FDL Book Salon Welcomes Kevin Phillips: Bad Money
< Over the many years that he’s been observing and writing about the American political scene, Kevin Phillips has had his share of detractors. David Brooks once devoted an entire column to attacking his work, calling him a "conspiracist" who embodies "a strain of paranoia running through American politics" (you can see Phillips’ devastating reply here). His previous book, American Theocracy, was attacked by the Heritage Foundation’s Joseph Loconte as being rife with "irrational, fantastical, near-nativist charges."
And no doubt his latest book, Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism will be greeted with dismissive hoots from the right-wing crowd that used to cheer his every word, too. After all, it clearly depicts a Republican-fueled economic disaster in the unfolding, and the solutions he proposes are anathema to movement-conservative dogma. It’s a message they won’t want to hear, and whenever that happens, as we’ve seen over the past eight years, Republicans just clap their hands over their ears and shout, "I’m not listening!"
The problem for these critics is a simple one: Phillips also has a remarkably long record of being right. I know this from experience; back in the 1970s, when I read his 1969 masterpiece, The Emerging Republican Majority, I was among the doubters (even though, as a Republican at the time myself, I was hopeful). Well, he was manifestly right about that. He’s been similarly right about the increasing gap between the wealthy and the poor in America (the subject of several books), and he was obviously right, in American Dynasty, in warning about the dangers of placing our political and economic well-being in the hands of a pack of oligarchical Machiavellians like the Bush clan.
Now, if Bad Money is right, both conservatives and liberals (and everyone in between and around them) are in for a long, rough economic ride that will take many, many years to fix.
The focus of Phillips’ concern this time out is the overweening dominance of the financial-services sector in the 21st-century American economy — how their growing power inside the halls of government has led to rampant abuses, dubious practices that have hollowed out the real-estate bubble they’ve created this decade, while simultaneously building a massive economy founded on debt. This has occurred, as Phillips explains in studious detail, even as shifts in the global economy — particularly the changes in the oil market, which have wrought a rapid deceleration in the value of the dollar — threaten to expose that economy for the hollow thing it has become.
We’re now living in an economy, as Phillips explains, in which financial services — banks, credit and loan services, real estate, and the like — now constitute fully 21 percent of our gross domestic product. Americans’ public and private debt combined now stand valued at three times our GDP. It now takes about 20 cents of debt to create a dollar of the GDP.
The financial-services sector is the real locus of this bubble (the increase in government debt, though substantial, was comparatively minor), which has been inflated steadily by the expansion of leverage and what Phillips correctly describes as "reckless innovations" — CDOs, SIVs, and various other fast-money devices. This house of cards is about to collapse, Phillips warns, in a "credit implosion" whose consequences will be felt globally. A run on the dollar, he says, is a fair possibility, noting that this would wreak havoc within the context of the current economic downturn.
Bad Money is a thorough and carefully documented — as well as carefully thought-out — examination of our current economic position. Phillips explains in detail how the financial-services sector came to be seen within the Beltway as "the winner" for politicians to back as the nation’s economic workhorse, fueled in no small part by the ongoing activities of the President’s Working Group on Financial Markets, even as the nation’s manufacturing capacity was slowly being gutted.
He goes on to explore how this was facilitated by Republican governance this century, particularly from a Bush White House that favored the familial oligarchical approach to economics, and rapidly accelerated during the post-9/11 push to expand credit. This was manifested in the "securitization" mania that took root in the context of a "Wild West" mania for all kinds of moneymaking devices, especially low-interest adjustable-rate mortgages. The invasion of Iraq, coupled with the emerging power of nationally owned oil producers and the increasing manifestation of "peak oil" prophecies about falling supplies, left the United States isolated diplomatically and increasingly vulnerable economically.
Some of the contents of Bad Money will be controversial, at least for those who like to accuse Phillips of "conspiracism" — the Working Group material particularly, regardless of how thorough and careful Phillips has been. But these are not "conspiracies" in the least: the activities he describes are fully a matter of public record. Not that this will matter much to his accusers.
And he has prescriptions for how to fix the problems: Regain some sanity in regulating financial institutions, and get a leash on their runaway instruments of mass economic destruction. Try to restore manufacturing capacity. Obtain some sanity in energy policy by turning away from fossil fuels. One senses he might prefer a Democrat to win the presidency, but he never says so.
And as much as there is here for progressives to seize upon, it is not an unadulterated delight for liberals (Phillips’ books never are, though American Dynasty was still a pleasure for this longtime Bush watcher). Indeed, he points out that this crisis was not entirely the doing of Republicans, though they have their share of blame too. On p. 178, he observes that Republicans have left us poorly prepared to deal with the crisis, describing GOP rule of the past eight years as a time "during which global warming was denied, market forces and utopias were exalted, sober energy realpolitik was ignored, weapons-of-mass-destruction and nuclear threats in Iraq were grossly exaggerated to support actual or possible energy-related invasions, and world opinion was offended." But he adds:
Over the last few decades, however, political ineptitude and misjudgment have been bipartisan phenomena. Energy, debt, and currency realpolitik has been missing among the Democrats, too, lost in their fund-raising prowess and heavy petting with hedge funds; naivete about the pseudo-greening of Chinese, Indian, and Brazilian economic growth, and troublign faith in their own party’s brand of job growth; an utopianomics: Put on your green collars, Americans, and if your parents or grandparents supported the New Deal way back when, have we got a Green Deal for you now!
Phillips also notes that environmentalists will be faced with some difficult choices over energy security in coming years, particularly when it comes to obtaining oil from domestic sources such as Canadian shale. In a book filled with data, facts, and incisive analysis, this was perhaps the only point I didn’t find particularly compelling: After all, if the goal is divestment from fossil fuels, what’s the point of tearing up natural resources just to get the last of them? (I have the ANWR oil in mind here as well.)
But then, Phillips does have a way of being right. And for that reason alone, Bad Money is an important warning about our precarious state that we’d all do well to heed.