By Ink Alone: Bad Money: A Book Written Two Years To Soon
by Matt Stevens
Kevin Phillips’ latest book, written in order to influence the 2008 elections, aspires to much, but succeeds at little. The story of the growth of debt in America, its impact upon the society, and America’s place in the world is interesting (and Phillips has much right in his book) but he over extends himself. As a result, his overall argument comes out lacking.
Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism
Viking Adult, April 2008
Phillips is a former Republican Strategist who became quite estranged to the Bush family, having published three books about the Connecticut natives and their interesting ties to interesting people throughout the world. This book is much in the mold of the others, a diatribe against the ridiculousness of Republican spending. Though he doesn’t pull many punches from Clinton’s inept handling of the housing boom and his helping to create a badly subsidized housing market.
The basis of Phillips tale is simple: since about 1980, individuals in the US have dramatically increased their debt and decreased their savings rate. Over the same time period, wages for median income worker and family stagnated, while the rich and super rich increasingly consolidated their gains. The argument is that while the US was getting richer overall, only a small percent, about 10% of the population, was in fact seeing those gains.
However, during this time period the consumers did not decrease their rate of consumption growth, so they had no choice but to start saving less and increasing their debt. The expansion of 30-year home loans, rare before the 1950s and seven- or eight-year car loans, the growth during the 1990s of the 2nd mortgage, and perhaps most importantly, the credit card boom created easy to access debt instruments for US consumers.
This expansion of debt eventually led to sky-rocketing asset prices, first the stock market bubble in 2001 and then the ridiculous housing run-up from 2001-2006. People eventually believed that 10% year-over-year was guaranteed and bought houses at ridiculous rates or took loans out that few had hope of repaying.
Phillips does an excellent job laying out this structure and the antecedents that led to the growth in debt. His examination of the Reagan debt policies is particularly skewering in how the expansion of US Debt coincides with massive expansion of individual debt.
As Phillips expands these ideas, he decides to take his argument off in a different realm. He starts to compare the rapid growth of US debt to the expansion that happened during the 1920’s and eventually helped lead to and extend the Great Depression. The worst part of both Phillips initial argument, and his comparison the Great Depression is that he does only the most preliminary research. This is a short book, and Phillips wrote it in a short period of time, hoping to put out a pop-economics book in order to impact the 2008 US Election (the book first appeared in April 2008).
Phillips weakness is that he doesn’t tie all of his arguments solidly together. He makes an interesting case relating to Reagan and the birth of debt-America, but it’s not sound proof. A reader can not accept the entire argument on its face. I heartily believe that Reagan is highly overrated by most conservatives for his Presidential accomplishments, but that doesn’t mean that today’s economic collapse can be traced to his expansion of Star Wars.
Phillips’ arguments bottom out when he decides to try to apply the expansion of US Government and Consumer Debt since the 1970s to the expansion of Debt incurred by the previous hegemony: Spain, United Provinces (Holland/Netherlands) and England (UK). First off, including Spain along with the United Provinces and England is kind of ridiculous in the Hegemonic Transition World as many people don’t believe they ever projected their power over the entire world the way that UP and the UK did, and more importantly, like the US does today.
Spain simply stole money from the New World, they weren’t traders that truly dominated the entire world like the other nations. With his Spain argument, and also that of UK and UP, Phillips pushes those nations towards some sort of purity, both of race and religion during then end of their reigns. Sadly, this argument goes nowhere as the reactionary forces in every great power ebb and flow throughout the reign. As the power of the anti-reactionary forces wanes in every aspect, the power of the reactionary forces come to more power. That doesn’t mean that they won, it means that the normalizing forces lost their power economically so that the cultural warriors can rise up.
The worldly Brits who kept the Puritans at bay lost the ability to keep them hidden in the fields. The Internationals of Spain, who had been to America, lost the wealth and the Inquisition destroyed the country. But the Inquisition rose not because of its own strength, but because of the inability of the rest of society to put it down. But most important in this entire argument is the fact that the intolerant sector of society, the sector that rejects internationalism is not and will not be in power for a number of years. The crazy left wing Democrats who want to dismantle the US military cannot win. The Libertarians who want to return to the gold standard are laughed at by 95% of the country.
Even if one disagrees with mainstream Democrats or Republicans, they are still internationalist, and they still express a desire for America to remain the dominant political player. There is no walking away by either party. Phillips’ attempt to portray America as too weak to meet its commitments is simply years ahead of its time.
In the end, I say this book should have been written sometime in 2010, and Phillips should have stuck to his original argument: the expansion of debt led to the downfall of the US-and thus the world-economy. It should be a text book, for some high level undergraduate courses at good economics programs. There is an argument in there, but Phillips’ ramblings about the rest of the examples that predated the US downfall simply are poorly done and there exist many better out there.
Two out of Five Melons!