Bad News in High Style: Kevin Phillips

kevin phillips

Kevin Phillips: how bad is it really?

People I know count on Paul Krugman in The Times to give us all the bad news we can believe in. But Kevin Phillips (a Nixon-brain turned populist grand historian) not only trumps Krugman in the Cassandra Stakes, he also explains why Krugman and media in general have gone soft and squishy (“now that the financial clouds have lifted a bit”) on the global apocalypse coming in the convergence of our housing collapse, the explosion of public and private debt, the fall of the dollar, the rise of (a) China and (b) $125 oil, and the consolidation of finance (the debt business) as our leading industry. Phillips notes that the best of big media, meaning the Times, the Wall Street Journal and the Financial Times, hate to be out front with bad news. And Krugman, the best of the best, is too heavily invested in the Clinton Democrats’ myth of a renewable once-and-future politics of prosperity — and too polite to dwell, for example, on the financialization of the Clinton campaign base. Nobody I know tells the story of catastrophe with higher style and a broader sweep of knowledge than Kevin Phillips — in his new book, Bad Money and in conversation here:

Click to listen to Chris’s conversation with Kevin Phillips here (36 minutes, 16 MB MP3)

There’s a growing sense that the imperial era of the United States is over almost before it started. I think we’re seeing the weakness of the United States that has allowed the financial sector to take over the private economy… 20 to 21 percent of GDP is now finance, pushing manufacturing way down. I think what you’ll see happen to the US is… a degree of implosion that will involve everything from too much debt, collapsing home prices, rising oil prices and the declining dollar. It doesn’t spell the end of the United States, but it spells the end of the United States as the total big cheese in the world. We’re going to lose some of the yardsticks that everybody enjoyed for a long time…

We used to be leading world creditor nation, lead world manufacturer, leading world producer of oil; we’re now leading the world’s leading debtor, the largest importer of manufactures in the world, and we’re the worlds largest oil importer. It’s a disastrous transformation. The only part of the economy that’s really profited is the financial sector because an awful lot of the transition is towards more debt,

more credit, more living on things you can’t afford, more keeping up pretenses, and more ambition around the world and less to back it up. And the consummation of this in many ways has been the George W Bush administration…

They invade Iraq, partly in order to get Iraq’s oil which hasn’t been tapped too much historically, and they thought they might be able to get 6 or 7 million barrels a day, and they could use that to bust open OPEC, and that would bring the price down — that was their ambition. And the futures market showed briefly in 2003, that there was an expectation that oil would come down to $15-18 dollars a barrel. At the time it was $20-25 — and now its $120-125. The notion that this imbecility was orchestrated, totally contrary to what they wanted, by two people who came from the oil industry — we could have done better with two bums or two Good Humor men, than these two men from the oil industry who knew nothing about the forces they were unleashing…

There was the ‘neutron loan’ – it kills the people but leaves the housing standing. The real thing they did that made this thing gain legs, is that no matter how crummy the loans were, most were securitized…. It’s mindboggling — If these people were in the manufacturing business, production of these things would have been enjoined because they were unsafe. You have consumer safety product commissions and things like that — you don’t have a financial products safety commission, which we sure as hell should have.

Kevin Phillips, in conversation with Chris Lydon on Open Source, May 14, 2008

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  • Potter

    I have not listened to this interview with Kevin Phillips yet ( and look forward to it) but just a reaction to your first paragraphs. Avid Krugman fans we were but can no longer read him lately. A vote for another truth teller is Bill Moyers.

  • The big takeaway from the interview for me is the mental model showing that empires go through a finance-focus stage on the way to collapse. That is, empires initially built on production, trade, and military achievements accumulate wealth, and then attempt to rely on finance to preserve the empire as their energy for repeating their initial accomplishments wanes. Rome, Spain, Britain (and others), and now the US.

    Things such as manufacturing ability, energy independence, and an educated population will come back in style after we go through our wringer.

  • teenbillybaby

    Am I really only the third response??

    This is a terrific interview. Thank you Open Source for it .

    The message here doesn’t seem that gloomy unless you’re committed to US world empire and economic dominance. Those things are history and we won’t get them back anytime soon, for reasons Kevin explains. The questions are: Given our new place in the world, how do we get our financial and diplomatic acts together to remain a leader of the first world? Is that even possible, or is the US too committed to attempting to hold onto its place in a world that has changed.

  • Vilcxjo BLANKA

    I actually think a more multilateral world might be more interesting. I always suspected that Sammy Huntington’s real problem with the Clash of Cultures was that he was afraid somebody was going to make him eat sushi or burritos. I am a transplanted midwesterner turned Esperantist in my old age. I remember in college being shocked meeting foreign graduate students who really wanted to move back home after they finished their schooling. And even recently I was somewhat nonplussed when I worked with a Canadian engineer who left Boston to return to Toronto because he thought the US was too parochial.

    I think the more we learn about the world the better for us. I suspect we will be forced to learn more about the world as we become less the sole superpower.

  • Aquifer

    Great interview! Have been a fan of Phillips’ stuff for awhile and appreciate how you drew out some of the more salient aspects of his work including the observation that it is the Dem/Rep political “duopoly” that shares responsibility for the mess we are in. He is spot on in observing that this fact explains the Dems lack of criticism of the underlying financial interests that are driving this disaster express and, by the way, financing their political careers. One hopes that more and more people, espec. faithful party members will understand that they need to look elsewhere for effective political leadership.

  • wmcduff

    Listening to this piece inspired me to read Kevin’s book, Bad Money. What a great book. Kevin’s book describes the world in a way in a comprehensive way that I find fairly close to the mark.

  • Ed

    A world order where the US isn’t such a *big cheese* would probably be a world where the US doesn’t flippantly invade countries like Iraq, and to me that’s a very good thing. For American’s and the rest of the world.

    As far as manufacturing goes, I don’t see how you can have the inexpensive labor of China and free trade, and not have most manufacturers go there. How was the loss of manufacturing not inevitable?