A Dose of History

By Michelle Chihara, AlterNet. Posted June 10, 2002.

For a country fixated on the new and the now, Kevin Phillips' new book "Wealth and Democracy" is a hard dose of history, which puts today's headlines about money in politics in sobering context. From Enron and the burst Internet bubble to the war on terrorism, Phillips shows us that there is always much of the past in the present.

In his definitive account of big money and political power in America, Phillips traces the foundations of wealth in our society -- where it comes from, why and how it intersects with politics. He illustrates both the breathtaking gap that has opened up in the 21st century between rich and poor, and the dangers that gap represents for democracy. By comparing America to Holland and Britain in the past, he diagnoses the same symptoms of old age that were once exhibited by those great financial powers in their twilight.

Phillips' 1969 book, "The Emerging Republican Majority," both predicted and helped mold the rise of the Republican Party. Since then, however, Phillips has become disenchanted with the GOP. Although he's no fan of the Democrats, either.

"Because my own background is Republican, and I now know much more of GOP history on these subjects, it is hard to avoid the conclusion that the Republican economic policies and biases of the 1990s and early 2000s are a narrow-gauge betrayal of the legacy of the two greatest Republican presidents, Lincoln and Teddy Roosevelt," he writes. "But that is a debate I will leave to the elections."

AlterNet spoke with Kevin Phillips while he was in San Francisco promoting his book.

AlterNet: When you talk about the boom years in "Wealth and Democracy," you lay out umpteen prior examples of economic bubbles in the past. Was there anything particularly new or surprising about this last one?

KP: I was surprised when I got back into the issue in the late 1990s at the size of the fortunes, at the amount of wealth that had been built up. And then when I started measuring the size of the gains in wealth, the importance of the increases and the size of the bubble (which I assumed would be a bubble), it really suggested a number of historical parallels.

After the railroad bubbles in the 19th century, the major tech bubble was in the 1920s, when there was a convergence of automobiles, of motion pictures, of radio, of aviation, of electricity. Technology enables the stock market bubble, it's something that people can get into -- the whole new world, the past doesn't apply, it's a new economy and this, that and the other. It never iswholly a new economy. It never is a totally new era. There's always a lot of the past.

So there's nothing new under the sun, and yet, you were taken aback at the size of this latest bubble?

I didn't know that we were going to see a tech bubble that would take it up to a new level. If you think back, and I don't have precise numbers on the Nasdaq here, but it was 1,100 or 1,200 in 1999. It reached 4000 by the end of the year, 5000 by March or April of 2000. It's just mind blowing. And it's amazing how far down it's gone. In that sense, the decline in the Nasdaq, the percentage is almost as high as the decline in the Dow Jones between 1929 and 1932. It's a serious market crash.

What do you make of the fact that consumer confidence remains high in the face of all of this?

I think it's very unfortunate. What it probably means is that there's going to be another down leg to this economic decline.

Then this isn't the bottom?

This isn't the bottom. There's a very real chance that the major stimulus, both monetary and fiscal, that came with Greenspan's 11 rate cuts and with the spending after 9/11, has given the economy a hot shot. I think it's certainly 50/50 that we'll have another recession within six quarters from now. And if that's the case, that's the one that'll take care of the credit bubble and the real estate bubble.

That's the one that's going to get ugly, then.

In 1970, a pretty light recession started. Nixon was in the White House, and he wanted to be sure that the economy was strong by 1972 for the elections. So he had his close associate, Arthur Burns, stimulate the money supply of the Federal Reserve. That's a little bit of an overstatement, but it's true enough. By 1972 things were really ripping along again, they hadn't let the 1970-71 recession become anything serious. But by 1973, we're in another recession, because basically, you had things that hadn't worked themselves out of the system. You hadn't put the economy through the ringer and the stock market decline that was necessary. So then it came in 1973 and 1974.

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