Kevin Phillips: The Financialization of America

My neighbor Gerry Lange may read more than all of the other District 8 legislative candidates combined. This weekend he forwards me some material he was reading about Kevin Phillips, a former Republican strategist who worked for President Nixon and came up with the Southern strategy that wrested Dixie from Democratic domination. Phillips also writes books. His latest, Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism, appears to demonstrate a keen grasp of exactly what has led us to our current financial quagmire.

Thing is, as Gerry points out, Phillips has been writing about our profligate spending and out-of-kilter economy for years. He directs me to this New York Times review of Phillips's 2006 book American Theocracy, which I thought was just about how our whacky fundagelical friends are wrecking the GOP and the Constitution. "[T]he ominous intrusion of radical Christianity into politics and government" is but one of three dangers Phillips identifies. The other two: "the role of oil in defining and... distorting American foreign and domestic policy" and "the astonishing levels of debt — current and prospective — that both the government and the American people have been heedlessly accumulating."

Wow—Phillips wrote that in 2006, but he perfectly describes the McCain-* campaign.

So how did we get into this mess?

The creation of a national-debt culture, Phillips argues, although exacerbated by the policies of the Bush administration, has been the work of many people over many decades — among them Alan Greenspan, who, he acidly notes, blithely and irresponsibly ignored the rising debt to avoid pricking the stock-market bubble it helped produce. It is most of all a product of the "financialization" of the American economy — the turn away from manufacturing and toward an economy based on moving and managing money, a trend encouraged, Phillips argues persuasively, by the preoccupation with oil and (somewhat less persuasively) with evangelical belief in the imminent rapture, which makes planning for the future unnecessary [Alan Brinkley, "Clear and Present Dangers," New York Times, 2006.03.19].

Phillips explains the financialization of America in much greater detail in an interview with Bill Moyers from last month. While the federal government has been propping up and bailing out the financial sector since the 1980s (ask John McCain and his pal Charles Keating about the savings and loan collapse), it has done little to nothing to keep factories from closing. Sure, all those loans and stock investments created lots of wealth on paper and computer screens, but the manufacturing sector created wealth that, as Phillips points out to Moyers, supported a growing blue-collar middle class that could afford fishing cabins on Lake Michigan.

We have done nothing to keep open those factories in Michigan and elsewhere, engines of prosperity whose only fault was not paying their workers Chinese subsistence wages. But for bankers and brokers who invest in loans that an Accounting 101 student would have recognized as toxic, we break out the federal checkbook and authorize the single biggest federal disbursement in history.

One more partisan note: keep in mind that a key part of Senator Obama's plan for America is huge investment in alternative energy, not just to get us off oil, but to create five million new "green-collar" jobs—manufacturing jobs for folks to build all those windmills, solar panels, and whatever else American ingenuity can invent. Maybe that's why McCain couldn't compete in job-hungry Michigan.

Thanks to Gerry, I'll be reading more of Kevin Phillips. We all should, so we understand why Hank Paulson has a $700-billion blank check... and why we may be in for long Japan-style recession.

Party's over, Wall Street. Time to get America back to real work.