Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism
That’s how Kevin Phillips’ Bad Money landed in my lap. It might have landed there anyway. I’m a big KP fan. I first stumbled across him almost 30 years ago. His The Emerging Republican Majority, from 1969, seemed, in the days of Reagan, almost prescient.
Phillips, it should be said, is a rare breed– he follows the data. He’s also, in the best sense of both words, a true democrat and republican. For those ready to anoint him a Republican seer decades ago his recent work must read as treachery because following the data has pretty much led him to reject current GOP politics.
In Bad Money, published in 2008 before the September market meltdown, Phillips takes on the role of high finance in the economy. Three years later that seems an easy call but remember, there were only the faintest negative signals in 2007 when the book was probably written.
Philips isn’t an economist so he roots his criticism in historical parallels. The ones he picks–Britain and the Netherlands–were selected for two reasons. As Philips sees it, what’s common between these two and the US is not just the role of finance. It’s that the financial apparatus sits atop a geo-political reality predicated on mastering a particular energy source.
For the Netherlands, never a huge country, it was mastery of wind and water. In the age of sail that mattered and provided an advantage. The commercial success that resulted from that advantage allowed major banking and financial interests to arise even as agriculture and manufacturing ebbed. Think tulip mania and you’ll know where this ends up.
Wind and water were at distinct disadvantage, though, once steamships powered by coal emerged. There’s plenty of coal in Europe but only Britain had the naval heritage and coal supply to manage a globe-girdling empire. What emerged once the empire solidified in the Victorian age? I think you know–a finance-dominated economy with all the important markets located in the City of London and the Pound Sterling regnant.
You might begin to see the parallels to the US today. British dominance proved short-lived, done in by WWI and the emergence of a new power source. That was petroleum, best understood and used by its then dominant global producer, the United States.
I have quibbles galore but, mostly, they’re quibbles. Here’s one: Britain wasn’t missing from the global stage during the age of sail. In fact, the Empire was established then and consolidated during the age of steam. The pesky War for Independence too often serves to demarcate different British empires rather than one being built and then consolidated. But that’s almost an academic argument.
Similarly, the repeated suggestions that various Executive-branch led working groups take care of Wall Street read a bit like a conspiracy theory. In the absence of hard evidence it’s the weakest part of the book. He makes a pretty compelling case, though, that, all protestations aside, the US has followed a de facto industrial policy, picking high finance as the winning industry.
Philips doesn’t feel entirely hopeless (nor do I). He notes both Britain and the Netherlands settled into a comfortable existence after the disruption of losing first place passed. That wouldn’t be terrible for the US. Some other nation could suffer from being king of the hill. This would still be the US and we’d still be damn lucky.