

The differences for men based on education, holding income constant, aren’t that significant. For male college graduates with low incomes, they are more likely to not be married/have kids. But once you get to about $75k per year, the differences between education basically disappear for men. It’s low income, college educated men that are opting out of getting married and starting a family but moving up on the income spectrum seems to rectify that. The positive effect of education on men’s marriage rates seems to reflect higher income, rather than the degree per se.

Men with a high income do well on the marriage market regardless of education.  But those who have gone to college only to earn a low income marry less often than their low-income non-college peers. A plausible reason might be that their non-college competitors were more realistic about their value as a potential mate, and not distracted with school, gained a first-mover advantage over their low-income, college-educated competition.

Today we have a mythology about dating, marriage, and children that is based in Bedford Falls, when we are living in Pottersville. Under the SC economy, a young man just out of high school could get an entry-level job and would earn about $22 an hour, about what a manager at a fast-food restaurant earns today. With a full-time job at that wage, he could provide a family a lower-class lifestyle. If he had anything on the ball, he would advance in his career, earning enough to move into the lower middle class or if he were academically talented might go to college to pursue a professional career providing for an upper middle-class lifestyle.

Figure 3. Trends in change in income share and unskilled “wage” (annual income/2000) and minimum wage, adjusted for rising GDPpc

Most importantly, the value of the income brought at any level would retain its buying power relative to rising living standards, so he would retain his value as an asset to the household. Figure 3 illustrates this fact. Shown are unskilled wage levels adjusted to 2022 dollars using GDPpc rather than CPI. These adjusted wage levels fluctuated around a $22 average over the 1940-80 period. The constant GDPpc-adjusted wage from an entry level job would buy the same standard of living over time, even as that standard rose. The low-wage worker in the 1940’s would be able to buy as much housing as he would in the 1970’s and his kid’s visits to the pediatrician would take the same bite out of his paycheck. With entry-level wages enough to (minimally) support a family, every able-bodied boy who wasn’t an asshole (or gay) would be suitable husband material. As Figure 2 shows, in this world something like 90% of men married, most of them while still young.

But since 1980, the GDPpc-adjusted entry-level wage has declined with time, as has the fraction of total income received by the bottom 50% (working class) and 51-90th percentile (middle class), while than of the top 1% (rich) has risen (see Figure 3). These trends mirror the trend in minimum wage, which shows how the nature of economic policy turned against working people after 1980.

Capra’s Henry Potter and George Bailey can be seen as archetypical SP and SC businessmen. Three months after the death of George’s father Peter Bailey, the B&L board meet to determine how to go forward after the death of the founder. A discussion ensues in which Potter proposes that the B&L be closed down as it serves no useful purpose. He implies the firm is playing fast and loose with shareholder money by pointing out that it had issued a mortgage for a substantial amount of money (about $300K in today’s money) to a cab driver after the bank refused. Potter complains what this sort of generosity gets you:

a discontented lazy rabble instead of a thrifty working class, and all because of a few starry-eyed dreamers like Peter Bailey stir them up and fill their heads with a lot of impossible ideas.

To which George replies:

Now, 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 he did help a few people get outta your slums, Mr. Potter. And what's wrong with that? Why -- here, you're all businessmen here. Don't it make them better citizens? Doesn't it make them better customers?

Here George is talking about economic stimulus. Becoming homeowners gives people a stake in the community (making them better citizens) and leads to future consumption (better customers). George continues:

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…they're cattle.

Here George illustrates the key moral difference between SP and SC cultural variants. Under SP the shareholder (Potter) is king. All others are means to the end goal of growing shareholder value (make Potter richer). Under SC the stakeholders (workers, customers, shareholders, community) are king. People are human beings under SC and cattle under SP. Under SC America was Bedford Falls, a good place the start a family and raise kids, which is shown by birth rate and marriage statistics. In contrast, SP America is Pottersville, where some say young men are eschewing sex for sports betting.