What Ails the American Economy? Everything, and There’s Worse to Come

By 2007 total indebtedness was three times the size of the gross domestic product, a ratio that surpassed the record set in the years of the Great Depression. From 2001 to 2007 alone, domestic financial debt grew to $14.5 trillion from $8.5 trillion, and home mortgage debt ballooned to almost $10 trillion from $4.9 trillion, an increase of 102 percent. A crisis in the mortgage market in August 2007 brought the party to an end. The second component of the perfect storm is the upheaval in the oil industry. Domestic production peaked in 1971, and there are signs that production worldwide is also peaking. (Mr. Phillips cites experts who believe it already has.) And with the emergence of new economic powers like China and India, demand has risen dramatically and prices have been climbing steadily; by 2004 a rapidly growing China had become the second largest oil consumer, after the United States. Finally, Mr. Phillips turns to what he terms America’s “calcified” political system. We may need new regulations to deal with the debt mess, along with an energy policy to address the changing world of oil, but Washington, he says, has become dedicated to “the politics of evasion,” reluctant to pass dramatic reforms or to call for sacrifice from the public. Democrats and Republicans alike are so entrenched, so dependent on campaign money and special interests, that “the notion of a breath of fresh air has become almost a contradiction in terms.” Instead of a “vital center” in Washington, we now have a “venal center.” What Ails the American Economy? Everything, and There’s Worse to Come