Shutdown – How Covid Shook the World Economy by Adam Tooze

October 19, 2021 

Book Review by Michael Roberts

Adam Tooze has a new book out, Shutdown.  Tooze is the liberal left’s current favourite historian.  His previous book, The Wages of Destruction,  won the Wolfson Prize for History and the Longman-History Today Book of the Year Prize. He has taught at Cambridge and Yale and is now Kathryn and Shelby Cullom Davis Professor of History at Columbia University.  He is a prolific writer of articles in the elite press; a mine of information and data on his Twitter account and his Chartbook site.  And of course, he is on SubStack.

I reviewed his last best-selling book, Crashed.  After singing the praises of Tooze’s account of the global financial crash and the ensuing Great Recession, I made the point that “Crashed provides us with the most granular and fascinating account of the crash and its aftermath.  It powerfully shows what happened and how, but in my view does not adequately show why it happened.  But maybe that is not the job of economic history, but that of political economy.”

There are two critiques there.  The first is Tooze’s historical method: he decries ‘historicism’ as such and aims to provide a history of ‘the moment’, as it happens.  That can offer an excellent survey of who does what and when, but it does not serve well to understand why.  And second, although Tooze is an historian of events ‘as they happen’ (or immediately after), this approach has a false ‘neutrality’ in its analysis.  For Tooze is not ‘neutral’ or ‘objective’ at all – and after all, nobody can be where social interests and viewpoints are often contradictory.

So beneath the ‘history of the moment’ lies an analysis of events that is really based on what Tooze calls ‘liberal democratic’ ideals, politically and on Keynesian theory and policy, economically.  Tooze sees himself as offering a viewpoint “of a left-liberal historian whose personal loyalties are divided among England, Germany, the “island of Manhattan” and the EU.” (Tooze, ‘Tempestuous Seasons’, London Review of Books, 13 September 2018, p. 20.)  Also: “the political intellectual tradition, which I personally feel attached to, which is left liberalism of the British variety.”  And more:“I’m a confirmed liberal Keynesian in my broad politics, and my understanding of politics and the way expertise ought to relate to it, and the operations of modern democracy.”

On the whole, Tooze sees, for all her faults, that the US is on the side of the angels along with Western Europe, in defending the ideals of ‘democracy’ against the forces of authoritarian rule from the likes of Russia, China, Turkey etc. Perry Anderson (Anderson-NLR-119-1.pdf points out that Tooze’s book, Wages of Destruction argues that Hitler saw America as the main enemy of Nazi Germany ie the US was the force for democracy against fascism.  And yet all the evidence suggests that Hitler’s main ambition was to crush the Jewish Bolshevik conspiracy and, from the start, looked to invade and defeat Stalin’s Russia.

When it comes to the economics, in Crashed, we are asked to accept that, even though the actions of the US administration and the EU were full of holes, in the end they delivered in shoring up the system and avoiding a meltdown into a deep depression.  Yes, the draconian measures imposed by the Troika on Greece were terrible, but Tooze says nothing about Syriza’s capitulation to the Troika.  For him, there was no alternative but to ensure the survival of the EU as part of the liberal democratic order.  As he wrote: “Left-wing hostility to the pro-market character of the EU and nationalist hostility to Brussels’ united to deliver a profound shock to Europe’s elite. ‘Whatever the rights and wrongs of the constitution, popular democracy had asserted itself’.  Really?  Have the ECB and the EU Council mended their ways?

In Shutdown, Tooze examines the unprecedented decision of governments around the world to shutter their economies in the face of pandemic. “The virus was the trigger,” writes the author. But other elements were at play, including a serious slowing of global economic growth, a rise in nationalist and authoritarian regimes around the world, and what, in effect, was a new cold war with China. In other words, the agents for destabilization were myriad well before Covid-19 arrived. Tooze calls this ‘polycrisis’, to describe this multipronged series of failures of imagination and governance.

Tooze moves fluidly from the impact of currency fluctuations to the decimation of institutions–such as health-care systems, schools, and social services–in the name of efficiency. And he shows how no unilateral declaration of ‘independence” or isolation can extricate any modern country from the global web of travel, goods, services, and finance.  No country is an island when it comes to a virus, trade and supply chains – as we currently see.

The crux of Tooze’s message is that at the onset of the Covid-19 crisis, governments found themselves ‘flying blind’: none of the economic and political theories that purported to be guides for public policy proved to be of any use and were rapidly abandoned. Instead, driven by the need to “do something”, and be seen to “do something”, governments innovated.

Tooze recounts what public figures said in the very early stages of the pandemic. On February 3rd 2020, Boris Johnson, Britain’s prime minister, warned of the danger that “new diseases such as coronavirus will trigger a panic”, leading to measures that “go beyond what is medically rational, to the point of doing real and unnecessary economic damage”. Within two months, he had locked down the British economy. On February 25th 2020, Larry Kudlow, an adviser to President Donald Trump, said that “we have contained this”, cheerfully adding: “I don’t think it’s going to be an economic tragedy at all.”

Tooze confirms what this blog and other analyses both from health and economics have shown: that decisive government action, such as lockdowns and prudent and socially responsible behaviour by citizens, reduced mortality and economic damage, the behavioural balance between these being roughly one-third governmental and two-thirds at the level of citizens.

The politicians may have been disastrous, but the institutions of the liberal democratic order compensated.  Whereas the financial crisis of 2008 showed the weakness of the world banking system, Tooze writes, the shock of the pandemic spoke to the weakness of asset markets as a whole, requiring entities such as the US Treasury to assemble “a patchwork of interventions that effectively backstopped a large part of the private credit system.”  Apparently it helped that Steven Mnuchin, “the least ‘Trumpy’ of the Trump loyalists,” led those Treasury efforts. It is strange that Tooze has a good word for this hedge fund multi-millionaire, who said in April 2020: “This is a short-term issue. It may be a couple of months, but we’re going to get through this, and the economy will be stronger than ever,”

Tooze also has kind words for the central bankers.  They were quick to grasp the implications of the disease. “In 2008 there had still been a note of hesitancy about central-bank interventions. In 2020 that was gone,” he writes. “Governments ended up backing this monetary stimulus with fiscal policy. The $14trn-worth of support they had provided by the end of 2020 was much larger than the stimulus they had offered in the wake of the global financial crisis.”

The business community also responded to the central bankers by apparently rejecting the policies of austerity. So when Joe Biden assumed the presidency, he pushed for big-dollar measures, which corporations supported, to jump-start the economy —with the proviso, Tooze notes, that Biden dropped his push for a $15 minimum wage.

It is an odd conclusion to reach about the policy response to the pandemic.  Did central banks act to save people’s jobs or to shore up financial markets just as in 2008?; will the supposed fiscal largesse introduced in the 2020 slump be sustained in the rest of this decade?: are austerity policies really over?  In the UK, the current Chancellor has already cut back subsidies to workers and businesses and is preparing regressive new taxes to fund government spending.  In the US, Biden’s supposedly large infrastructure programme has been cut back by Congress and anyway will be financed by significant tax rises over the next five years.  Keynesianism is not really making a comeback.

Yet Tooze’s instant history goes through the prism of Keynesian theory.  Tooze is explicit about this.  In a review of Geoff Mann’s excellent demolition of Keynesianism, In the Long Run We Are All Dead: Keynesianism, Political Economy and Revolution (2017), Tooze defines the distinctive virtue of Keynes’s outlook as a “situational and tactical awareness’ of the problems for liberal democracy inherent in the operations of the business cycle in a capitalist economy, requiring pragmatic crisis management in the form of punctual adjustments without illusion of permanency.”

He even argues that China’s huge state-led investment during the Great Recession, amounting to over 19% of China’s GDP, was an example of Keynesian policies in action and commands Tooze’s unstinting admiration. “This was the largest Keynesian operation in history, a mobilization of resources on a scale that Western economies had only ever achieved under the pressure of war. Its global impact was decisive. ‘In 2009, for the first time in the modern era, it was the movement of the Chinese economy that carried the entire world economy”. 

I have argued elsewhere that this claim for Keynes is not supported by the evidence:  China’s state investment, run and operated by state banks and state enterprises, bears no relation to Keynesian macro policies.  Moreover, China’s avoidance of a slump did not ‘save capitalism’ in 2008-9; the Great Recession remained the widest and deepest slump in capitalism since the 1930s – until the pandemic slump of 2020.

In Crashed, the global financial crash was the result of the deregulation of the banking system, financial greed and incompetent authorities.  For me, all these were just symptoms or immediate catalysts of the underlying causes in the capitalist economy.  In Shutdown, we are again offered same Keynesian solutions to the pandemic slump: fiscal and monetary largesse.

As Tooze says in an interview with Tyler Cowan, the neoclasscial mainstream economist, “Keynesianism, classically, of course, is a liberal economic politics. It believes in a multiplier, and the multiplier’s the be-all and end-all really of Keynesian economics because what it suggests is that small, intermittent, discretionary interventions by the state — relatively small — will generate outside reactions from the economy, which will enable the state to serve a very positive role in stabilizing the economy but doesn’t require the state to permanently intrude and take over the economy”.

Thus, there is nothing in Shutdown about needing to end the failure of markets in the pandemic. The banks and the tech and social media giants that have made trillions out of the pandemic slump are to remain as they are, while hundreds of millions globally have been driven into poverty.  It is not part of Tooze’s instant history agenda to “take over the economy”.

Shutdown – How Covid Shook the World Economy by Adam Tooze

Published by Allen Lane

ISBN: ‎ 978-0241485873