Shutdown: the end of an economic era?
Adam Tooze shows how the pandemic has exposed the frailty of an unhealthy economic system.
Particular crises rarely change everything by themselves, but they can amplify what was already underway. This is how economic historian Adam Tooze approaches the Covid crisis in Shutdown: How Covid Shook the World’s Economy. He presents it as an event that brought pre-existing trends to the surface.
Shutdown is one of the first extended economic histories of the pandemic. It covers a single year, from Chinese president Xi Jinping’s public acknowledgment of the outbreak of a novel coronavirus in January 2020 to US president Joe Biden’s inauguration exactly 12 months later. The bulk of Shutdown is a comprehensive month-by-month commentary on the progression of the pandemic, the varied government responses to it and the economic, financial and political fallout.
Tooze was keen not to ‘miss the moment’, and drafted Shutdown as events were happening. This approach always runs the risk of missing the longer-term impacts of an event. But, as it is, Tooze has been able to draw attention to many of the economic problems exacerbated by the shutdowns and the other interventionist policies. And he also speculates about their political ramifications.
Tooze’s premise is that a medical challenge became a much wider crisis as a result of ongoing structural tensions within society. He rightly identifies the virus as a ‘trigger’ rather than a cause, highlighting that most of the problems he describes were already evident a year before: sluggish growth, geopolitical tensions, financial market fragilities, expanding corporate dependence on borrowing, low-income country debt distress, eurozone tensions and societies divided culturally as well as economically.
Tooze also shows that the real novelty of this pandemic lay not in the threat to public health, but in the tremendous scale of the response. In terms of historical plagues, Covid was ‘not very lethal’, he writes. ‘What was unprecedented was the reaction. All over the world, public life shut down, and so too did large parts of commerce and the regular flow of business.’
He shows that what happened was not determined by the health threat but by the choices governments made. His hope for the future is that the crisis-driven practice of extensive government intervention in the economy could end up addressing some long-running economic challenges. And it might also help address one of Tooze’s main concerns: climate change.
A financial crisis
Tooze draws on his deep understanding of the instability of the financial markets, which was laid out in Crashed, his exploration of the 2008 financial crisis. In Shutdown he points out that the economic fragility of 2020 was different to that of 2008. In the earlier financial crisis, it was the banks that were the weak link. This time, with shutdowns causing huge economic contractions, the main financial frailty turned out to be in the asset markets.
Significantly, this included the market for US government bonds – the ‘ultimate safe asset’ on which balances the rest of the rickety debt structure. When the market in these bonds almost broke down with the start of the shutdowns in March 2020, it prompted financial panic. As in 2008, government interventions, this time much faster in execution, prevented the financial system from toppling over.
These were spearheaded by the US Federal Reserve, acting again as the global lender of last resort. It made available huge amounts of liquidity, not just to its domestic economy but also internationally. Tooze shows that this radical emergency action worked in the short term – but only by compounding the thorny question of how to return to pre-2008 monetary normality. ‘What now was normality?’, he asks rhetorically.
For the medium term, Tooze explains that central-bank activism is further boosting debt, not least corporate borrowing. It is also raising the prices of financial assets, and thereby stoking up greater financial strains for the future. Through this process Tooze identifies the core dilemma for central banks today, especially for the pre-eminent Federal Reserve. In the face of the coronavirus crisis a ‘huge abundance of dollar liquidity’ was required to underpin the resilience of the global debt system. However, this only ‘deferred the kind of crisis that might force a general reckoning’.
Tooze is also right to point out the ‘conservative’ effects of the huge fiscal spending undertaken since the shutdowns started. Despite the scale of the spending, and some new ways of delivering financial support, the effect of coronavirus fiscal policy in the US, the UK and Europe was to provide economic life support, not to drive change.
Western economies entered their shutdowns in a weak position, yet the principal logic of the huge spending undertaken was to try to get back to how things were before the pandemic. He sums up the logic as follows: ‘The crisis affected the whole economy. No one was to blame. Everyone should be made whole.’ That the previous economic ‘whole’ had fundamental deficiencies is too rarely mentioned.
And how will all this fiscal spending be paid for? Here Tooze draws out the uneasy implications of quantitative easing. During the pandemic, he explains, it became clearer than ever that one branch of government was buying the debt issued by another branch: ‘central banks on both sides of the Atlantic were monetising the government debt on a gigantic scale.’ In the extreme case of the UK, there was an ’embarrassingly close one-to-one correlation between the government borrowing requirement and the Bank of England’s additional debt purchases’. The future ramifications of this fusion of monetary and fiscal policy – ‘this confused and ill-shapen monster’, as Tooze calls it – should be followed closely.
In describing how the state responses to the pandemic exacerbated existing frailties, Tooze is a knowledgeable and eloquent commentator. However, his discussion of the political repercussions of the shutdowns is less substantial, far from original and fails to provide much illumination. In particular, Tooze lets his existing predilections – shared with many on today’s left – become father to his wishful political interpretations of the crisis. He turns Covid into an opportunity to advance his pre-existing vision of how he would like things to be.
Generally, Tooze adopts most of the fashionable biases of the cosmopolitan left: anti-Brexit, anti-Trump and anti-populist. He is typical in mistaking – and smearing – many people’s justified disenchantment with mainstream political parties, and their distaste for cultural identity politics, as backward-looking reaction.
Take his views on the Trump White House. Although careful to deny that America was on the verge of ‘fascism’ – ‘at least… as an articulation of social forces’ – Tooze still associates the Trump administration with ‘fascistoid’ elements. This use of an all too familiar and facile analogy with the 1930s shows where his cultural sympathies lie.
If Tooze had written Shutdown a few months later, he might not have been quite so rash as to damn Trump as ‘fascistoid’. He would have seen that the Biden White House has maintained quite a few of Trump’s domestic and foreign policies. Indeed, as time passes, it is becoming clear that Trump’s term of office was not the aberration his opponents assert. In particular, Biden’s fiscal activism in response to the shutdowns, as well as the time-tabled pullout from Afghanistan, show a clear continuity with the policies of his predecessor.
On the broader political aspects of the pandemic, Tooze emphasises that it was the exceptional circumstances and ad hoc pragmatism, rather than any strategic thinking, that prompted governments of different political stripes to adopt ‘impressive’ levels of stabilising intervention. And he is surely right to claim that strong government activism is unlikely to fall away after the pandemic.
However, Tooze goes further than this. He suggests that the response to the pandemic might finally lead to the demise of the ‘firmly held precepts of “small government” and “independent” central banks’. This interpretation reflects his misleading, though familiar, characterisation of the period since the 1980s as one in which ‘neoliberal dogma’ prevailed.
Tooze is far from unusual among leftist commentators in giving too much ideological coherence to neoliberalism – although he at least admits there have been many more instances of pragmatic state intervention in the neoliberal era than is usually thought. However, he still presents the unprecedented state interventionism of the past year as ‘a turning point’. For Tooze, the coronavirus crisis marks the end of neoliberalism as a coherent ideology.
Tooze claims we are entering a new political phase, and that the shutdown experience is the first crisis of what environmentalists call the ‘age of the Anthropocene’ – the age, that is, in which human activity became the dominant influence on the climate and the environment.
He tells us he was fascinated by the idea of the ‘anthropocene’ even before Covid struck. Indeed, he says he had been planning to write a book on the pre-history of the Green New Deal when the ‘giant economic contraction’ caused by the pandemic shutdown led him to change his subject matter.
Tooze’s green preoccupation no doubt informs his belief that the reformist experimentation forced upon governments in 2020 by the ‘massive force of the social and economic crisis’ will continue into an environmentalist future. ‘In search of a positive agenda’, he writes hopefully, ‘centrists embraced environmental policy and the issue of climate change as never before. Contrary to the fear that Covid-19 would distract from other priorities, the political economy of the Green New Deal went mainstream.’
Tooze is right that the pandemic experience has led to the promotion of a green governmental agenda. It is less clear that this signals governments’ positive intent to pursue, as he imagines, a structural transformation of the economy.
There are other possible interpretations of the greening of politics – most notably, that it is a product of the culture of fear. At several points in Shutdown, Tooze himself recognises that fear has played a significant part in the response to Covid and now climate change. But even then he underestimates just how powerful an influence fear and worst-case thinking now are on policymakers. And it is this sense of fear and vulnerability, exacerbated by the pandemic experience, that perhaps best explains governments’ post-pandemic willingness to prioritise the threat of climate change.
Tooze does acknowledge at the end of Shutdown that his political interpretations could be wrong. His narrative, he insists, is necessarily ‘provisional, heuristic, experimental’. And, most welcome in these blinkered times, he does end the book with a hearty appeal for openness to debate: ‘If 2020 taught us anything, it is how ready we must be to revise our worldview.’
So, in this spirit of debate, it will be intriguing to see whether the sort of economic modernisation Tooze anticipates is possible, or whether, in the name of climate change, governments decide instead to force people to adapt their behaviours and restrict their levels of consumption. The former could help to revive economic growth. The latter, though, would be more likely to perpetuate economic zombification, and further undermine the possibility of material progress. It would amount, in short, to another shutdown.
Shutdown: How Covid Shook the World’s Economy, by Adam Tooze, is published by Allen Lane. (Order this book from Amazon(UK).)
Picture by: Getty.
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