Aug 28th 2021
Shutdown: How Covid Shook the Global Economy Adam Tooze Vikings; 368 pages; $ 28. Allen Lane; 25 €
TThe COVID-19 pandemic is possibly the most glaring example of globalization history has ever provided. The virus not only spread rapidly around the world. When governments responded with shutdowns, nearly 95% of the world’s economies suffered a simultaneous decline in GDP per capita.
Even the millions of workers who have been suspended from their jobs will struggle to find the time to keep up with all of the impact. So Adam Tooze, a history professor at Columbia University, set himself the ambitious task of creating an instant history of the economic consequences of the pandemic. As in his previous book, Crashed, on the 2008 and 2009 financial crisis, Mr. Tooze shows a remarkable ability to handle the details. And its range is extremely large. This really is a picture of the global impact of the crisis; It includes the distortions in the financial markets as well as the specifics of government policy.
For readers battered by the news, a benefit of this immediate story is that Mr Tooze reminds them of what public figures were saying in the very early stages of the pandemic. On February 3, 2020, British Prime Minister Boris Johnson warned of the danger that “new diseases like the coronavirus will panic”, leading to measures that “go beyond what is medically reasonable and cause real and unnecessary economic damage”. “. Within two months he had paralyzed the UK economy. On February 25, 2020, Larry Kudlow, an adviser to President Donald Trump, said “we have contained that,” adding cheerfully, “I don’t think it’s going to be an economic tragedy.”
The central banks recognized the effects of the disease more quickly. As Mr Tooze notes, not only did they act on an unprecedented scale, they also acted at great speed. “In 2008 there was still a certain reluctance to intervene from the central bank. In 2020 that was gone, ”he writes. The governments eventually supported this monetary stimulus with fiscal policy. The $ 14 trillion worth of support they had provided by the end of 2020 was much bigger than the incentives they had provided in the wake of the global financial crisis.
Developing countries, meanwhile, suffered much less economic damage from the pandemic than was previously expected. Since 2000, emerging economies have largely avoided two important and related risks, namely the pegging of the exchange rate to the dollar and the admission of foreign currencies. This saved them from the dilemma that had haunted many in the 1990s: whether to impose high interest rates to defend their currencies or to devalue the companies and banks that had borrowed in dollars and risk bankruptcy. As a result, many emerging market central banks were able to cut rates in response to the slowdown caused by Covid; their borrowing costs in international bond markets rose only briefly before falling back to pre-pandemic levels.
The financial markets quickly recognized this supportive political environment. They began to recover in late March 2020 – barely a month after the economies began to lock themselves off. This, in turn, created a dilemma that has haunted the authorities since 1987 when they cut rates in response to a major stock market crash: every time they bail out the economy, they give a big boost to asset markets. “The wealthy 10% in the advanced societies, who had the most financial assets, were given an incentive that dwarfed anything openly declared in the public accounts,” notes the author.
Mr Tooze’s book is an impressively complete account of economic developments over the past 18 months. Doubts creep in with the interpretation. Mr. Tooze describes the events of 2020 as “a major crisis of the neoliberal era”. But is that true? Is a Chinese wet market “neoliberal”? Were the first attempts by the Chinese authorities to suppress news about the pandemic an example of neoliberalism or just illiberalism?
Dealing with the virus has proven to be a struggle for countries with regimes as completely different as Iran, India and Peru. Even in the developed world, if Boris Johnson, Angela Merkel and Justin Trudeau are all defined as neoliberal, then the term is too broad to mean anything.
The benefits of looking back
The author is more economical with data when he is at its most grandiose. He speaks, for example, that “fragile and weakened welfare states” will be challenged by the pandemic. In 1980, when the rise of Margaret Thatcher and Ronald Reagan began, the average OECD country devoted 14.5% of its GDP to social spending; by 2019 the average was 20%. In the UK and America, social spending rose by five and six percentage points of GDP, respectively, over the same period.
Even in the “austerity era” between 2007 and 2017, real per capita public spending in the OECD rose by 1% annually and fell only in Greece and Italy. And if austerity is the culprit, why did Greece handle the pandemic pretty well compared to the rest of the developed world? Just as every problem looks like a nail to a man with a hammer, every crisis is the result of neoliberalism for an academic with Mr. Tooze’s left-wing worldview.
The challenge of contemporary history is that its judgments can be overtaken by events. The 2008 financial crisis was not, as expected, a blessing for left-wing parties; Instead, it initiated Mr Trump and Brexit. Still, Mr Tooze’s preferred means of creating more governments may be on the way. The crisis caused countries around the world to give up the idea of shrinking the state and instead led them to massively expand it. This is unlikely to be a short-term development, especially as populist pressures encourage leaders to intervene more, not less. If so, the economic system will experience its own form of “long covid”. ■
This article appeared in the Books & Art section of the print edition under the heading “A cough can be heard around the world”