New Part Three - July 24:
James Fallows
Kevin Phillips

Part Two - July 12:
James Fallows
Kevin Phillips

Part One - July 3:
James Fallows
Kevin Phillips

Kevin Phillips is a contributing columnist to the Los Angeles Times and a regular contributor to National Public Radio. Phillips was the chief political analyst for the 1968 Republican presidential campaign, and in 1969 published his landmark book The Emerging Republican Majority. His bestseller The Politics of Rich and Poor was described as a "founding document" of the 1992 presidential election.

James Fallows is The Atlantic's national correspondent and the author of Breaking the News: How the Media Undermine American Democracy (1996) and of Free Flight: From Airline Hell to a New Age of Travel. To learn about his new book and look through an archive of his recent articles, visit

Atlantic Unbound | July 12, 2002
fallows@large | Dialogues with James Fallows
From: Kevin Phillips
To: James Fallows
Subject: Re: The silent crash - Part Two

Thanks for your summaries and second round of questions about Wealth and Democracy. The "declinist" question is a good place to begin.

Actually, my point about the U.S. being "a world power at or past its zenith," a nation that's appropriate to consider against a backdrop of previous leading world economic powers, seems almost irrefutable as carefully stated.

The U.S. share of world production and trade peaked shortly after World War II, just as Britain's did in the mid-nineteenth century when she was "the workshop of the world" and the rest of Europe and North America was just getting the industrial revolution rolling. This peak, of course, is more statistical than functional.

Some Britons worried in the late 1860s that they could become another commercial and financial Holland if their manufacturing headed down. Similarly, in the wake of the 1970 census data, Peter Peterson, then Commerce Secretary, and others worried about comparable trends in U.S. manufacturing. This wave of U.S. jitters over possibly lost supremacy overlapped with Vietnam, of course.

Both of these were legitimate expert-level alarm soundings, but the man and woman in the street didn't pay much attention in either country.

The second wave of concern was more serious in each country—the British in the 1890s with their books about the threats from the U.S. and Germany, and the U.S. between, say, 1987 and 1991 with the same concern about Japan and Asia. This wave of concern included the men and women in the streets.

This second skepticism faded, first in Edwardian Britain (loosely 1901-1914) and then in 1990s U.S., as the peak glories of finance and military/imperial prowess created a sense of triumphalism. Unfortunately, this cockiness was riding for a fall—in Britain because of the crises of 1914 and the advent of World War I, and in the U.S. because of the 2000 (and continuing) market crash and the arrival of terrorism.

Is the United States now at a stage where it has to begin calibrating itself against the various stages? Maybe. But this is a media culture, and historical evolutionary stages don't make it in a society that looks for body counts on the evening news.

I would suggest the following yardsticks. Don't watch military power—watch the financial underpinnings and corollaries of that power for shakiness. Edwardian Britain really couldn't afford to pump money into dreadnoughts while her industrial base eroded. As for the U.S, when the U.S. invaded the Gulf in 1990-91, the budget forced Washington to pass the hat to the allies. Now the budget deficit is climbing again, and how will the U.S. finance any unexpected ballooning of the apparently forthcoming war with Iraq?

The U.S. also has a nearly $2 trillion international debt, and the current account deficit is approaching 5 percent again this year. When the British current account deficit finally peaked near 6 percent in 1947-48, the U.K. was becoming a financial basket case.

As for the notion that "the tech industry is American," that has an element of quaintness given the dislocations of the NASDAQ crash, the rapid movement of production and software development to China, India, and the rest of Asia, and the fact that in 2000 some 45 percent of Cisco's workforce in California was Asian because of the dearth of U.S. engineers. All of these relationships are permitting a technology transfer to Asia that may be flowing even faster than the 1880-1914 steel and chemicals-led technology transfer from Britain to the U.S. and Germany. I wouldn't be surprised to see the high-tech flag shift to Asia some time between 2020 and 2030.

Politically, of course, concern about some form of U.S. decline has been threading in and out of U.S. politics since the late 1960s—defeat in Vietnam, the OPEC crises, the Middle American bitterness in 1978-80 over the symbolism of the Panama Canal treaties and the Iranian seizure of U.S. Embassy hostages, the Japan scare of 1987-91, and almost certainly some new form this decade. Its components may already be taking shape.

Now let me return to income inequality and why—at extremes like we have been seeing—it matters and poses a threat.

As I develop in Chapter 8 of the book, expanding great wealth is rarely passive. During the biggest one- or two-decade build-ups—the late-nineteenth-century Gilded Age, the Roaring Twenties and the combined 1980s and 1990s—it has fed on itself, preened itself, demanded political subservience and philosophic laudation, and pursued excesses that led to a bubble and then to a crash.

Readers should see Chapter 8 for details, but these wealth-momentum eras have a record of gestating three kinds of corruption. The first is financial—in the late years of the boom, old values are dismissed as irrelevant in the new era, financial and management innovation outruns increasingly obsolescent regulation and legislation, corners are cut down pathways never before trod, ethics loses to greed, and the sleazy results come out of the dirty linen closet and go into the history books. We all know the current list—Enron, Tyco, WorldCom, Halliburton, Global Crossing, Vivendi, Merck, and counting.

The second corruption is political—the ballooning amounts of money needed to contest (buy) elections, the control of policymaking that can be secured by the need of politicians to get more and more checks from the well heeled. Obviously, this is not the first time.

The third corruption is philosophic—the tendency of these wealth momentum periods to subsidize and otherwise induce a flattering ideology and philosophic milieu. The major themes tend to repeat—survival of the fittest, laissez faire, idolatry of markets and Social Darwinism. We have a climate where George W. Bush can rename the inheritance tax first imposed by Republicans like Abraham Lincoln and William McKinley the "death tax" and have a propagandized public acquiesce. Conservative thinkers are taken at least half-seriously when they portray giving a check to a favored politician as a constitutionally protected form of free speech.

The Gilded Age led into the Progressive Era, the Twenties into the New Deal. I assume that something new is also in the works now. The caution has to be that a new round of terrorism could facilitate a competing garrison state politics. And it is also true that for the economic issues to really sink in, the other stock indexes may have to chalk up a net 2000-2002 decline in the 50 percent range, albeit not the 75 percent swan dive recorded by the NASDAQ. It may also be necessary for the economy to go into another recession—picking up where last year's left off after the post 9/11 effect of Greenspan's last group of rate cuts and the huge stimulus on the fiscal side. Market economics has been tortured beyond recognition.

As for my notion of the U.S.'s needing another aristocratic reformer in the mold of Jefferson and the two Roosevelts, part of this possible imperative is the need to have someone outside the purview of so-called Economic Man, the self-centered econophiles who scurry through magazines like Forbes and the editorial pages of The Wall Street Journal. TR, in particular, held this worldview in contempt. The idea of Steve Forbes as an aristocratic reformer, then, is palpably absurd. John Kerry sometimes strikes me as a hairdo looking for a head, and Teresa Heinz's money may not be enough.

George Walker Bush is an aristocratic reformer like a mesquite bush is a New England country garden. Before gaining public office, he was a second-echelon player in the netherworld of the Texas energy industry. The only Republican who qualifies is John McCain, the son and grandson of Navy four-star admirals. His contempt for the Economic Men of corporate America, Wall Street, and the GOP donor world comes close to TR's.

Previous Page | Next Page: James Fallows - Part Three

What do you think? Join the conversation in Post & Riposte.

More on books in Atlantic Unbound and The Atlantic Monthly.

More on politics and society in Atlantic Unbound and The Atlantic Monthly.

Copyright © 2002 by The Atlantic Monthly Group. All rights reserved.