What "Toy Story" Can Teach Us About The Economy That "Cars" Can’t

toy story

Earlier this month, Walt Disney (DIS) issued a statement saying its CARS franchise is expected to be a moneymaking venture in waiting.

CARS 2 hit the theatres today, and analysts predict that merchandise sales will beat last year’s TOY STORY 3 sales. Already, Cars has produced more than $10 billion dollars since its release in 2005.

But thinking back to last summer, TOY STORY 3 provided profound wisdom and analysis on the economy – something that CARS 2 likely won’t compete with.

To recognise fully where we are, we must first understand how we got here. For economic neophytes and experts who want a simple background on the current financial crisis: look no further than TOY STORY 3. Now that the film has received numerous accolades nearly a year after its release, I can analyse the allegorical comparisons without spoiling the mood.

SPOILER ALERT: If you have not seen TOY STORY 3 but want to see it without knowing anything about it, stop reading here.

The film chronicles the uncertain future of Sheriff Woody, Buzz Lightyear, and all their toy friends as they prepare to accept the fact that their owner Andy Davis is now 17-years old and has outgrown them. Andy packs his stuff for his first year of college, excluding the toys from his suitcases and boxes.

Andy’s character represents the economic business cycle, globalization and technological advancements. Just as the global economy has evolved through innovation, so too does Andy through his maturity.

The business cycle is a periodic movement of economic activity and output measured by real gross domestic product (GDP that is inflation-adjusted). It’s comprised of a contraction (economic activity slows down), trough (economic activity reaches a low point for the period), expansion (economic activity picks up), and peak (economic activity reaches a high point for the period). 

In his early youth, Andy played with his toys religiously. They shared very eloquent and mutual experiences together. The toys entertained Andy and helped him through his darkest moments, and Andy satisfied his toys by playing with them on a frequent basis. The relationship was beneficial to both parties. In economic terms, Andy and his toys reached a peak, where their utilities (or satisfaction) were at extremely high levels.

Following any Golden Age, a contraction is bound to occur. The United States felt it when the Great Depression caused the Crash following the Roaring Twenties and again when the technology bubble burst at the turn of the millennium.

The toys encountered their recession (two straight quarters of negative GDP; in other words, a prolonged contraction) when Andy stopped playing with them. Not only was the atmosphere recessionary in magnitude, but in essence, the toys were unemployed! There was no use for them. Andy found new gadgets to keep him busy, as evidenced by his ability to drive his own car and use his Apple (AAPL) computer. Andy tucked his toys away in a box he never opened until he started clearing out his drawers before moving to college.

Technology’s immediate effect puts people out of work. Software developments have reduced the demand for traders and brokers. The Internet has shrunk media’s subscription-based revenue model.

But just like the business cycle, toys are recycled as well, from one kid and generation to another.

Lots-O’-Huggin’ Bear, or Lotso, represents the devious and unethical figures who contributed to the worsening of the crisis. Banking and ratings agency executives to derivative salespersons: none is as lowly regarded as former hedge fund manager and Ponzi schemer Bernie Madoff. Through his firm Ascott Partners, Madoff aggravated the crisis by running the largest Ponzi scheme history has witnessed ($50 million). He duped investors spanning from non-profits, sports teams and high net worth individuals, forcing them to liquidate holdings, thus increasing downward pressure on stock prices during one of the most unstable market periods ever and tainting an industry even more than it could handle.

In the film, the toys are already struggling to “find work,” and therefore can’t keep themselves busy by being played with. After Andy’s mother donates them to the Sunnyside Daycare, the toys meet Lotso, who shows them a tour of the facilities and explains the great work they will do.

Lotso befriends them and brings them in to club with open arms. Little did the toys know that he runs the daycare like a prison. The toys end up being abused by toddler children during the day and are held captive by Lotso and his posse at night. Much like Madoff, Lotso cons the toys throughout the film, until justice finally serves him right. By that time, however, it is too late. Much of the damage had already been done.

TOY STORY’s chief character and toy, Sheriff Woody Pride, is the leader of the vegetative toys. Translation: he is trying to jumpstart a “dying” industry. As seen in the film, he insists on preserving capitalism. He gives a symbolic “State of the Toy” speech early in the movie where he lays out the situation the toys face and offers potential solutions to the problem. With the charisma of a fearless President, Woody consistently peps his troops as they aim to escape the harsh rule of Lotso and spur Andy to play with them again.

In the end, like any Disney ending, everyone is happy. In real life, nevertheless, the economy is still struggling. Geopolitical strife is increasing. The case is still very open, and only time will tell what results our leadership and actions bring.

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