Remember the good old days? No, I don’t mean the sun-drenched, suburban 1950s. Nor do I refer to the go-go giddiness of the ’90s. I’m talking about last summer—before the days of “credit crunch” and “market downturn” and all the other phrases commentators trot out to signal that the American economy is on the verge of unraveling altogether. In those days, less than a year ago, we might not have been booming, but we weren’t busting, either.

What’s happened since then, and why, is hard to explain, even for the experts. Kevin Phillips, a longtime observer of American politics and finance, takes a stab at it in Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism. The epicenter is the intersection of the housing and credit markets. Several years ago, consumers flocked to buy subprime mortgages. These mortgages were sliced and diced by creative financiers into little pieces, then resold as complex financial packages to institutional investors, everyone from hedge funds to pension funds.

At the same time, large numbers of homeowners began to “use their homes as ATMs,” as Mr. Phillips and many others have put it. They borrowed against the value of their homes in order to obtain easily spendable cash; as long as the value of the homes continued to rise, owners could afford to pile on debt. During this period, Mr. Phillips reports, the housing sector was responsible for about 40 percent of all GDP growth. This state of affairs, as we know now, was not sustainable. The bubble, like all bubbles, eventually burst—and as it did, heavily leveraged homeowners couldn’t cover their debts, and subprime mortgage holders couldn’t cover their monthly payments, and the whole mess imploded. Failure then spread from one bank to the next, like a contagious disease.

That, at least, is the story circulated in recent months. Mr. Phillips takes a longer view. He argues that the roots of the trouble can be traced back far earlier than last August, or even the glistening ’90s. Long-term economic trends—not to mention historical precedent—has been working against us for some time. The good old days, it turns, out, weren’t that good after all.

THE OVERARCHING TREND he decries is the increased financialization of the economy. In the past four decades, the financial services industry has displaced the manufacturing sector as the preeminent line of work. In 1950, manufacturing contributed 29.3 percent to the GDP, and financial services 10.9 percent. By 2003, the totals were almost reversed: manufacturing made a 12.7 percent contribution; financial services, 20.5 percent. Today, the financial services sector is the largest part of our economy.

All this is a fancy way of saying that we don’t make things anymore. We import most of our products from overseas. And spurred on by the steady march of federal deregulation of the banking industry, we now lead the globe in inventing ways to turn money into more money. The 1999 Financial Services Modernization Act, which abolished old barriers between commercial and investment banking, has proven particularly calamitous. As Mr. Phillips writes, “The financial sector got too big too carelessly, and in too much of a hurry.”

What’s wrong with the financial service industry’s explosive growth? Who could object to increased wealth? Mr. Phillips notes that the wealth that financialization has created is not fairly shared; executive pay has skyrocketed, and income disparity has increased concomitantly. More importantly—and this is where the author dons his historian’s hat—the recent financialization of our economy mirrors the financialization that occurred right before the Great Depression. As Mr. Phillips demonstrates, in the Roaring Twenties, the wizards of Wall Street were idolized for their ability to turn water into wine. The last decade or two has witnessed a similar deification of the money manager and the private-equity firm, as well as a similarly systematic dependence on credit. Will the next decade, then, be a repeat of the 1930’s?

KEVIN PHILLIPS THINKS that we may be headed for even worse. Much of Bad Money is premised on an idea articulated at the beginning of the book: “History does seem to repeat itself, if only in outline or rhyme.” That this is an obvious cliché doesn’t mean it shouldn’t be taken seriously. Yet it seems to me that Mr. Phillips is taking it too seriously.

Because the Great Depression followed a period of intense financialization, he argues, we’re probably now headed for another catastrophic downturn. But no matter what the tabloids are saying, there isn’t enough evidence to support that argument. The current crisis, though worrisome, is so far remarkably self-contained. Big loses have hit the financial and subprime mortgage sectors; but unemployment has remained low, and most people still have their homes.

Mr. Phillips marches on, undeterred, pushing his narrative of inevitable American decline by pointing out that other imperial powers suffered dramatic and rapid collapses in fortune. The end of domination for the British, the Spanish, the Dutch and, yes, even the Romans, was marked by characteristics mirrored in contemporary America.

This is familiar territory. In 2004, Mr. Phillips’ American Dynasty made the case against the dynasticism of the Bush family. In 2006, he inveighed against the twin evils of peak oil and religious fundamentalism in American Theocracy. He revisits these topics here—offering along the way numerous variations on “As I’ve written in an earlier work …”—compiling, by the final chapters, a disjointed litany of impending crises.

Bad Money is Kevin Phillips’ culminating tale of American woe. It looks at the problems confronting the economy and spirals outward, to argue that this nation, like previous great powers, is doomed to decline. That may very well be true; indeed, to argue that eventually America’s standing will significantly wane is to take a very non-contentious position. World power is not fixed. Yet neither is history a guarantor. Solutions—notably absent from Mr. Phillips’ work—may present themselves, and usher in a future less grim than this would-be Jeremiah foretells.

Ethan Porter is the associate editor of Democracy: A Journal of Ideas (www.democracyjournal.org). He can be reached at books@observer.com.

That Norman Podhoretz would open his new and deeply troubling World War IV: The Long Struggle Against Islamofascism with a quaint Victorian salutation, “Dear Reader”—most famously used in Charlotte Brontë’s Jane Eyre­—is only fitting. Mr. Podhoretz’s book is not so much a coherent argument, let alone a persuasive one, as it is a project of looking backward. Drowning in the past, lacking in vision, World War IV is the work of a man who can’t stop fighting the battles of yesteryear, even after new threats have emerged and struck.

What one expects from World War IV is a rigorous attempt from the godfather of neoconservatism to defend the Bush war on terror and the Iraq war in the face of withering criticism. That’s not what we get. In 13 disjointed chapters, Mr. Podhoretz reiterates the arguments that we’ve come to associate with the likes of Sean Hannity. Seemingly half the text is devoted to partisan attacks on the Democrats, The New York Times specifically, and the cursed “mainstream media” generally. Mr. Podhoretz accuses all named parties of, at best, naïvely emboldening the terrorists, and, at worst, radical leftist defeatism. But because he has a reputation as an intellectual to support, Mr. Podhoretz dresses up his accusations in pseudo-academic garb. There are long, unwieldy sentences overrun with qualifying clauses. There’s talk of a “Bush doctrine,” and digressive forays into American history. There are also footnotes, though one would be hard-pressed to describe them as copious, or particularly revealing. They’re for show, after all.

If anything can be said to unify the book, it’s the author’s obsession with the notion that our current conflict is a logical continuation of previous conflicts with totalitarian regimes. Hence the title, which at first glance is quite confusing. (Turns out that World War III has come and gone: That was the Cold War.)

And yet, dear reader, consider the differences between this and previous conflicts: Though Al Qaeda and its affiliates may dream of a totalitarian caliphate, they’re not totalitarian states; disaggregated terrorists hardly constitute a monolithic antagonist. And while terrorists may be assisted by states, they’re not state actors in the same way previous totalitarian regimes were. As for the Iraq war, which Mr. Podhoretz fervently supports as part of the war on terror, it can hardly be seen as a natural front in such an effort.

Does the author address these considerations in a substantive manner? No. To Mr. Podhoretz, the only interpretation that can possibly be correct is Mr. Podhoretz’s, even as the facts head in the opposite direction.

What a sad commentary on the state of conservative thought: Six years after 9/11, a man whom many consider to be a leading intellectual has offered a tome arguing that the dreadful events of that day plunged us into a war no different from previous wars.

Common sense says otherwise. When Mr. Podhoretz helped usher neoconservatism into the spotlight, the philosophy was notable for rejuvenating a fatigued conservatism. Today, as World War IV demonstrates, neoconservatism is similar to the conservatism it once displaced: a stale collection of hapless clichés, irrelevant to the crucial questions of its time.

Ethan Porter is the associate editor of Democracy: A Journal of Ideas.