just asking questions

A Historian of Economic Crisis on the World After COVID-19

The future’s so bright I’ve gotta wear goggles. Photo: Kevin Frayer/Getty Images

In March, history broke into our house, and ever since, we’ve been cowering in panic rooms, wondering what our home will look like when the mad thief is finally through.

Or at least this is how living in the COVID era can feel. We know that an unprecedented economic cataclysm has rippled across the globe. But the precise consequences of this catastrophe — for the global economy, geopolitics, climate change, and our own little lives — remain opaque.

If anyone can discern the outlines of what’s on humanity’s horizon, it may be Adam Tooze.

Tooze is a leading expert on how economic crises have remade the modern world. His books have elucidated the role that fiscal quandaries played in bringing the Nazi regime to power and have charted the globe-spanning, geopolitical consequences of the 2008 crash. Intelligencer spoke with the economic historian this week about how the COVID-19 crisis is upending economic orthodoxy, his nightmare scenarios for the post-pandemic world, and whether the Cold War ever ended, among other things.

The COVID-19 crisis has sparked a lot of anxious introspection as we all try to figure out which parts of our model of the world still hold, and which parts the pandemic has discredited or destroyed. But even before the crisis, a central theme of your writing concerned the various ways in which geopolitical elites were already operating off of a set of ideological assumptions that had congealed in the 1990s and already gone rotten by 2008. What did you see as the most pernicious, outdated assumption shaping global politics before COVID? And to what extent is the present crisis awakening policy-makers to the obsolescence of that idea?

This response is a little obvious, but I think it’s the householder analogy about the limits on deficit spending, which was one of the absolutely key elements of that consensus of the 1990s. This idea that there are hard-and-fast limits to debt sustainability and that governments that spent too much and ran large deficits would face the wrath of the all-powerful bond market. That story suited a wide range of opinion; it could be used to describe the workings of global capitalism or to indict them. For better or worse, though, it just appears obsolete.

Its obsolescence became glaringly apparent during the 2008 crisis. But by 2010, the advanced economies nevertheless reverted back to austerity. Now, in this crisis, it has once again proved possible for large economies with credible central banks to borrow on an epic scale without suffering financial-market disruption. And this is because of a dirty little secret about very large holders of private capital: In moments of crisis, they’ve got to put that capital somewhere. And where they always end up putting it is government debt because that’s the safest port in a storm. That may seem like a technical point. But I think it bears on the much broader question about what the limits on state spending in a crisis actually are. And I think if 2008 had not already demonstrated that government debt is the only game in town at the moment of maximum crisis, 2020 has really driven it home. And so there is little difficulty in finding financing for government action.

Given this, one has to ask why this idea of hard fiscal constraints keeps coming back. And I think one has to be quite clear about the political dimension, about the kind of politics that motivate a return to austerity. And that is the thing that we have to worry about most — both in the near future, across the advanced economies, and right this moment in the United States as Congress rankles over the next essential phase of life support for the U.S. economy.

But this lesson about the fiscal capacity of states in times of crisis applies more broadly. Most emerging market economies have demonstrated a remarkable capacity to cope with the crisis and mounted a very considerable fiscal-policy stimulus. Some have even engaged in forms of quantitative easing. And so they’ve refuted the most apocalyptic vision of globalization, which would deny them this kind of agency. That, to me, is the single most important break in the ideology of the 1980s and 1990s. Does that open the door to a more progressive politics? Of course it might. But it would take politics to exploit that opportunity.

Why has the balance of power between governments and bondholders shifted so dramatically? Or was the figure of the “bond-market vigilante” — who would punish states for excessive spending by dumping their debt — always a bogeyman in the developed world? 

To be honest, I think we’re all still struggling to figure this out. To offer a definitive answer would not only be conceited on my part; it would fail to capture the slightly shocking historical novelty of the situation. I feel like we’ve all just stumbled out of a cave into this wide-open space and are still blinking in the sun.

But if you ask me to put my finger on it, I would point to three elements. One is the political economy of inflation: the notion that democratic politics tend toward inflation. That was at the core of the entire complex of thinking around both central-bank independence and this idea of aggressive capital markets that defend the interests of wealth-holders against publics that are always trying to take that wealth away, whether through taxes or inflation. But the engine of this political economy was class antagonism. And that’s gone now because — as Warren Buffett has said — the class war is over, and his side won. And that changes the entire game.

In other words, back when workers claimed a larger share of income gains, the economy was more vulnerable to inflation. Which is ostensibly because working people spend more of what they earn than rich people do: Give a dollar to a Dairy Queen employee, and she will spend it on groceries; give that dollar to Warren Buffett, and he’ll invest it. So, an economy in which workers enjoy relatively high wages will be one more susceptible to the phenomenon of too many dollars chasing too few goods, which leads to rising consumer prices. And since deficit spending puts more dollars into circulation, in a high-wage economy, deficits will be more likely to trigger inflation. Is that the sort of mechanism you’re describing?

That is one aspect of it, yes. But there is a separate, related element, which is that central banks have shifted position. There’s the famous moment in the early 1990s, when Federal Reserve chair Alan Greenspan confronted the Clinton administration.

When he warned Clinton that cutting the deficit was a prerequisite for bringing down interest rates

Yes. This is the moment that generates the famous James Carville quip about how he used to think that he wanted to be reborn as the president or the pope or a baseball hitter, but then he realized that it was better to be the bond market, since the bond market can intimidate anybody. Well, the bond market’s power to intimidate presidents depended on a particular configuration of force within the American state apparatus, of which the Federal Reserve — and its antagonistic relationship to progressive politics (which goes back to Paul Volcker in the late 1970s) — was a key element. Because if you have a proactive central bank aligned with the government — in a state like the U.S., which has a great deal of sovereignty over monetary affairs — then that bond market will not be able to veto the government’s fiscal policies because the central bank can outbid them. If the bondholders want to protest the government’s fiscal profligacy by selling their Treasuries, fine — the central bank just buys them. So if Greenspan had been willing to do that, the Clinton administration wouldn’t have been constrained in the way that it believed itself to be.

And then, the third element of the story is the overall balance between saving and investing in the global economy. Now this is an area that’s opaque and hugely contested among economists. But something did clearly shift in that area. Whether it’s a fall of investment demand in advanced economies, or the accumulation of excess reserves in the emerging market economies, or the specific reserve strategies of China — which has injected huge demand into the American bond market — all of those features add up to a quite fundamental shift in the balance of demand and supply of safe assets.

And before the COVID crisis hit, the only entity supplying global investors with the trillions of dollars’ worth of safe assets they demanded was the United States. So that creates a very different balance of power between the federal government and bond markets.

The European Central Bank, meanwhile, has been hoovering up Europe’s sovereign bonds to the extent that there is a negative supply of sovereign bonds. In other words, the supply of bonds is constantly shrinking, even as the demand for safe assets among European savers is expanding. So what are German pension funds going to do with their money? You end up in a situation in which the German government is paid to borrow, which fundamentally shifts the balance of power.

So I would single out those three elements. But this is very much an experiment in progress.

It seems like there’s a big distinction between those first two elements. The first suggests that governments really did face hard fiscal constraints but that those constraints were contingent on a certain balance of class forces. The second suggests that the constraint was actually self-imposed (or, more precisely, Greenspan-imposed) and fundamentally political.

I completely agree. They’re related but distinct. I would also separate the global balance of savings arguments from the political economy of labor bargaining arguments. There are at least three distinct registers in which this conversation is being had.

The sense of flux is quite something. And I think it’s characteristic of this moment. The single thing that is most different from the ’90s is that orthodoxy just doesn’t seem very strong right now. We’re in a state of ferment. Much more so than in 2009, when people were just so panicked; they’d never seen quantitative easing before, and it was all a bit strange and weird. And then we kind of regressed to sadly conventional fiscal policy by 2010. Which could happen again. But at least in intellectual terms, the current moment is quite different from what it was in 2008.

Another distinction between 2008 and the present crisis is that the former arose out of dysfunction in a wholly artificial realm — the global financial system — whereas the current emergency emerged out of the interaction between the global economic system and the natural world. Through the advance of factory farming, urbanization, wet markets, and globalization, humanity has built a machine for rapidly developing and dispersing new infectious diseases. So, unlike 2008, one could argue that this is an economic crisis born of environmentally reckless industrial practices. Given that aspect, do you think it makes sense to understand this crisis as a preview of the kinds of shocks that climate change is likely to produce?

This subject is actually top of mind for me because I started the year immersed in a book about political economy, energy, and climate. And then I found myself totally blindsided by this and was forced to pick over the ruins of my own thinking. And I realized, like, Oh shit, the emerging-diseases paradigm is itself the product of the 1970s and 1980s, when big climate science got going. In fact, the first big international climate conference in 1989 takes place in the same year as the big Rockefeller University meeting on the emerging-diseases paradigm, which frames the problem exactly as you’ve just done.

If you go back to the ’70s, it’s actually epidemiologists who are central in developing these core ideas of climate politics, such as the interrelationship between the local and the global, because pandemics are always local, and yet, by definition, global (hence, pan-).

So what in January 2020 seemed to me like distinct preoccupations — when you’re a “climate political economy” person, you spend your time thinking about capitalism and Exxon, not epidemiology and wet markets — these things were in fact profoundly related. So, for example, those of us working on climate political economy had been developing this scenario we call the “climate Minsky moment” — a market collapse triggered by a sudden devaluation of key assets as a result of climate change and/or of a governmental response to climate change.

Well, in a sense, this is precisely what COVID triggered in March. We saw a huge revaluation in assets, not as a result of the epidemic per se, but as a result of the reaction to the epidemic by business actors and national governments.

As a historian of the early 20th century, I think I had been predisposed to understand the Anthropocene as a war of attrition. But it turns out this challenge also has an element of blitzkrieg: In a timescale of days, it can mess with you irrevocably. And you could find yourself in a nearly untenable position if you do not act wisely on a timeline of hours. That’s a game changer. It means we need a whole different approach to the problem. And it’s not a matter of resources. It’s a question of alertness, of speed of reaction.

You know, the International Energy Agency published a report in June calling for a $3 trillion green-energy program to see us out of the economic crisis. What really amazed me, given the moment that we’re in, was the scale of that — $3 trillion. Collectively, we’re thinking of spending that kind of money right now on unemployment and life support for the global economy all the time.

But then you look at the amount that’s being invested in the vaccine or in other types of public-health measures, and they are one — if not two — orders of magnitude smaller. I think the total amount of money being spent globally on vaccine development right now is on the order of 30 to 40 billion. What is the economic value of a vaccine right now? It’s clearly tens of trillions of dollars, at least if you had one that allowed us to restart the global economy. And yet what we’re spending is tens of billions.

So there’s still some weird disconnect in our valuation of public health. Lord Stern said climate change was the greatest market failure of history. I’m not sure he’s right. It’s clearly a huge market failure. But we may have just found a bigger one.

Do you think that the COVID crisis has moved us closer to correcting that smaller, world-historic market failure? One could imagine the present crisis awakening elites and mass publics to the urgent necessity of decarbonization, the exorbitant costs of ignoring tail risks, the inescapability of our species’ collective interdependence, etc. But it’s also easy to see how, in a world of mass unemployment and geopolitical instability, governments might come to see climate change as an afterthought. 

I think, overall, what it’s tended to do is to reinforce what we already understood as the bifurcated and deadlocked global politics of the Anthropocene. There are governments, polities, and discursive networks that are onboard with taking the Anthropocene seriously as a problem and committing to addressing it as a major object of policy — broadly speaking, these are the Asians and the Europeans when we’re talking about big actors in the G20.

And then there’s the question mark of the United States and its allies. There’s a remarkable overlap between the climate-denying coalition and the COVID-denying coalition, the most obvious axis being that between the two biggest states in the Western hemisphere, Brazil and the U.S. And, of course, it isn’t really all of the United States. It’s the Republican Party and its adjuncts. The Republican Party seems like a local problem, but they’re actually a global one. In the same way that a local problem in Brazilian politics, when it concerns Amazonia, is a global problem.

In the U.S., I think what we’re seeing is that everything is at stake in the coming election, the aftermath of the election, and, more broadly, in whether progressive forces can assemble the coalition necessary for turning the United States into a cooperative actor in managing the risks of the Anthropocene. Which it currently is not.

In Europe, everyone can connect the dots. Somebody like Merkel or Macron has no difficulty saying, “Obviously, this pandemic is anthropocenic. Does this make acting on climate any less urgent? No, it clearly doesn’t. It demonstrates what the tail risks are. So we need to move forward, and this is a good opportunity to do it, since we need work creation and investment to deal with the unemployment problem. And if we thought flying around in cheap airlines was a problem for the climate, it turns out it’s also a problem for pandemics. And so we need to rethink the whole tourism complex, blah, blah, blah.” These are not difficult dots to join. And sophisticated governments all over the world are joining them.

The other big question lies in China. In the 14th five-year-plan, does coal make a catastrophic resurgence? Because, of course, we’re now also dealing with a cross-cutting national-security issue, and coal has become a comfort blanket of Chinese strategic energy planning because they’ve got lots of it at home, and it makes them feel secure. And so, the more international pressure on China ramps up, the easier it is for advocates of coal in China to make the case against Chinese advocates of green-energy policy.

You’re saying that the more threatened Beijing feels by the United States, the less likely it is to pursue sustainable development because they have lots of coal at home but would need to rely more on imported energy to make a green transition? 

I can hear the puzzlement in your voice. And there are intelligent advocates of green energy in China who say, you know, if you’re looking for energy security — and if you’re interested in security in general — then ours is the card to play because China is totally dominant in wind and solar technology. So what’s not to like?

But I think we have to reckon with the fact that Chinese politics is politics too, right? China isn’t some hyperrational decision-making mechanism in which only optimal solutions are ever adopted. There is a hawkish constituency of heavy industrial interests in China; or, rather, there’s a hawkish national-security lobby in China, and there’s a coal lobby, and the two overlap in the present circumstances. And that’s really unfortunate for the world.

Ramping up coal would not be a forced move. It doesn’t make all that much sense. Sure, there are some rare-earth issues you’d have to address for a green transition. But China is already the world’s largest producer of rare earths. It’s not like Latin and Central American suppliers won’t give them whatever else they need. And it’s quite well understood by a substantial part of the Chinese state that there’s no viable 21st century in which China is not part of the climate solution. But we need to understand that there are politics in China. We ask everyone to soak up the fact that the United States is this deliriously politicized zone, then assume that everyone else is just running the numbers.

While we’re on the subject of the great powers’ mutual delirium: In a recent essay on the U.S.-China relationship, you suggest that the present tensions with China are fueled less by “social and economic interests” than by a long-standing ideological rivalry and its attendant national-security implications – and that, in fact, the rise of Communist China indicates that the Cold War never actually ended. But it seems to me that the ideological and national-security stakes of the U.S.-China conflict are much lower than those of the conflict between the U.S. and the Soviet Union. There aren’t many radicals launching insurgencies in South America in the name of Xi Jinping Thought or sympathizers of the CCP in the upper ranks of America’s labor unions. The Chinese regime is not calling for an international workers’ revolution; to the contrary, it wages vicious campaigns of suppression against domestic labor unions in order to maintain a grossly inequitable income distribution. So, I don’t see China posing a plausible threat to the American homeland or America’s capitalist regime. But it does threaten our share of global GDP and privileged position in international value chains.

So I would happily concede that the Chinese Communist Party, in its current form, is not the same as, say, the Khrushchev-era Soviet Union. But I think I would insist on three things. First, the leadership of that party emphatically interprets, presents, and thinks about (as far as we’re able to tell from the outside) its situation, problems, and strategies in terms of the continuous elaboration of the Marxist cannon. The historian Stephen Kotkin makes this argument about Stalin — that, while he was no one’s idea of a good Marxist, you really can’t understand him unless you understand the twisted, weird, stunted version of Marxism that made the guy tick. And I think that’s true about the current Chinese leadership, too.

It isn’t a global revolutionary movement anymore. But they are self-consciously the descendants of that project. And as such, their worldview is fundamentally alien to — and distinct from — that of Europe or the United States or anyone else participating in the liberal project. There is indeed a huge gap in our understanding of what the state is for, what the rule of law does — how it does and does not constrain things. And that is a difference that matters.

And then the third thing I would say is that, though it is true they are not a revolutionary project in the sense of Cuba in the 1970s — or China itself in the 1960s — the contemporary Chinese Communist Party is de facto more transformative of the circumstances of the global political economy than those revolutionary projects, and transformative in ways that America is quite right to perceive as threats to its hegemony.

Relatedly, while I recognize the force of the recasting you’ve just offered, I think you have to reckon with the autonomous significance of the American security state, which is separate from the general American interest in global GDP share or something like that.

There was a moment — and it didn’t happen under Trump; it happened when Hillary Clinton was secretary of State — when that part of the American government machine that thinks in terms of F-35s and atomic weapons and nuclear fleets shifted its focus toward China. And that constitutes a source of conflict that is not reducible to economics. It draws on the conception of the economy as a national resource base, and is of course entangled with particular companies in the military-industrial complex, but it is distinct nevertheless.

There are competing factions within the American state apparatus. And who gets to call the shots in a domain of policy at a given point of time can shift. And I would insist there’s been a decisive lurch toward the dominance of national security on China policy.

I think it’s quite reasonable to say that, coming out of World War II, American business was essentially integrated into the American government. It’s not fatuous to imagine that much of the Marshall Plan was directly organized around securing markets for certain sorts of American businesses, which were basically running the government at the time. But that’s an effect of a particular type of articulation, which comes and goes with time. With regard to China right now, there is a remarkable discrepancy between the corporate planning of the companies that dominate the S&P 500 and the American security Establishment.

Who should we be rooting for in a conflict between those forces? Or, put more precisely, if one subscribes to your prescription for the U.S.-China conflict — which is to pursue détente while using American influence to nudge Beijing toward green energy — are the aims of Corporate America or the Pentagon more compatible with that endgame? Or will those who favor peaceful, ecologically sustainable coexistence with China need to prevail over both?

One of the things that I would fault about the Green New Deal vision is that it didn’t really spell out who its allies were going to be in the business community. Or, for that matter, in the military. And I think that’s a major problem because you end up impaled on the kind of conflict you’re talking about. I don’t say this out of any enthusiasm for Davos-style business leadership on climate, but just out of an appreciation for what successful political-economic transformation has entailed historically. And it clearly involves coalition-building in which you grab on to particular bits of the security state, on the one hand, and also various factions of business that have developed a long-term strategic interest in transformation (which supersedes the imperative of immediate profit maximization). And the polarity you outlined is only so stark right now in the United States. In Europe, it’s not difficult to envision rather powerful business coalitions. Volkswagen is hell-bent on precisely a green, transformative, decarbonizing détente with China. I mean, that’s what the future of VW hinges on. And VW’s junior partner in that project is Ford. So there are even bits of American capital that are signed up to this by way of another government. Whereas the American government seems bent on a massively retrograde watering down of emission standards, which doesn’t help Ford advance its long-term strategic interest. The same is true with the energy sector. I mean, the big European oil majors are now very concertedly planning for futures beyond oil, and even beyond gas. BP, bless its cotton socks, was thinking about this in the late 1990s. If Al Gore had become president, it’s really easy to imagine a federally led, Democratic Party–brokered effort to create a coalition of green business interests. Just think of this as the Mike Bloomberg option.

It’s not transformative in any fundamental social sense. But it’s entirely serious about decarbonization. Because it’s a win-win, quite genuinely. It’s more efficient, it’s cheaper, it’s the future, and your grandchildren will do better if you go down this route. It’s kind of a dumb calculus that takes you in a different direction right now.

I think because the Green New Deal project was formulated so strongly from the left — and in the context of a Black Lives Matter moment — it centered itself on a coalition of the marginalized, what they call front-line communities. Which is fine. But it’s also a way of picking a fight with every conceivable interest that’s actually got power.

You’ve spoken a lot recently about the ways that historical analogies are routinely misused, noting that the present crisis is not in fact a sequel to 1914, 1929, or 1941, but rather “something new under the sun.” Given the extreme novelty of our present circumstances, both proximate in terms of the COVID crisis, and general, in terms of the Anthropocene, what is the utility of history? How can historical knowledge be productively brought to bear on the challenges of the present? Or is your vocation a literary project — good for memorialization and remembrance but not as a generator of applicable insights?

I believe we are living in historic times. And so the challenge for me, as a historian — as it is for you, as a journalist, or any wide-awake contemporary — is to figure out what the hell is going on. That’s the quintessential task of the historian. The task is not, you know, knowing a lot about a data set of things that happened in the past so that you can spot the analogies and then tell everyone how it really works. That may be one way of thinking about what history does. But it implies all sorts of weird assumptions about how history works — assumptions that are, to my mind, repeatedly, catastrophically refuted by the protean quality of what we call modern history.

From the moment we decided to call it history with a capital H, history has consisted, more or less, of one unbelievable, intellectually indigestible shock after another. And so the job of the historian is to stick with the project. The job is not to be the antiquarian — not to be the keeper of the data bank that will tell you from the wisdom of all previous experience what will happen now — because the wisdom of our experience should tell us that the relationship between past experience and the present is problematic fundamentally.

I’m with the spirit of your earlier question — I take capitalism to be a fundamental driver of modern history. There are several. One is the interstate power and violence dynamic in history; another is the logic of accumulation. These are profoundly dynamic, explosively expansive vectors. Our job is to stay awake to that fact and to stretch our minds as quickly as we can to encompass what is going on in front of our eyes — not to distract everyone by saying, “Oh, well, this reminds me dimly of something that happened in the early modern period.” My impulse isn’t to tell you that we’ve seen all this before; it’s to say we ain’t seen nothing yet.

When you’re in a pessimistic cast of mind, which developments of the COVID era do you find yourself dwelling on, and what grim scenarios do you imagine them portending? And then, when you’re in better spirits, what causes for optimism do you see?

I do think that the American project, the American experiment, is on the rack right now. We don’t know how things are going to go in the next 90 days. We really need to know whether this electoral process will go smoothly and whether it will deliver what it is supposed to, which is a decisive vote of the American public that confirms somebody to the presidency and thereby demonstrates the capacity of this place to govern itself.

And there is a very distinct possibility that that won’t happen. Or that the decision will fall in favor of the candidate and party that has demonstrated its incapacity to govern — and has in fact demonstrated its capacity to drive this country to ever-greater degrees of ungovernability. I never thought I would live under curfew. I’ve lived under curfew now in New York. It was insane. It made me indignant and outraged, and I didn’t think I would ever experience that.

The counterpart to the American election, globally, is obviously Hong Kong. They, too, have elections. And the brutality Beijing is capable of is shocking. For all of my advocacy for détente — in fact, because of my advocacy for détente — I’m haunted by memories of the 1930s and 1940s and the naïveté of many people who advocated for collective security and Popular Front collaboration with the Soviet Union, all for very good reasons that I would have certainly endorsed. We have to reckon with what we now know about the violence of which the Soviet Union was capable. And we have to reckon with what the Chinese Communist regime is capable of too. So those are the two advanced economy problems that are most on my mind.

I recently had the chance to be involved in conversations with a bunch of colleagues in South Africa. If COVID were to become yet another devastating shock to the developmental possibilities of sub-Saharan Africa, in terms of the humanitarian crisis, that has the makings of a truly catastrophic drama. Already, the economic and social news out of South Africa is biblically bad. They started the year with a 30 percent unemployment rate. They think they will have a 50 percent unemployment rate in the townships by the end of the year. Coming of age when I did, the end of apartheid and the advent of multiracial democracy in South Africa stood out as one of the great triumphs of humanity. And if South Africa becomes a basket case, then this is a disaster of traumatic proportions.

But the good news is … (?)

Oh, right. Hopeful signs. Well, let me try. At the risk of sounding trite, I actually do still marvel at the lockdown. And this actually goes back to our earlier discussion — to the question of the extent to which history is determined by the capitalist pursuit of profit. I’m enough of an economic historian to think that it’s a hugely important variable. But there was something really extraordinary that happened in March, in which nearly the entire world — individually and collectively — made this decision to shut down the economy to preserve human life. Politicians and businesses and citizens and trade unions — the whole mass of collective actors — made this decision. The vast majority of humanity was subject to it.

And it may have been a catastrophic mistake. I don’t think we can rule that possibility out. We can’t run it again. We don’t know what the consequences would have been. We’ve ended up with what we’ve ended up with. But part of what we ended up with was this collective decision — and as costly and painful as it was, there’s something truly spectacular about that moment.

And then, of course, all hell breaks loose. Inequalities make themselves dramatically felt. We can’t hold it together. It’s a shitshow. None of that struck me as surprising. But March was a different story.

Adam Tooze on the History That the Coronavirus Is Making