A man wearing a face mask sits alone on a bench on January 2, 2021, in Cardiff, Wales. | Matthew Horwood/Getty Images

The global aftershocks of Covid-19 and the economic crisis it caused, explained.

If you’re reading this article, you can remember what it was like to be alive in 2020 — all too well, most likely. And while you may not want to relive it, Shutdown: How Covid Shook the World’s Economy a new book by renowned economic historian Adam Tooze about the year that was — makes a strong case for revisiting it.

Shutdown is a kind of “history of the present,” using information available now to try to make sense of the past year through the lens of the global economy. Tooze first applied this technique to his 2018 book Crashed: How a Decade of Financial Crises Changed the World, about the Great Recession and its consequences; now he’s applying it on an even more rapid scale.

Reading Tooze’s book does successfully transport one back in time, albeit with the benefit of hindsight. The chapter on the pandemic’s origins in China, confusing as they remain, reads like a horror story. A chapter on financial markets helps reveal how easily we could have fallen into an even worse economic disaster, absent swift action by the Federal Reserve.

I caught up with Tooze in August to talk about some of his main takeaways from the book: why the global economy didn’t crash harder than it did, what 2020 said about the future of “neoliberalism,” and how the events of the past year shaped an emerging competition for global influence between the United States and China. A transcript of our conversation, lightly edited for length and clarity, follows.

Zack Beauchamp

In early 2020, the economic indicators were considerably worse than they were during the 2008 financial crisis.

Adam Tooze

Oh, yes, much more fast-moving. Like nothing we saw in 2008. It was insane, the unemployment wave striking through the world.

Zack Beauchamp

And yet, there wasn’t the same kind of financial market meltdown as there was in 2008. One of the key reasons, according to the book, is the intervention of central banks: not just the Fed in America, which was the key actor, but also this sort of informal global network of central banks working together and coordinating on a rescue package to make sure the same thing didn’t happen.

So to what extent can you say that there were real and significant lessons in that last crisis that were learned this time around?

Adam Tooze

If you talk to any of the participants in 2008–2009, was it a system? No! They were just improvising their socks off, grabbing deep into the historical canon. Ben Bernanke’s mantra was, “We were not going to fail the way we did in the 1930s.” All else follows.

What I think they’ve developed since then is a toolkit. And I use that metaphor glibly; it’s pragmatic, it’s discombobulated, it isn’t a system. It’s just a bunch of useful tools. Things like quantitative easing — frankly, thoroughbred, blue-blood economists don’t even know why it works.

But the Fed did it on an epic scale last March, and it’s hierarchical. There doesn’t need to be a Zoom call; all that really needs to happen is that the Fed moves, then the European Central Bank and the Bank of Japan and the Bank of England, and then within days, the rest of the world’s central banks can move, too.

This toolkit has been elaborated not just in the center — and the Fed is the center — but in the emerging markets as well, which are acquiring ever-greater sophistication and competence in managing their risks. It’s clearly no longer Washington consensus, one-size-fits-all.

We’ve moved from a kind of doctrinaire economics, which knew some things were true and that you had to apply certain kinds of rules, to a much more experimental, pragmatic approach, which is empowering and enabled many emerging markets to ride out this storm in important ways that we didn’t anticipate.

Many people, me included, were very alarmist about what was going to happen in low-income and emerging-market economies. Now, the real economic shock in places like South Africa has been savage. The pandemic is still running through. But they did not experience financial meltdown, which is what we thought they were going to experience.

Zack Beauchamp

Speaking of doctrinaire economics, let’s talk about neoliberalism. It’s an important term in your book, but it’s one of these very complex, very contested ideas. I ping-pong back and forth between thinking it’s a very discrete and useful term, to thinking it doesn’t refer to anything at all, to thinking it refers to many things at once.

You have a distinct view about what 2020 tells us about the version of neoliberalism that’s generally summarized as the Reagan-Thatcherite consensus: the move away from public service provisions and Keynesian economics to a model oriented around shrinking the size of the state (in some areas), privatizing essential services, and generally seeing the government as less responsible for regulating the market and maintaining the welfare of citizens.

In your treatment, the popular argument that this version of neoliberalism died in 2020 — with the massive amount of spending, public intervention, and fiscal intervention in leading democracies — isn’t the full story.

Adam Tooze

I’m totally with you [on neoliberalism having mixed meanings]. In my book on 2008, I don’t use the term except when it becomes historically relevant in the period. I decided this time around, “What the hell, let’s have a shot at this.” And I’m distinctly in the camp that you refer to as this being a term that refers to several different things, determined in several different ways.

You could think of neoliberalism as a body of doctrine, a set of ideas associated with a group of economists. I take the view that it’s a much wider view of economists than commonly thought — not just the Austrians and Milton Friedman, but also mainstream macro of the MIT heyday in the ’70s, ’80s, and ’90s. I think that has suffered a real crisis of confidence.

I also think that neoliberalism is a practice of government. It’s also a social structure. I think it implicitly assumed a sort of geopolitics. And if you push the envelope really far out, as people on the climate left point out, actually existing neoliberalism in the period since the ’70s has also been framed by a set of assumptions about how we manage our relationship with nature.

At the level of ideas, this is the easiest thing to talk about: Neoliberalism has really ruptured. The coherence of that body of thought is now shot to pieces — manifestly a regime in crisis.

If you believe that markets and various types of private insurance are going to take care of the problems of the Anthropocene, the pandemic blew that up. It was blitzkrieg Anthropocene: problems coming at us in a matter of hours, days, weeks. And if you didn’t act, you were in a mess.

The elements of neoliberalism which, in some senses, have proven most resilient are precisely the dimensions of social class inequality. If you think of neoliberalism as a project, really of the restoration of the balance of class power and the creation and making permanent of various types of structures of inequality, then 2020 did nothing but reinforce those.

And in part, 2020 did nothing but reinforce those because we saw in 2020, as we saw in 2008, the mobilization of state resources — state spending and monetary policy. In very explicit terms, we were trying to conservatively stabilize the status quo. We proclaimed that because businesses were not responsible for 2020, there is no moral hazard problem, and it’s legitimate to hand out hundreds of billions of dollars to them.

We also — and this was kind of unusual in the United Statesgave out lots of money to badly off Americans who desperately needed it, so that was the innovative element. But the entire spending package, especially in 2020 itself, was explicitly conservative. It was about maintaining the existing order because no one wants the blame for what had happened. It supercharged the rebound of the financial market, handing literally trillions of dollars to the better-off members of American society.

So to read that as a massive break to neoliberalism, because we saw a more active role for government, seems to me naive when it comes to what government has historically been responsible for.

Zack Beauchamp

I want to push on this not because I think it’s wrong, but because it’s worth looking at some of the tensions here.

Obviously, it’s correct to say that the well-off and corporations were tremendous beneficiaries of government largesse in 2020. But in the United States, there was an individual cash transfer program with no precedent in American history. It was an extreme expansion of our welfare state that, and you write this in the book, really is (or was) putting the US on par, in fact ahead, of what European states were doing.

In the year afterward, there’s been this push — almost an ideological reconfiguration — of where the “mainstream” of politics in our country are. You have a faction of the Republican Party becoming more open to government redistribution, especially when it benefits “traditional” families, and you have a Biden administration that’s embracing a child tax credit and a more expansive welfare state in legislation and proposals than anything in the past 30 years.

So even if capital was the immediate beneficiary of government action in 2020, the year also had this effect of shifting the horizons of what seems possible in American politics.

Adam Tooze

I think that’s absolutely true, which is why I reject Robert Brenner’s formulation in the New Left Review, where he describes [2020 economics] simply as “escalating plunder.” I don’t think that does justice to the nature of this moment at all, to be honest.

You’re absolutely right that this is the first moment in the experimentation with really large-scale, generous social spending in America’s history since the Great Society moment of the 1960s. And it turns out to be easy to do. If you want to avoid a crisis that leads to mass evictions and mass poverty, you can simply decree that there be no evictions and spend large amounts of money handing out checks to the least well-off.

In the CARES Act of 2020, this was balanced by huge giveaways to the more affluent. What’s more striking, and entirely confirms your point, is that the rescue package of the Biden administration — the single piece of massive legislation they passed so far, in March — was much more carefully targeted at middle- and low-income Americans, and really contains a minimum of pork.

So this is a real shift. But I think the pushback would come — and people like Mike Konczal wrote about this really effectively while it was happening — in that we have to differentiate between large-scale spending, which can be legislated and [for which] you can find large majorities for in moments of crisis, and the question of whether the American political system is capable of structural change. And that is what has been singularly absent so far.

Zack Beauchamp

This point about the American political system’s limits is, I think, indicative of some of the broader themes in the book — about what 2020 says about America’s role in the world and its influence over global politics, especially vis-à-vis China.

The chapter in the book that sticks with me the most is the one about the pandemic’s origins, covering the way that China both massively screwed up and massively succeeded. It’s a very interesting paradox that says some interesting things about the Chinese state.

The way you talk about it is a contrast with how the West handled these things. But first I want to nail down what, in your view, we learned about China in 2020.

 VCG/VCG via Getty Images
On August 20, 2021, workers wearing PPE spray disinfectant at an auditorium in Wuhan, China, in an attempt to halt the spread of the Covid-19 coronavirus.

Adam Tooze

We learned about its vulnerabilities, to be sure.

There was that Chernobyl moment when everyone thought it was going to be that kind of a disaster that rocked the regime. And the truth in that, I think, is that this was an absolutely catastrophic shock for the regime. This was a total failure.

It’s a ruthless, authoritarian regime that doesn’t put a high price on the lives of the people it designates as enemies. But what we have to understand is that it is utterly preoccupied with the welfare of the over 1 billion people it regards as its constituency — an immense population whose material welfare, whose standard of living, whose health is essential to the legitimacy of this regime.

As everyone says, it’s an output-based regime. And it’s no secret that Asian societies put a huge premium on health. SARS, in 2003, was a savage shock to the legitimacy of the Communist Party in China. Many of the people in [President Xi Jinping’s] entourage owe their careers to the purge that went through the party after the failure in 2003.

The thing about 2020 is it’s infinitely worse than that. This was a complete disaster.

The regime had promised itself it had built a reporting chain that ran up through the provinces, which are the size of large European states. Managing this ensemble is a dizzying task. It’s like trying to run four Americas at once — so getting a true reporting chain out through the Chinese provinces is an incredibly difficult thing to do, and it failed. And then they had a huge problem on their hands, they screwed up, and they know it.

It’s clear that by February [2020] this is a total disaster for the regime. The lockdown is dramatic because nobody wanted to be the next Hubei, the next Wuhan. Province after province shuts down, and by the middle of February, Xi is struggling to get provinces to reopen — even if there wasn’t very much epidemic there — because nobody wanted to be the next lot of people whose heads were on the chopping block for failing to manage this problem.

It is, far and away, the worst crisis the regime has suffered since the reform period in the 1980s. This is the most serious setback to GDP growth — and it’s not just the big companies, because in China the vast preponderance of people are employed in small firms and services. They are savagely hit by this shutdown, as they are everywhere in the world.

So potentially this could have been a Chernobyl. But speaking in soccer terms, it’s as though after shipping a couple of goals early on to the other side, the other side [democratic governments] ran down the pitch and just took turns firing own-goals into their own net for the rest of the game. The Chinese regime is left saying, “Yeah, we shipped two, but you people ran up the score on yourselves.”

We’re joking, but if you think about the percentage of citizens who died in China versus Western democracies — even allowing for substantial falsification of the Chinese data — it’s orders of magnitudes of difference.

Zack Beauchamp

So there’s this term you use, polycrisis, that I really like in describing what we all just lived through. It means what it sounds like: There are multiple different intersecting crises happening at once, forming and combining into a new kind (or kinds) of crisis.

In 2020 we’ve talked about the coronavirus itself and the mismanagement of it by virtually everyone. We’ve talked about the economic fallout of the virus. But we haven’t talked about the social crises that consumed the US and kind of radiated out of it, surrounding both the George Floyd protests and the 2020 elections.

It seems to me that this connects to the coronavirus management in an important way. To return to your soccer metaphor, it’s like there was a different kind of democratic own-goals in the competition with China. Democratic states were trying to show that their model could succeed under conditions of duress.

And not only did we fail, in part due to political division, but then we had a massive set of political crises that played into and intensified the fights over the coronavirus, leading to what any objective observer would call an appearance of severe fragility at the heart of the democratic world.

Adam Tooze

Fragility is I think even a slight understatement: I’ve never lived in a society before in which talk of civil war seemed just kind of commonplace. And this is at the heart of democratic power. Everyone in the United States — and not just in the United States, I promise you — is looking at this country and going, “What on earth?”

Now, I am absolutely not one of those historians who thinks, “Okay, this is the Weimar Republic.” I find that an unhelpful way of thinking about these problems — in part because it exoticizes them, makes it seem as though they were from somewhere very different. In fact, they were an authentically all-American crisis.

Everyone’s involved. The population on the street, in its full diversity, people waving guns at each other. The law. The military. Though we don’t have the full picture and probably never will, we shouldn’t ignore the fact that the ultima razio, the final reason of state, was in play in this crisis.

And business, in a way that’s causing Marxist political economists to stare in disbelief because it’s so rare to actually see the barons of business appear on the scene and explain out loud why democracy is something they actually sort of have an investment in, up to a point. The most legendary moment is this guy who explains how, during civil wars, people file fewer expense reports. So it’s in the interests of expense accounting software that there shouldn’t be a civil war. It’s the sort of thing that boggles the mind — and begs the question of whether they would have said the same thing if [Bernie] Sanders had been the Democratic Party candidate.

One hypothesis about the Chinese — and it’s only one, because it’s so opaque — is that Beijing believes the West is so degenerate at this point that it’s just time to bulldoze. There’s no point in negotiating because the clock on us is running out.

Author: Zack Beauchamp

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