Why Capitalism Thrives–and how it self-destructs

The new Democrat “Republican-lites”

Kevin Phillips is probably America’s best synthesizer of political and economic history. His many books have been highly regarded as thoroughly researched analyses of trends in world and national politics and economics.

It’s especially noteworthy that Phillips was a key strategist for Richard Nixon’s 1968 campaign and was given credit for developing the Republican “Southern strategy” of the 1970s and 1980s.

He’s since become disgusted with the directions the new Republican party has taken, as reflected in several of his books.

In his book, Bad Money, Phillips was especially critical of Republican economic policies, but he also clearly demonstrated how the financial industry has thoroughly infiltrated and dominated the Democrats.  Since the close ties of the Republicans with Wall Street are so well known, these excerpts will focus on Phillips’ descriptions of how the Clinton administration was seduced away from protecting the interests of its core constituents: America’s workers.


From his book Bad Money; reckless finance, failed politics, and the global crisis of American capitalism (Viking, 2008):

p. vii.

Whether the U.S. government and the Republican and Democratic parties can remedy the debt- and oil-related transformations of the last two or three decades is dubious enough.  Far more worrisome is the possibility that neither Washington nor Wall Street is willing to confront the deeper problem—the ascendency 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.

pp. 43-44.

Under Democratic president Bill Clinton, inaugurated in January 1993, the influence of the financial sector continued.  Indeed, almost from the start, his principal economic adviser, former Goldman Sachs chairman Robert Rubin, persuaded the new president to defer to the debt markets, prompting the new chief executive’s famous reply: “You mean to tell me that the success of my [economic] program hinges on the Federal Reserve and a bunch of f—ing bond traders?”

James Carville, a Democratic strategist of populist bent, was moved to comment, “I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter; but now I want to come back as the bond market.  You can intimidate everybody.”

Clinton, somewhat like conservative Democratic president Grover Cleveland at the height of the late-nineteenth-century Gilded Age, slowly drifted into the orbit of New York finance.  He got along well with the Republican chairman of the Federal Reserve Board; promoted Rubin to treasury secretary; raised a lot of reelection ;money on Wall Street (which, as we will see, was also becoming more Democratic); joined with Citigroup chairman Sanford Weill, and active Democrat to promote the sweeping federal financial deregulation act of 1999; exulted over the rocketing stock market averages; gravitated to resorts like the Hamptons and Martha’s Vineyard; and on the occasion of one visit found himself hailed by a Hamptons chronicler who called the ebullient president “the spirit of the bull market.”

pp. 171-2.

The new pro-finance Democrats were not the same as the older pro-finance Republicans.  They were more engaging, less out of the Union League of Philadelphia or 1950s New Yorker cartoons.  Behind the scenes, some might contentedly bail out endangered bondholders, put impoverished nations through the behavioral wringer of the International Monetary Fund, or operate consumer finance units that bilked a low-income clientele.

But in their public personas, most took a different tack.  In deference to their multiple Democratic coalition-mates, they donated to the NAACP;  joined the boards of environmental groups; embraced technology, education, free trade, and globalization; and worried about the growing international gap between the rich and the poor as well as the gap in the United States.  There was also, as we have seen, another, broader enabler: the new popular acceptance of finance.

p. 183-4.

Clinton advisor Robert Rubin saw finance leading the nation into a new postindustrial era in which services, especially the lucrative financial ones, would replace manufacturing, just as the latter had ushered out a shrinking agricultural sector.. Finance was the next great elevator ascending into the luminous temple of global progress.  The hour had come, and the United States, caught up in its own market millenarianism, would take the lead.

Skeptics invoked a warning that went against the tide: this faith in finance was not new, but old—and it had played wayward pied piper to prior leading world economic powers. On the edge of decline the Spanish and gloried in their New World gold and Silver; the Dutch, in their investment income and lending to princes and czarinas; and the British, in their banks, brokers and global financial network.

In none of these situations, however, could financial services succeed in upholding the national preeminence that had been earlier built by explorers, conquistadores, maritime skills, innovative science and engineering, the first railroads, electrical dynamos and great iron and steel works.  In variably, power and greatness passed to new explorers, innovators and industrialists.



Throughout Phillips books, the clear message is that globalization and the financialization of America has been a disaster for our country–as it has been a disaster for other countries throughout recorded history. 

It’s just as Will and Ariel Durant described in their book, Lessons of History: bankers always rise to the top of society; this leads to increasing disparity of wealth between rich and poor.  The disparity of wealth leads to economic decline and revolution. 

Sometimes the revolution is peaceful, in which wealth is preserved but redistributed; sometimes the revolution is violent, and wealth is destroyed and everyone loses.

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