From our May issue: Kevin Phillips locates the roots of our present financial crisis in policies pursued by the federal government a quarter century ago.
Between the 1980s and the present, the United States moved in three unfortunate directions: first, the adoption of public and private debt as both an economic nostrum and culture; second, the pursuit of a neo-mercantilist policy (bailouts and other policy biases) that all but anointed finance (rather than high-value-added manufacturing) as the Washington-favored U.S. sector; and third, abetting an economic realignment through which manufacturing fell from some 25 percent of GDP in the 1970s to 12 percent in 2006, while financial services jumped from 12 percent in the 1970s to between 20 percent and 21 percent during the 2003-2006 period. ...
Over the last quarter-century, under Republican and Democratic administrations alike, the two major tools of this transformation were debt and the socialization of risk (but not of profit). The second, of course, abetted the first. When reckless expansion of consumer, corporate, or financial debt would go sour, the government served up a bailout to help the financial sector come back, fatter and cockier than ever. To suggest "bubble and bail" as a description of U.S. economic policy over the past quarter-century is inelegant but by no means inaccurate. Obviously, this is not the way to manage a nation passing the peak of its global power and very much at risk from a reckless financial endgame.
Read the rest and comment here. And subscribe to our RSS feed to get our articles as soon as they're published.
--The Editors
