Is America in long-term economic and moral decline? Should the government have let the country endure a 1930s-style financial collapse in the late 1980s to teach big, reckless speculators a lesson? Is the proliferation of coffee bars in Washington a sign of corruption and decadence in the nation's capital?
If you answer "yes" to at least two of these questions, you'll enjoy Arrogant Capital: Washington, Wall Street, and the Frustration of American Politics. Chances are you already share political analyst Kevin Phillips' view of Washington as a political swamp where a venal elite cashes in even as it lets the nation sink into an economic abyss. The capital has become "a honey pot," he moans. Its "intermingling of public service, loose money, vocational incest, overinflated salaries, and ethical flexibility verging
on corruption has become such a huge gravy train...that the prospect of serious debate is unnerving."
Well, true enough. But if you get past Phillips' anger and examine the facts, he fails to back up his thesis that the U.S. is undergoing the very economic, social, and political changes that sent other superpowers--17th century Spain, 18th century Holland, and 19th century Britain--into decline. This analysis calls to mind Paul Kennedy's The Rise and Fall of the Great Powers, which compared U.S. military commitments to the "imperial overstretch" that did in Britain, Spain, and Austria-Hungary. But Phillips discerns different signs that a nation is hitting the skids: a rich, bloated capital city, a shrunken manufacturing base, overly large and powerful financial industries, the capture of political institutions by special interests, soaring national debt--even tolerance of homosexuality.
Such historic parallels are fascinating, and many of Phillips' observations about Washington's political gridlock, though not new, are on target. But when Phillips ventures beyond political analysis into economics, he goes seriously astray.
He buys into common myths perpetuated by politicians who see advantages in holding up a glass that's always half empty: that the U.S. is exporting all its factories and high-paying jobs, that what's good for Wall Street is bad for Main Street, that the growth of international trade destroys working-class families, that speculation in exotic financial derivatives has run amok.
Let's get some perspective here. Yes, America's share of the global economy has fallen--but that has been going on since 1950 as nations around the world have grown richer. And while U.S. manufacturing hasn't grown as fast as services have over the past 40 years, Federal Reserve figures show the industrial base has doubled since 1967. Moreover, the Commerce Dept. projects that the U.S.--still the world's top exporter--will sell a record $493 billion in goods abroad this year.
Yes, the U.S. experienced a net loss of 2 million manufacturing jobs over the last five years, largely due to productivity gains. But the Labor Dept. says most of the losses were in the lowest-paying industries. And a global survey by two Swiss research groups found that the U.S. was the world's most competitive economy in 1994. No doubt millions have suffered because of the transformation the economy has undergone, but that has been the case since America gave up on an agrarian society in the 19th century. Change can be wrenching.
Still, decline? Phillips' contention that economic policymakers are beholden to the stock and bond markets reflects old thinking about financial markets as tools of a privileged clique that gains at the expense of average Americans. In fact, with the explosive growth of mutual funds--not to mention the millions of workers with pensions invested in the markets--Wall Street and Main Street now intersect. Phillips is equally simplistic in denouncing all derivative activity as "runaway electronic speculation" that will trigger a crash if not brought under tight federal scrutiny.
He is on sounder ground addressing Washington's political paralysis. When he decries the unprecedented concentration of special interests, he fails to note that many of those interests represent huge chunks of the public--seniors, minorities, homeowners, small businesses. But he's right that there are too many high-powered gunslingers representing narrow causes. And he offers appealing solutions: Move the capital to other cities for part of each year, replace congressional votes with national referendums on key issues, impose legislative term limits, create a multiparty system, and close half the law schools to reduce the glut of lawyer-lobbyists. Yet he dismisses the most obvious way to diminish influence-peddling--campaign finance reform--claiming "the system is too resistant" to change.
That pessimism underlies the nation's political problems. Washington is an arrogant capital because it represents a cynical country. Frustrated citizens throw up their hands instead of voting to throw the scoundrels out. Want to bring Washington to heel? Try some old-fashioned, grass-roots political activism. It turns the most arrogant capital denizen into a humble servant.