Oil, religion, and debt

One of the memorable books that occupied some of my free time while on vacation recently was Kevin Phillips' 2006 tome American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21stCentury.

The hardback had been sitting around here in the reading "queue" for almost a year and, in retrospect, that was a mistake - it is one of the most comprehensive and insightful works on these three topics you will ever read.

It is available in paperback now for under $10 - if you want to understand oil, religion, and debt in contemporary America along with its historical context, read this book. Stick it in someone's stocking this holiday season.

From the preface:

THE AMERICAN PEOPLE ARE NOT FOOLS. THAT IS WHY POLLSTERS, inquiring during the last forty years whether the United States was on the right track or the wrong one, have so often gotten the second answer: wrong track. That was certainly the case again as the year 2005 closed out.

Because survey takers do not always pursue explanations, this book will venture some. Reckless dependency on shrinking oil supplies, a milieu of radicalized (and much too influential) religion, and a reliance on borrowed money—debt, in its ballooning size and multiple domestic and international deficits—now constitute the three major perils to the United States of the twenty-first century.
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The three threats emphasized in these pages could stand on their own as menaces to the Republic. History, however, provides a further level of confirmation. Natural resources, religious excess, wars, and burgeoning debt levels have been prominent causes of the downfall of the previous leading world economic powers. The United States is hardly the first, and we can profit from the examples of what went wrong before.

Oil, as everyone knows, became the all-important fuel of American global ascendancy in the twentieth century. But before that, nineteenth-century Britain was the coal hegemon and seventeenth-century Dutch fortune harnessed the winds and the waters. Neither nation could maintain its global economic leadership when the world moved toward a new energy regime. Today’s United States, despite denials, has obviously organized much of its overseas military posture around petroleum, protecting oil fields, pipelines, and sea lanes.

But U.S. preoccupation with the Middle East has two dimensions. In addition to its concerns with oil and terrorism, the White House is courting end-times theologians and electorates for whom the holy lands are already a battleground of Christian destiny. Both pursuits, oil and biblical expectations, require a dissimulation in Washington that undercuts the U.S. tradition of commitment to the role of an informed electorate.
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The financialization of the United States economy over the last three decades—in the 1990s the finance, real-estate, and insurance sector overtook and then strongly passed manufacturing as a share of the U.S. gross domestic product—is an ill omen in its own right. However, its rise has been closely tied to record levels of debt and to the powerful emergence of a debt-and-credit industrial complex. Excessive debt in the twenty-first-century United States is on its way to becoming the global Fifth Horseman, riding close behind war, pestilence, famine, and fire.

Note that this was written long before the August 2007 credit crisis - the Fifth Horseman is now apparently on the move.

Comparing the current situation in the U.S. to previous eras such as the Roman Empire, the dominance of Spain, the Dutch Republic, and the British Empire, the most striking point (to me at least) was the tendency for all of these fading powers to transform into "financial" economies at the apex of their power and influence.

The Precariousness of Rentier Cultures

The word "rentier" - meaning a person living off unearned income - comes from the French, as do many other words connected with money and plunder: financier, profiteer, buccaneer. Over the last four centuries however, it was first Spain, then Holland, and Great Britain, and now the United States that created the most notable rentier cultures. Each ultimately became vulnerable as a result.

Spain needs little further discussion, save for how its mounds of indebtedness bred an unproductive economic culture. When the initial large amounts of gold and silver arrived between 1540 and 1560, the financial system of Castile was late medieval, not commercially adept in the manner of Renaissance Italy's mercantile and banking centers. However, the flood of bullion enabled the Crown to borrow hitherto unimaginable sums for grandiose purposes, often military campaigns... Debt instruments, most of them juros in at least a dozen varieties, had been the official money-raising tools since the days of Ferdinand and Isabella.
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The volume of juros swelled rapidly. In the words of one economic historian, never before had western Europe enjoyed the buoyant sense of access to such unparalleled financial resources promising liquidity for both private and public enterprise... The upshot, said a second historian, was the "growth of a powerful rentier class in Castile, investing its money not in trade or industry, but in bonds, the redemption of which most holders strongly opposed. In 1617 the Council of Finance acknowledged seeing no chance for an economic revival in Castile so long as censos and juros paid better interest than that to be had from investments in agriculture, industry, and trade. A few decades later, the debt economy itself came unglued.

Similar stories for both the Dutch and the British are recounted in extraordinary detail. The historical precedent for what comes after the good times associated with massive debt buildup and the transformation into a financial economy is as follows:

Understandable as this cockiness might be, history teaches a crucial distinction: nations could marshal the necessary debt-defying high-wire walks and comebacks during their youth and early middle age, when their industries, exports, capitalizations, and animal spirits were vital and expansive, but they became less resilient in later years. During these periods, as their societies polarized and their arteries clogged with rentier and debt buildups, wars and financial crises stopped being manageable. Of course, clarity about this develops only in retrospect. However, even the past leading world economic powers seem to have made another error in route. They did not pay enough attention to establishing or maintaining a vital manufacturing sector, thereby keeping a better international balance and a broader internal income distribution than financialization allowed.

Once again from Mark Twain - something about history not necessarily repeating, but instead, rhyming.