The Economics of The Holiday

The housing crisis, economic stagnation, and creative destruction

It’s become a bit of a Christmas tradition of mine to over analyse Christmas films and then write about them. Last year I did this for Elf which you can read here. I have also managed to suck the joy and whimsy out of The Nightmare Before Christmas, It’s A Wonderful Life, and The Muppet Christmas Carol (in the same article).

Given that Christmas is all about traditions, here is my attempt to keep it going for another year. Last night I managed to stave off hypothermia by drinking hot chocolate and watching The Holiday with some friends. Despite being a big fan of the musical talents of Jack Black I had never actually watched The Holiday before it. Unfortunately it had no songs by Tenacious D in it and the plot was rather predictable but it was entertaining enough. The film was released in 2006 (feel old yet) and so while I don’t think the film is making any economic point in and of itself, the world it depicts of the early 21st Century does teach us something of economics.

I did find it rather amusing that one of the protagonists (played by Kate Winslet) was a journalist at the Daily Telegraph (the guy who is technically a villain is also a Telegraph hack so it all kind of balances out). Anyway, Winslet’s character works in central London but lives in Surrey. This will be a familiar experience for many young(ish) people. The housing crisis means that young people are priced out of the centre of cities such as London and so are forced to endure lengthy commutes everyday for work. I’ve written repeatedly here and elsewhere about how this is a productivity killer and goes a long way to explaining why we have had stagnant economic growth for the past 15 years. Our failure to build enough homes in and around our major cities is causing misery for young people and has been an absolute disaster for the UK economy.

However, I don’t think that Winslet’s character is living in Surrey because of the housing crisis. First of all, we need to remember that the world of 2006 was different from that of 2023. The UK failed to build enough homes over the past 17 years which has meant that supply has not kept pace with demand. What is more, in response to the Great Recession the Bank of England did the right thing by slashing interest rates to historic lows. Both of these actions made housing much more unaffordable today than it was in 2006. As an aside, it is important to point out that while interest rates do obviously impact house prices, the example of the past year shows that what really matters is supply, especially for renters. 

As such, it is not implausible that in 2006 a young(ish) journalist could afford to own a very nice cottage in Surrey. Moreover, it would appear that the character chose to do so as it’s revealed that her brother also lives nearby and frequents the local pub. I’m not a communitarian but it is obviously regrettable that people can no longer live near their families due to the housing crisis. If you’re a real communitarian you should support liberalising the planning system and building on the green belt.

I don’t want to blame it all on the housing crisis though. It is probably fair to assume that Winslet’s character comes from a family of means. As mentioned above, she is a young journalist and yet lives in a very beautiful cottage close to London. What is more, her brother who is a widower and works as an editor and is raising two small children also lives in a very nice house. Their parents are not mentioned so we can only assume that they have sadly passed away. Sad as this is, it has made their children rich. Unfortunately, due to stagnant economic growth and the housing crisis, inheritance is just about the only way that young people can now become rich; gifts from parents or waiting for them to die. I’ve written before about why inheritance tax is in dire need of reform but why it would be inappropriate to scrap or lower it at this time as it would shift the tax burden further away from unearned wealth and onto work. We need to reform the tax system so that young people such as journalists, book editors, and other hard workers are able to own their own home without having to rely on the Bank of Mum & Dad (or their estate).

It’s not all doom and gloom though. The film does show us something about technological change and progress. Despite the evident wealth of Winslet’s character she is overcome with excitement when she arrives at Cameron Diaz’s home in LA. In many ways this is understandable, it’s a mansion with loads of gadgets and a swimming pool. However, what really impresses her is the DVD collection, device for playing them, and large TV. In 2006 this was a sign of wealth.

What is more, one of the scenes is set in a Blockbuster store where the characters go to rent some more DVDs. If you were to tell people in 2006 that Blockbuster no longer existed and that nobody watched DVDs anymore they would likely think that some terrible economic shock had occurred and they would no doubt feel sorry for the former employees of Blockbuster and perhaps even have some sympathy for people working in the film industry. However, while the Great Recession did contribute to the demise of Blockbuster, the real reason that it no longer exists is because of new technology and businesses. People watch shows and films online via streaming services.

These days if you have a large DVD collection it really isn’t a sign of wealth. Anyone you tell about it is more likely to think you’re a bit of a weirdo rather than be impressed. That is how much things have changed. Twas ever thus. New technologies come along and destroy old ones. People lose their jobs and whole industries cease to exist. However, new businesses and entire industries replace them and create new jobs which tend to be more interesting, safer, and better paid. It’s called creative destruction and it’s a wonderful thing.

The elderly film writer character complains about this in the film. He mentions that there are 9 films being released in a single weekend (it used to be 9 in a month). He also points out that in the Golden Age of Hollywood there was less investment from major businesses and certainly no special effects departments. While the classics are great, the fact that consumers have much more choice, creative people have the tools to make visually impressive films, and this is all a very lucrative business model is surely a good thing.

People always worry about new technologies destroying jobs and we have seen people worry about AI in recent years. I wrote about this earlier in the year based on an article I wrote with some very clever Stanford computer scientists. In short, AI will probably change the world and be a massive shock to the labour market. However, if it follows the pattern of history then it will bring positive change by creating better jobs and helping to drive economic growth.

I never really know what I’m going to write about on this blog and it’s generally based on some misguided policy announced by the government or what I just watched on TV. However, I do like to put something out each week and as it’s December I might try to over analyse another few Christmas classics before the end of the year. 

A while back I wrote that we’re all lousy gift givers so it’s actually better (from a dead eyed economist perspective) to give cash. On that note, if you enjoy reading Opportunity Lost, why not bung some dosh my way so this doesn’t become a loss-making venture for me? You can do that here: https://www.buymeacoffee.com/opportunitylost

Thanks as ever for reading. Enjoy the rest of your weekend and keep warm!

Ben