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Adam Tooze is the Kathryn and Shelby Cullom Davis professor of history and the director of the European Institute at Columbia University. He’s the author of many books, including Crashed: How a Decade of Financial Crises Changed the World — which is, in my view, the single best history of the 2008 financial crisis and its extraordinary aftermath. Read the article below to know more about the economic crisis.
That aftermath shapes the context in which the coronavirus is happening — both the economic reality it’s disrupting and the intellectual and policy tools the world’s governments are calling forth in the response. But in other ways, it’s dangerous: This is a very different sort of economic crisis than 2008, and if we can’t see it for what it is — if we refight the last crisis, rather than this one — we will fail.
I spoke with Tooze over the phone. A transcript of our conversation, lightly edited for clarity and length, follows. This article is brought to you by Car Title Loans California.
In your great history of the financial crisis, Crashed, you argue that American policymakers had spent years preparing for the wrong crises, which left them confused when the real crisis came and it wasn’t what they expected. With that history in mind, do you think policymakers are seeing this crisis clearly, or are they locked in past arguments?
It’s been shocking. So much of what’s happening in financial markets today seem incredibly familiar to anyone who spent a lot of time in the 2007-’08 story and its aftermath. The language, the script, even the names — the people who are contributing to the conversation — are a very similar group.
On the other hand, there’s this incredibly unfamiliar trigger. This isn’t how most of us imagined this would happen at all. It isn’t as though I was unaware of pandemic risks, but very few people contemplated the exact playbook we’ve seen: the very deliberate government shutdown of all of the major economies of the world, triggering this epic shock in the financial markets.
So we need to differentiate between two strands of the conversation. One strand of the conversation is what’s been going on in the financial markets. That is, to an extraordinary extent, a rerun of 2008 with slight modifications. We understand microfinance far better than we did 15 years ago, so none of us are spending too much time on macroeconomic imbalances, like America’s current account deficit. To that extent, 2008 is a good guide to the mechanics of stabilizing the financial markets. And I think the Fed and ECB [European Central Bank] have internalized this.
It’s on the fiscal policy side where I think we are at risk of running in the wrong direction because the real economic measures that we’re adopting are completely unprecedented. To think about what we need as a kind of wartime mobilization seems to me to miss the point completely. This is a much more peculiar task than that.
We can all come up with idealized, perfect policies that maintain the status quo for three months so we can put the hammer down and then dance our way out. But that’s a completely unrealistic account of how politics operates. Right now, everyone is faced with a sort of prisoner’s dilemma logic: They must advocate for the kind of policies they would normally advocate for, or else someone else will get their policies passed. You’re forced by the dog-eat-dog nature [of] the American political system to engage in that kind of politics.
One of the things that have been so striking to me is the bifurcated nature of the conversation. People are arguing for social democracy or a Green New Deal. And that argument takes place in a world where we have not just the political will to respond to the crisis, but the political will to build toward a new future.
Now Trump wants to pivot back to business as usual — the cure can’t be worse than the disease. It feels like there’s one conversation happening among people who want to imagine a new political future and then another happening among people who can’t imagine themselves two weeks into the future.
The ultimate perversity is that their inability to imagine a future will not enable them to return to the pre-crisis situation. If people were to take Trump’s words literally and act on them, the result would be some apocalyptic mess on the scale of Iran, not Italy.
So it’s a conservatism which is wholly ineffective because it’s not going to deliver a continuity with the present — the situation is too dramatic for that. The Chinese Communist Party is the truly conservative one right now. They recognize that everything has to change so that everything can stay the same. Trump isn’t able to perform that basic kind of statecraft of conservatism. You have to move precisely to stabilize the situation.
I think that’s a really important point. And bringing China into this is a good bridge to something I want to talk with you about. What are the biggest international finance or geopolitical risks you see right now?
The first is the most boring and the most familiar: the eurozone and Italy. That issue is achingly tedious, but it looks as though the Europeans have woken up and moved to fix that situation.
Then there’s the China risk. China is the dog that hasn’t barked in this crisis so far because of the success of [its] conservative strategy. There has not been a big movement in the Chinese exchange rate and very little action on the Chinese balance of payments. But the situation may be more fragile than Beijing is comfortable with. And that has implications for everyone around them: the South Koreans, the Taiwanese, Singaporeans, the Japanese, the Australians. If the Chinese economy doesn’t come back strong, that’s a game-changer for all of them.
I think the third element is the crisis that is hitting the big emerging markets: the South Africas, the Brazils, Nigeria, and potentially the Algerians, the Indias, Indonesia. These are huge countries with big economies, with large American interests in them, and big geopolitical ramifications. And they are in harm’s way. Their currencies are plunging, they have large debts, and they’re going to be hit by the public health crisis on an epic scale — especially in South Africa, where they have a big immunocompromised HIV[-positive] population.
The fourth zone of risk is the OPEC [Organization of the Petroleum Exporting Countries] complex. A trigger for the crisis in the financial markets was the breakdown of the OPEC-Russia negotiations and the signal from the Saudis that they were just going to produce and let the oil price crash. That was the moment that the financial markets plunged. We tend to focus very much on Russia, Saudi, and shale in the US, but the vulnerable high-cost oil producers and energy producers are an alarming list of countries. On top of the list for me will be Algeria and Nigeria — I think there is the potential for quite substantial regional destabilization.
It seems to me that another risk is that we’re scapegoating and blaming and escalating tensions with China — the Trump administration, and others in the Republican Party, have already pivoted to this as a political strategy. The Trump administration tried to force the UN to call this “the Wuhan virus.” Senior Chinese officials are saying the virus came from the US military. Rising fury between the two largest economies during a crisis of this scale seems like a very dangerous situation.
There’s no doubt at all that the antagonism between China and the US is a central fault line. Yesterday I stumbled over the perfect complement to the Chinese-American standoff. The supreme leader went on television the other night to say that this was the reason why Iran would be refusing external aid, especially aid involving American doctors.
But the absolute worst case has not happened. What we’ve seen so far in the last couple of weeks is [that] the situation is so discombobulated, and the Trump administration is such a headless chicken, that there isn’t even a concerted nationalist pushback against the global stabilization efforts being pursued by the Federal Reserve and the International Monetary Fund.
The disarticulation of levels of power in the US government is such that you can have people pursuing security policy in one corner. And you can have people pursuing global stabilization of the global financial system in another corner. And then you have the clown car performance in the White House. Sometimes, of course, these things interfere. But by the standards of the great Marshall Plan era, American power is grotesquely incoherent at this point.
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