To hear Kevin Phillips tell it, the U.S. is a world power on the skids, an overstretched empire slumping toward the fate of Hapsburg Spain, the maritime Dutch Republic and imperial Britain.
The culprits: Wall Street and Washington.
The former Republican strategist lays out his harsh case in ``Bad Money,'' an update of his 2006 bestseller, ``American Theocracy,'' which warned that the U.S. was dangerously dependent on debt and oil. Events have so far vindicated his views.
Thematically, ``Bad Money'' resembles a map of a city subway. It's schematically clear yet complex, with whorls of intersecting lines in red, yellow and blue. The circuit covers ``reckless finance, failed politics and the global crisis of American capitalism,'' as the subtitle puts it. Stops along the way include primers on securitization, peak oil, government manipulation of inflation data, and the drooping dollar.
What sets ``Bad Money'' apart from a stack of recent books on these topics is its emphasis on the symbiotic relationship between politicians and big money. Solving the debt and oil mess will be tough enough. It will be made harder by the millions of dollars flowing from bankers and hedge fund operators into the campaigns of Hillary Clinton, Barack Obama and John McCain.
``Far more worrisome is the possibility that neither Washington nor Wall Street is willing to confront the deeper problem -- the ascendancy of finance in national policymaking (as well as in the gross domestic product), and the complicity of politicians who really don't want to talk about it,'' he says.
Fatal Error
In Phillips's view, U.S. politicians have made the fatal error of betting the nation's future on finance. In 1950, manufacturing represented 29.3 percent of U.S. GDP, while financial services accounted for 10.9 percent, he shows. By 2005, the roles had reversed, with financial services accounting for 20.4 percent and manufacturing for 12 percent.
Like the Spanish, Dutch and British hegemonies before it, the U.S. has let itself ``luxuriate in finance at the expense of harvesting, manufacturing, or transporting things,'' he writes. ``Doing so has marked each nation's global decline.''
Phillips says his book is only tangentially about the current election. Yet he happily shows how the money moves from investment firms to Clinton, Obama and -- more vaguely -- McCain.
The Democratic and Republican parties have ossified into a duopoly dominated by dynasties and disconnected from voters, Phillips says. Sounding increasingly cranky, he curses both their houses, saying ``political ineptitude and misjudgment have been bipartisan phenomena.''
`Financial Mercantilism'
The book repeats ideas that Phillips has written about before. He again uses the term ``financial mercantilism'' to describe how Washington and Wall Street have collaborated ``to minimize certain unwanted marketplace forces.''
Hence the long, sad history -- from the Latin American debt crisis and the S&L bailout to the subprime mortgage meltdown -- of the U.S. government and Federal Reserve rescuing our failed financial wizards. He gives a name for what happens when taxpayers rescue profligate bankers: ``Wall Street socialism.''
Like a prosecutor, Phillips speaks with a finely honed indignation and calls expert witnesses to challenge the ``myth'' that financial markets are ``a rational and safe underpinning for public well-being and the stewardship of a leading world economic power.''
``Over the years, a handful of critical academicians and several billionaire investors -- Warren Buffett, George Soros, and William H. (Bill) Gross -- would emerge as relentless critics of derivatives, bubbles and alleged market efficiency,'' he says.
`Permanently Blighted'
Phillips avoids making firm predictions, though he closes with a warning that some U.S. cities, post-bubble, may end up ``permanently blighted, with large new boarded-up areas.'' New York, he adds, may lose ground to London as a financial center.
What can be done? Phillips is frustratingly short on solutions, though he suggests that the U.S. could -- like Germany, Japan and Switzerland -- focus on high-value-added manufacturing. He also offers this ``hopeful context'':
``Spain, Holland and Britain are far more prosperous today than they were at the heights of their global reach,'' he said.