Shutdown: How Covid Shook the World’s Economy. By Adam Tooze. Viking; 368 pages; $28. Allen Lane; £25
THE COVID-19 pandemic may be the starkest example of globalisation that history has ever provided. It was not just that the virus spread rapidly round the world. As governments reacted by imposing shutdowns, almost 95% of the world’s economies suffered a simultaneous contraction in GDP per head.
Even the millions of workers who have been furloughed from their jobs will have struggled to find the time to keep up with all the ramifications. So Adam Tooze, a history professor at Columbia University, has taken on the ambitious task of producing an instant history of the pandemic’s economic fallout. As with his previous book, “Crashed”, about the financial crisis of 2008 and 2009, Mr Tooze displays a remarkable ability to master the detail. And his reach is extremely broad. This is truly a picture of the global impact of the crisis; it covers the disruption in the financial markets, as well as the ins and outs of government policy.
For readers buffeted by the news, one advantage of this instant history is that Mr Tooze reminds them 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.”
Central banks were quicker to grasp the implications of the disease. As Mr Tooze notes, they acted not just on an unprecedented scale but with great speed. “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.
Developing countries, meanwhile, suffered much less economic damage from the pandemic than would once have been expected. Since 2000 emerging markets have largely avoided two important and connected risks, namely pegging their exchange rates to the dollar and borrowing in foreign currencies. This saved them from the dilemma that had dogged many in the 1990s: whether to impose high interest rates to defend their currencies or to devalue and risk bankrupting those companies and banks that had borrowed in dollars. As a result, many emerging-market central banks were able to cut interest rates in response to the covid-induced slowdown; their borrowing costs in the international bond markets spiked only briefly before falling back to where they were before the pandemic.
The financial markets were quick to appreciate this supportive policy environment. They began to rally in late March 2020—barely a month after economies started to lock down. This in turn perpetuated a quandary that has dogged the authorities since 1987, when they cut interest rates in response to a big stockmarket crash: every time they rescue the economy, they give a big boost to asset markets. “The affluent 10% in advanced societies who hold the most financial wealth received a stimulus that dwarfed anything openly declared in the public accounts,” the author observes.
Mr Tooze’s book is an impressively full account of the economic developments of the past 18 months. It is when it comes to interpretation that doubts creep in. Mr Tooze describes the events of 2020 as “a comprehensive crisis of the neoliberal era”. But is that right? Is a Chinese wet market “neoliberal”? Were the initial attempts of Chinese authorities to suppress news of the pandemic an example of neoliberalism or just illiberalism?
Dealing with the virus proved a struggle for countries with such wildly different regimes as Iran, India and Peru. Even in the developed world, if Boris Johnson, Angela Merkel and Justin Trudeau are all defined as neoliberal, then the term is too broad to mean anything.
The author is more frugal with data when he is at his most grandiose. For example, he talks about “fragile and attenuated welfare states” being challenged by the pandemic. In 1980, as the ascendancy of Margaret Thatcher and Ronald Reagan was beginning, the average OECD country devoted 14.5% of its GDP to social spending; by 2019, the average was 20%. In Britain and America social spending increased by five and six percentage points of GDP respectively over the same period.
Even in the “era of austerity” between 2007 and 2017, real public spending per head increased by 1% a year across the OECD, falling only in Greece and Italy. And if austerity is the culprit, why, compared with the rest of the developed world, has Greece handled the pandemic rather well? Just as, to a man with a hammer, every problem looks like a nail, to an academic with Mr Tooze’s leftish worldview, every crisis is the result of neoliberalism.
The challenge of instant history is that its judgments can be overtaken by events. The financial crisis of 2008 was not a boon for left-wing parties, as might have been expected; instead it ushered in Mr Trump and Brexit. Still, Mr Tooze’s preferred remedy of more government may well be on the way. The crisis caused countries around the world to abandon thoughts of shrinking the state, and instead led them vastly to expand it. This is unlikely to prove a short-term development, especially as populist pressures tend to encourage leaders to intervene more, not less. If so, the economic system is set to experience its own form of “long covid”. ■
This article appeared in the Books & arts section of the print edition under the headline "A cough heard round the world"