alternative hippopotamus

This is a verbatim transcript of a presentation by Kevin Phillips at the Take Back America Conference, June 14, 2006. I thought his remarks were sufficiently provocative, and fundamental to the theme of what’s gone off track in the United States, to transcribe them as a whole. To the best of my knowledge, there is no other source available for a transcript of these remarks.

When the audio recording was unintelligible, or when audience reaction prevented accurate rendering, the following shows ellipsis marks, i.e., […].

It’s a pleasure to be here. I thought I’d really try to avoid politics. […] a very non-partisan, bi-partisan negative sentiment.But I will venture one, one little… I worked for a fairly well-known Republican politician whose father was a labor organizer in Ohio. Who signed into law a bill setting a lower federal income tax rate, on earned income and unearned income whose renominating convention criticized multinational corporations moving jobs out of the United States. Of course, his name was Richard Nixon. Probably not the favorite of this group.

However you can see when I say that there’s a major, major element of people who vote Republican who’re waiting for a message. They don’t usually hear elite Democrats, they don’t usually hear elite Republicans, but if somebody starts talking in some of the terms that… Sarah was mentioning the ten poorest counties in Ohio, who voted for George W, I presume that was the thrust. And, it’s an interesting thing because there you’ve got a Republican vote that tells you where the potential supporting voters are. And, it’s not the analysis you get out of the elite media at all, it’s not where they try to discriminate from. They don’t suggest the swing issues, or any of the issues that are going to be discussed here.

So, but I think that’s absolutely wrong.

So, with that let me turn to what I think is sort of the… what’s a somewhat pessimistic analysis. I think we have a very, very difficult set of circumstances. As a result of what’s gone on, unheralded, unanalyzed, and largely uncriticized in the last 25 years.

And, in terms of the elements of my book that get into this, they, they, do so in a number of places, but I try to put it a bit more in more of a condensed form to go to the meat of it and try to tell you what I think is going on and what you should be alerted to.

And I say it in a somewhat bipartisan sense because you have to think there are a lot of Republicans who may share this argument that perhaps you shouldn’t criticize […] And, so do a lot of Democrats, people who are in academe or lobbyists or self […] international consultants who certainly support exactly the set of qualities that have been operative over the last 25 years.

So, let me try to talk about it. Part of what the thesis of American Theocracy is that there are a number of things going on in the United States that involve certain […] in a very, very visible and painful way. In the later stages of the previous leading world economic powers. Without going back too far suffice it to say that the Dutch back when New York was New Amsterdam when they were the leading commercial power in the world and the other was the British. As part of the process of economic maturation and globalization what you got was a trajectory in which countries believed if financialized, in other words, that you could stop building/making things or creating things or bringing things up out of the seas or out of the ground and basically started trading things, I won’t say consulting, but insurance finance, whatever.

Very notable trend, very clear, as this happened you got more economic polarization in these countries. You often a global over-reach, and part of the problem was that they would think they could still do too much in terms of economics and also the global role that they would preserve.

As I mention here, desperation values miracles.

Let me give you some numbers here. These are things that it’s hard for me to say here, go home and support X, Y, or Z it’s not what I’m supposed to say. I’m not sure there are plain answers to that in most cases. But, what I will say, is these are trends that you won’t see on the front pages of almost any newspaper, or any newspaper that can be printed.

I have no idea if once upon a .. the Toledo Blade, they think up this holiday for telling the truth, and boom it’s right out there

So, here’s the first set of numbers. In 1950 the share of manufacturing as a percentage of gross domestic product in the United States 29.3%, financial services 10.9%. That’s how much in 1950. In 1980 manufacturing was 21.8%, financial services were up to 15.0%. By 2003 manufacturing was down to 12.7%, financial services were about 20.4%.

What that basically means is the United States ceased to be a manufacturing country, ceased to be a country that made things that were tangible, and was becoming a country that moved money around. They’re are a lot of direct ways to describe it but […] whether it’s credit card, mortgages, financing, or everything like that.

Now, the notion that this is absolutely inevitable that this is a common globalization, modernization, and nothing new– absolute nonsense. The highly developed nations have shown that you can have an advanced financial sector, a high cultural achievement, and a very thriving and highly paid work force with a major export surplus: Switzerland, Germany, Japan. None of this sense that you can shift everything over and everybody’s happy ever after. No. They don’t do it that way.

As a result they have a major export surplus and they have a far more equitable distribution of income within the country because their income as a nation, that is their manufacturing has a much broader distribution in the middle. If it comes from finance there’s going to be a massive skew at the top. Because the workforce in finance in the broadest definition possible sense 7-8 million people, the peak workforce in manufacturing when it was a far smaller workforce […] so it was distributed. They bought cabins for Ford workers and fishing cabins in northern Michigan. What you got now is manufacturing workers can’t afford the house in Muskegon , or whatever it is in Indiana, to say nothing of a fishing cabin, but you can be damn sure that your broker and your financial consultant, all the people in that business are having very nice real estate opportunities.

This is staggering. The numbers involved– that shift in the United States– when you have that kind of shift back in the late 19th century from agriculture to industry and railroading which was the headline role. People understood that that type of shift, that type of upheaval in the economy created a whole new flow of money of buying of politics. Just an upheaval in who had power and who had any votes. And, we’ve had it again. And, of course that’s something you really don’t see in the front pages of the papers.

Now, let me pick up on the notion that financial services are just little hacky stuff […] Brokers who handle your IRA, your Keough, or whatever it is and are always giving you smiling good news of how our corruption-free financial system blessed you again.

Well, really. What has been responsible for the rise of finance in the US GDP? Debt. It’s a very strong correlation if you look at the statistics between the massive escalation of debt in this country in the last 45 years. Financial debt. Household debt. Your credit card mortgage, and last, but not least, the incredibly rapidly falling 4 trillion US international debt which rose 6 or 7 or 800 billion dollars a year because we have to import […] and the oil we don’t bring up. So again, your not making things, you’re not mining things, or bringing things up, you’re shifting to people who are getting a fine thing with a different type of economy.

The New York Times mentioned the phrase called “borrower industrial complex.” I thought […] that some editor who understood what they liked, and of course the xecutive officer’s said: “uh uh.”

Basically, what you have is a huge debt industry in the United States. Part of it’s called investment banking, part of it’s called money management, part of it’s called commercial banking, part of it’s called mortgage finance, part of it’s called credit card companies. And, it’s really quite true, you look and you see structure why is there debit in the United States

We’re at the point where we now have $42 Trillion of credit market debt, this is in essence tradeable, it’s not something that can be traded in the market, it’s still liquid and has to be renegotiated by a bank, its credit market base.

It’s 3 and-a-half times the GDP. Now, the national debt by itself isn’t as staggering given the rest of it. That’s because much more of our debt has gotten out of control and is part of it […] the historical yardsticks don’t work for that. But the total share of debt as a dimension, as a share of GDP or all the levels of public adding paying it with a presumed share of their income is back at a level and exceeding that level of the period 1929 to 1933. The debt stayed huge as a level of GDP during the depression because the size of the economy collapsed debt was still there and unless there’s some way of getting out of it. It wasn’t so easy then. It isn’t so easy again now, but behind the idea of debt playing this role, if you want an explanation of what’s bought off it should be one of the two or three main yardsticks in the country is there no way it can be.

Now, is there candor on the part of people in the financial sector about this. Let me read you a quote. And you know this is what they’re saying on the websites with Plame. They don’t have to worry about […] it’s her husband.

In the words of Ray Dameo of Bridgewater Associates Connecticut, money management firm they run about a $110 billion dollars:
“The money that’s made from manufacturing stuff is a pittance in comparison to the amount of money made from shuffling money around. 34% of all corporate profits in the US come from the financial sector compared with only 10% from the manufacturers.”

That’s profits. Because at the profit level a lot of the manufacturers aren’t doing all that well with shares lower than GDP. And, of course the financial share is higher because there’s much more profit there this GDP share.

So, to me, this is a staggering set of news. And, with all deference to anybody running for office […]

It’s something for discussion. The American people aren’t stupid, they’d like to know all this stuff. There’s going to be a lot of angry campers. Not the least among the Republican voters of the 10 poorest counties in Ohio. But, you better believe they don’t know it. It’s highly unlikely that they’ll hear about it.

Now, what came, what brought this to a head? Well, what basically brought it to a head is that the government had a strategy. And some of you will remember, people who are in the labor movement will likely remember that back in the 1980’s there were ideas for a National Industrial Policy. That seemed a little heavy-handed that the government would pick winners. Some of them proposed staying on top, which had as its argument we should have a National Industrial Strategy. That there should be a strategic awareness, not a governmental policy per se. A strategic awareness you had to maintain an advanced manufacturing base, that was a valid thing for government to think about.

Some support within the business community at the time.

What happened is, with all the talk about government shouldn’t pick winners the government did pick winners. They picked finance. What we had in esssence was a national financialization strategy in the United States.

Now, this is the thing that gets me, finding this quickly, okay, page 287:

This is a chart entitled “Bailouts, Debt and the Socialization of Credit Risk, 1980-2005.”

It’s simply a list of the bailouts. Government bailouts! Where they either rescued, or subsidized, or gave loans to, or something else.

First was the Mexican-Argentina-Brazil debt crisis in 1981-82, they renegotiated the bonds. Continental Illinois Bank Bailout of 1984. Bailouts with the Fed in the late 1980’s. […] The S&L Bailout 1990-1992. In 1990-1992 the City Bank and Bank of New England bailout. Actual bailouts. Citygroup. Which now, the chairman of the executive committee is Robert Rubin who has a Hamilton project for the Democratic Party. I thought Hamilton was a Federalist […] Mark Rubin is the chairman of Citygroup, that’s the biggest bank in the world. He got Involved in all kinds of scandals in the period in which he was chairman of the executive group.

This is part of my bipartisanship. Don’t think all the dirt is in one party.

In 1994 the Mexican peso rescued. They never rescued some hardware store in Omaha. The Mexican peso, lenders, oh my God.

Asian currency bailout. Long-term capitol management bailout. That was a hedgefund.

And then we got to the incredible extent after 9.11 and the problems in the stock market. With interest rates that had dropped so low that every financial institution in the country and every corporation would reliquify. At a much, much lower rate, and people could too, and they were encouraged to borrow against houses, and know we’ll see what happens to that.

But, the idea, the socialization of credit risk, we had never had socialized anything in this country. In the last 25 years, except socialized profits for the financial sector. […] When I was a kid, when I was in my twenties and thirties that was unnacceptable in the Republican party. I would love to go those 10 poorest counties in Ohio, and tell them some things about Republicans. Frankly, it’s a huge problem. How do you deal with all this? How can you turn it around?

It’s so much a part of the way government’s been run for 25 years. It’s so much a part of the way the economy has changed. It’s a part of the way people have changed their patterns of taking money from politicians. Or politicians taking money from industries. Finance is now the biggest giver. And, you can get things passed for the financial sector that would never see the light of day of an kind of serious discussion.

For example, the credit cards one of the biggest portions of what the NYT called the “borrower’s industrial complex” an industry that was deregulated in a massive way from the 1990’s. First they deregulated interest rates. They could charge as an interest rate the highest rate allowed by the state in which they were incorporated. Come to us, you can do anything. That’s where they went. And that’s what they did. So you can get a 28% top rate or a 35%, you can change it all kinds of ways, depending on your credit rating, or whether you have the right stamp on the envelope, if you send it on time, or if you don’t.

The other way they got deregulated was fees. And this is the little gimmick […] They can do the same thing with fees. They can charge any fees in which the state is allowed. Of course this is the same thing in four or five states where they say whatever you want, but…

And in result the credit card companies now make 40% of their income from fees. It’s amazing. So, I wish I could tell you I really knew what could be done about this. I would say that after 25 years you’re going to have one hell of a political change in this country.

And the only thing I can advise is that you take these numbers, and things like this, you go home, and you talk about it. You can talk about it in Bangor, you can talk about it in Tuskaloosa, you can talk about it in Takoma. You can get a lot of people mad.

Thank you.