Wednesday, December 31, 2008

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism (Reviewed April 2008)

Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism, Kevin Phillips (2008)[****] I recently caught the last minute or two of an NPR interview with this guy, and was fascinated enough to check out his new book. According to Wikipedia (source of all things true and good, right?), Phillips is a former Nixon strategist, one of the masterminds of the GOP "southern strategy," and now a disaffected critic of the both parties. He is a regular contributor to the Los Angeles Times and National Public Radio, and is a political analyst on PBS' NOW with Bill Moyers. Bad Money documents the financialization of the US economy in the last half century, in which manufacturing went from almost 30% of GDP in 1950 to 12% in 2005, and conversely financial services went from 11% of GDP in 1950 to 20% in 2005. This rise of the financial services sector has been accompanied by a staggering increase in debt and risky and poorly-understood debt-related securities (such as the $900bn of subprime mortgage loans that Wall Street has securitized and sold globally). This debt, in turn, has been accompanied by what Phillips calls "the socialization of credit risk" -- banking and the financial services sector is a risk-loving and largely unregulated industry so routinely bailed out by the government that there is no longer any "creative destruction" in US capitalism. Phillips takes on the manipulations in the consumer price index statistics used to suppress the actual rate of inflation (calculated under the pre-Clinton era CPI, inflation is about 2 to 3% higher than currently calculated). Phillips devotes a chapter to the likelihood that oil production will peak relatively soon (if it hasn't already); to the relationship between oil and the declining dollar (shortly after closing the "gold window," Nixon brokered a deal in which OPEC agreed it would price its oil sales in dollars); Washington's head-in-the-sand posture toward any real energy policy; and the role Iraq has played in our diminishing global influence. Phillips also takes a historical view, comparing the decline of the US as a world superpower to the prior declines of Spain, the Netherlands, and England. There's much more, and I found each individual section of this book startling, riveting, and concerning; still, I can't help but sense that I ought to be able to extract a more concise statement of Phillips's thesis for you. Alas, here's the downside of this book (and the reason I didn't give it 5 stars): either I'm too stupid to understand this stuff (which is entirely possible) or this stuff is really difficult to understand, and Phillips should have tried harder to help readers like me get it. This book is just full of financial and economic terms and concepts that I doubt your average Joe is familiar with, and I often felt awash, barely keeping my head above water. At the very least, I would have appreciated a glossary; even better would have been a whole "for dummies" sort of supplement, because I really am interested in understanding this stuff.

If you're interested in a far better nutshell than I have given, Phillips writes occasionally for Huffington Post, and here are a couple of links:

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