Shutdown: How Covid Shook the World’s Economy
By Adam Tooze | Allen Lane | $35 | 368 pages
In the early months of 2020 the Thai city of Lopburi was overrun by packs of aggressive, foul-smelling macaque monkeys. Swarms of the screeching primates wrestled over food scraps and forced their way into buildings. Large parts of the city were declared no-go zones, entirely conquered by the frenzied creatures. Locals barricaded themselves inside their homes. Others fled the city entirely.
Until that point, the peaceful coexistence of humans and monkeys had relied on a delicate arrangement: the monkeys attracted tourists to the city, and the tourists bought bananas to feed the monkeys. Like almost everything else in 2020, this system was upended by the deadly new virus that emerged in China in January. When the world economy ground to a halt in March and the tourists suddenly dried up, the monkeys lost their main food source. The resulting anarchy revealed the fragility of the foundations on which normal life in the city was sustained.
In Shutdown: How Covid Shook the World’s Economy, historian Adam Tooze tells this story many times over: in the Philippines, twenty giant cruise ships stranded in Manila Bay, cut off from the outside world; on the world’s oceans, as many as 400,000 mariners living in a giant floating quarantine; in Pakistan, low-paid garment workers locked out of their workplaces; in India, the biggest internal migration since Partition in 1947; in South Africa, rhinos pre-emptively dehorned to deter poachers emboldened by the absence of safari tours. Wherever you were in 2020, distant, seemingly incomprehensible economic forces brought some degree of misery, misfortune and disruption.
Why did this happen, and what did it all mean? Shutdown is an attempt to answer these questions, to make a pattern out of this mounting pile of disasters. Its sprawling, loosely chronological account carefully recreates the unfolding chaos that overtook our newsfeeds for much of the past eighteen months. It is avowedly a first draft of history, an effort to “cast a narrative frame over the tumult.”
As any of Tooze’s regular readers will know, his scope is always dizzyingly expansive. He writes everything books, ambitiously framed and global in perspective. All of his recent work is cast as “grand narrative,” he says, the better to “do justice to the momentousness and complexity of the shocks and transformations” — political, economic, environmental — “we are living through.” History has not ended. We are in the midst of several global crises. Like it or not, he argues, “we are in medias res.”
Tooze’s previous book, Crashed (2018), provided a thorough and at times head-spinning account of the financial chicanery that brought about the 2008 meltdown and the eurozone crisis that followed in its wake. And as he writes in Shutdown, it was these interconnected crises that most profoundly shaped the policy response to the Covid shock. When the bottom fell out of the global economy in February and March last year, governments and central banks responded on a monumental scale. The fiscal and monetary taps were turned on almost overnight. Austerity, the disastrous byword of the years after the global financial crisis, was nowhere to be seen.
Also unlike the 2008 crisis, whose most profound effects were felt in the advanced economies on either side of the North Atlantic, the coronavirus pandemic was the first truly global shock of the neoliberal epoch. At the height of the emergency in March and April 2020, a collective decision was made to shut down virtually the entire world economy. At one point, almost 95 per cent of the global population was under some kind of restriction of their daily movements, either by choice or by compulsion. The effects were felt in both advanced and emerging market economies. In China, at least 130 million workers were laid off or displaced, the worst labour market shock ever experienced by any economy in the world. It was, writes Tooze, a “crisis like no other.”
Such a crisis called for extraordinary responses. In March and April 2020, governments in advanced economies abruptly abandoned any pretence of fiscal rectitude and opened the purse strings in a way that would have been unimaginable just a few months earlier. The American CARES Act — the rescue bill passed by an unusually productive Congress after just two weeks of negotiation — provided tax cuts and extra spending to the tune of US$2.2 trillion, no less than 10 per cent of the country’s gross domestic product. This was deficit spending on a scale that dwarfed the already massive 2008 response, the biggest “slug of fiscal support” ever delivered to an economy.
It was not simply an American phenomenon. By January 2021, the International Monetary Fund estimated that the total worldwide fiscal effort had topped US$14 trillion. Like their counterparts in the United States, eurozone policymakers were pushed into uncharted fiscal and monetary waters. In July 2020, almost a decade after it was first proposed, the bloc finally agreed to collectively issue debt — eurobonds — to fund the recovery.
Not to be outdone, China, the world’s largest emitter of greenhouse gases, committed to net zero emissions by 2060. As Xi Jinping declared at the UN General Assembly in September, “Covid-19 reminds us that humankind should launch a green revolution and move faster to create a green way of development and life.” It was a remarkable moment. Pre-empting future Western pressure, writes Tooze, he “unilaterally opened the door” to global decarbonisation. Of all the radical new steps taken by governments in 2020, it may prove to be the most consequential.
More technical but no less momentous were the drastic interventions of global central banks. In March 2020, as asset markets collapsed, unusual turbulence in the market for US Treasury bonds — the “safe haven” asset that underpins the entire global financial system — forced the US Federal Reserve into radical action. After slashing interest rates to zero, the Fed pointed a fire hose at both public and private debt. At the high point of this bond-buying spree, it was monetising debt at the rate of a million dollars per second. Within weeks, it had bought up 5 per cent of the entire US$20 trillion Treasury market. As the meme of the moment put it, “Money printer go brrr.”
Tooze is one of the pre-eminent interpreters and most thoughtful critics of radical central bank policymaking since the global financial crisis, at least for those not versed in the arcane lexicon of macroeconomics and high finance. His output is prodigious. Recently, for example, he produced compelling long-form profiles of some of the key architects of the post-1970s global economic system: the central bankers Janet Yellen and Mario Draghi, and the influential economist and columnist Paul Krugman. Over the past fifty years, he observed, all have re-evaluated, if not dispensed with, their faith in the power of well-ordered markets to bring about equitable economic growth. Slowly and sometimes reluctantly, these high-powered centrists have inched their way “towards seemingly obvious political conclusions.”
This is a key insight. Faced with a cascading series of systemic crises, central bankers have been forced to experiment with increasingly unconventional policy tools. In 2020, in order to support the system, the US Federal Reserve bought both corporate and municipal bonds. Japan’s central bank bought equities. The Reserve Bank of Australia pegged short-term interest rates near zero, committing to buying as many bonds as it took to keep them there.
The effect of these decisions, if not their stated intent, was to allow governments and businesses to spend big in order to support their economies through the shutdown. Indeed, it was these drastic and somewhat technical actions — things like asset purchases, currency swap lines and “repo” agreements — undertaken by unelected and often unseen technocrats, that staved off an utter economic catastrophe in March and April. But as Tooze notes, you did not have to share the politics of the most conservative critics of loose monetary policy to understand their bewilderment: What were central banks doing? Did they have a mandate? Who was overseeing the central bankers?
In 2020, by necessity rather than design, governments and central banks essentially acted in tandem. This was a complete reversal of post-1970s thinking about fiscal and monetary policy, in which independent central banks were instructed to pursue price stability and inflation targets without recourse to government priorities.
The crisis-fighting measures unleashed in 2020 offered a glimpse of the true spending power of governments, particularly in the advanced economies. The massive, temporary expansion of the social safety net in the West was particularly revealing. In many parts of the world, poverty rates collapsed. Gross inequality in these societies had always been a political choice. On this point, Tooze cites John Maynard Keynes: “Anything we can actually do, we can afford.”
All of which raises the question: was this a turning point, the beginning of the end of the neoliberal age? Tooze is sceptical. The radical policy choices of 2020, he writes, were “Janus-faced.” On the one hand, they did reduce inequality, pull people out of poverty and reinvigorate left politics. But the “basic logic” of these fiscal interventions was always conservative. There was no redistributive impulse behind them, no coherent program for societal change. The actions of governments and central banks, he writes, were not Keynesian but Bismarckian: “Everything must change so that everything remains the same.” It was an ad hoc, top-down, crisis-fighting response with the thoroughly unrevolutionary goal of preserving the system.
For all of Tooze’s mastery of the technical aspects of global finance and its bewildering maze of acronyms, it is his framing of the events of 2020 within much grander narratives that makes his account both urgent and compelling. His project, developed and finessed in the years since Crashed, has been to deconstruct the political economy of the hyperconnected global market-based system that has been built over the last four decades — or to put it differently, to show how the attempt to outsource politics to the animal spirits of the market was itself a political project.
What the coronavirus pandemic has made frighteningly clear, however, is that this hyperconnectivity brings with it several unpredictable and systemic “megarisks,” themselves increasingly invisible and abstract: the mutation of a microbe in a virus, the melting of a glacier in Antarctica.
Tooze put aside another book about the climate crisis and the history of energy policy to write Shutdown. It is not hard to see why. Covid was the first global crisis of the Anthropocene, a textbook case of “blowback” from an increasingly unstable natural environment. And it is the most dramatic episode yet in what environmental historians call the “great acceleration,” the profound transformation of humanity’s relationship with nature over the past seventy years.
Meeting these environmental challenges requires “technoscientific” fixes, supported and implemented on a global scale. Governments, policymakers and other elites need to think and act globally to manage the risks brought about by hyperglobalisation, financialisation, interconnected global supply chains and air travel. Yet these same elites are “unable to grasp how to actually govern the globalised world that they have created.” In Tooze’s view, this obvious unwillingness to prepare for these risks is nothing less than “organised irresponsibility.” It is a collective failure to acknowledge the reality of the world we have built.
This is neoliberalism’s fantasy: that markets, left alone, will govern themselves. If nothing else, 2020 made it unmistakably obvious that there is no possible way of separating humans, markets and nature. It exposed how dependent the system is on the stability of the natural environment, and how ill-prepared modern societies are to cope with the future challenges of the Anthropocene. “The monkeys were here before us,” a Lopburi business owner told a reporter in July. “We have to adapt to them, not the other way round.” •
The publication of this article was supported by a grant from the Judith Neilson Institute for Journalism and Ideas.