Shutdown: How Covid Shook the World's Economy

by Adam Tooze

It was the most spectacular surge in debt ever recorded in peacetime. In conventional preconceptions, a flood of public debt on this scale presented a giant challenge to the balance between private saving and private investment. Government borrowing would suck scarce savings out of the economy, driving up interest rates, thus crowding out private investment. This was the economic complement to the naive conservative vision of the welfare state as being for poor people and the government as being a racket run by civil servants at the expense of the rest of society. What fiscal policy gave, the financial squeeze would take away. If this logic held water, 2020 should have witnessed gigantic crowding out. In fact it was the reverse. A huge surge in debt coincided with a historic collapse in interest rates for both public and private borrowers.