Shutdown: How Covid Shook the World's Economy

by Adam Tooze

Why … has the economic damage of such a comparatively mild pandemic been so huge? The answer is: because it could be. Prosperous people can easily dispense with a large proportion of their normal daily expenditures, while their governments can support affected people and businesses on a huge scale …. The response to the pandemic is a reflection of economic possibilities and social values today, at least in rich countries.33

This is the basic thrust behind what is known as neoliberalism, or the market revolution—to depoliticize distributional issues, including the very unequal consequences of societal risks, whether those be due to structural change in the global division of labor, environmental damage, or disease.43

As a practice of power, neoliberalism had always been radically pragmatic. Its real history was that of a series of state interventions in the interests of capital accumulation, including the forceful deployment of state violence to bulldoze opposition.

What did the damage was a plague unleashed by heedless global growth and the massive flywheel of financial accumulation.53

As MIT’s Rudiger Dornbusch, one of the most influential economists of his generation, put it in 2000, the “past 20 years, the very rise of independent central banks, is all about getting priorities right, getting rid of democratic money which is always shortsighted, bad money.”58

What the unfamiliar and mysterious new threat exposed is that we did not know who owed what to whom. We struggled to decide how to decide.38

A virus exposes the illusion of imagining that there is a thing called the economy that is separate from society. It was through the bodies of workers, through the air circulating in workplaces, that the virus was rapidly multiplying.

On all sides February 2020 delivered a staggering demonstration of the collective inability of the global elite to grasp what it would actually mean to govern the deeply globalized and interconnected world they have created.

With hindsight, we can see that it was in the third week of February that the global pandemic began in earnest.

To meet demand, between January and October 2020, Amazon added 427,300 employees. At the peak of the crisis, it was hiring at the rate of 2,800 new workers per day. By the end of the year, its global workforce would reach 1.2 million, twice what it had been a year earlier.

Lehman was a case in point. What brought it to its knees in September 2008 was not large losses on mortgages. What brought Lehman down and threatened all the other banks was the fact that it lost access to the repo markets in which it had previously funded its giant balance sheet of mortgage-backed securities.

As one fund manager remarked, “The average trader on Wall Street is inexperienced, can’t take risk, and now can’t communicate with colleagues properly … They’re isolated at home in their sweatpants … Psychologically it’s a bad situation.”

Such comparisons with the mid-century heyday of Keynesianism no doubt help to capture the drama of the moment. They express the wish of many, on the left as well as the right, to return to that moment when the national economy was first constituted as an integrated and governable entity.

The fiscal-monetary synthesis of 2020 was a synthesis for the twenty-first century.5 While it overturned the nostrums of neoliberalism, notably with regard to the scale of government interventions, it was framed by neoliberalism’s legacies, in the form of hyperglobalization, fragile and attenuated welfare states, profound social and economic inequality, and the overweening size and influence of private finance. The fiscal response to coronavirus was a striking expression of combined and uneven development.

As tempting as the war analogy might be, it was not apt for the situation of 2020. The problem was not how to mobilize armies. The challenge was to demobilize the economy and keep people at home.

This was not the welfare state of old. Handed out to everyone below a certain income level, this was “welfare without the welfare state”—cash support, free of any intrusive, prescriptive, bureaucratic, paternalistic state apparatus.33 It was the kind of welfare that Milton Friedman might have supported, a stepping-stone toward a universal basic income as advocated by figures like Democratic Party candidate Andrew Yang. There were all sorts of things you could do with your stimulus check. You were free to choose.

Over the course of the first half of 2020, the German government, which issues debt at negative rates, looked forward to being paid 12 billion euros to hold the money of anxious investors.

So the most succinct answer to the question of how epic government deficits could be financed without driving up interest rates was that one branch of government, the central bank, was buying the debt issued by another branch of government, the Treasury.

Far from being a dangerous and regrettable liability, good quality public debt was indispensable fuel for private finance.

The future challenge laid down by 2020 seems clear. Either we find ways to turn the billions invested in research and development and futuristic technologies into trillions, either we take seriously the need to build more sustainable and resilient economies and societies and equip ourselves with the standing capacities necessary to meet fast-moving and unpredictable crises, or we will be overwhelmed by the blowback from our natural environment.

What has made central bankers into the exemplar of modern crisis-fighting is the vacuum created by the evisceration of organized labor, the absence of inflationary pressure, and more broadly, the lack of antisystemic challenge.

It turned out that in the world of market-based finance, no asset is truly safe unless it is provided with the ultimate backstop.

Can it go on? There is no fundamental macroeconomic limit that anyone can discern. The question rather is whether technocratic governance can keep up and whether society and politics can handle it. Can it be democratized? If not, can it at least be legitimated? And can we find ways to absorb or offset the inequalities that this growth model produces?

The dollars flushed out into the world economy in 2020 enabled a remarkable display of autonomy on the part of the better-placed emerging markets.

Today the global economy is stabilized at many points. Increasingly, it is decentered from the West. This creates a problem of perspective. What to observers in the West may seem like fundamental roadblocks to further globalization—the increasing difficulty of brokering trade deals, for instance—may have no more than local significance. In the most important growth nodes, trade and investment are continuing apace.

In 2020, the most violent of these force fields was in the wider Middle East—the augmentation of the Saudi versus Iran axis by the UAE on the one hand and Qatar and Turkey on the other. Their wars and proxy wars, spiraling out of the wreckage of U.S. and European policy in the region, have brought misery to tens of millions of people in Libya, Syria, Iraq, and Yemen.

the GOP is no longer a party with a vision of government either in the long or even the short term. It has revealed itself as a vehicle for the undisciplined pursuit of particular interests and the expression of affect rather than considered national policy.

In light of the experience of 2020, it is not obvious whether America and the world have more to fear from a unified American government subject to risk of capture by the nationalist right, or a more incoherent American regime in which key levers of power remain the purview of functional elites, globalized interests, and modernizing coalitions in key centers like New York and Silicon Valley.

For all the enthusiasm surrounding the early months of the Biden administration, the haunting question remains: Is the United States as a nation-state capable of responding in a coherent and long-term fashion to the challenges of the great acceleration?

The chief countervailing force to the escalation of global tension in political, economic, and ecological realms is therefore crisis management on an ever-larger scale, crisis-driven and ad hoc. This may lack the grandeur or ambition of transformative politics, but it is not without historical consciousness or consequence. It is the choice between the third- and the fourth-best options, and as such, it really matters.