It’s Deja Vu All Over Again – Adam Tooze’s Shutdown: How Covid Shook the World’s Economy, Allen Lane, 2021

In his latest book Adam Tooze, the most important historian of our generation, brings his combination of analytic skill and capacity to synthesise a vast amount of evidence to develop a narrative history, in medias res, of the coronavirus pandemic. As his title indicates, his primary focus is the historically unprecedented shutdown of the global economy caused by the pandemic. This time it was different: economic activity was not suppressed by the ebb and flow of the business cycle, rather shut down by a “biological shock” (p.292). These shutdowns happened sometimes at the behest of states, at other times driven by ordinary citizens demanding that their work be suspended because of the threat from the virus. The scope of the shutdown was truly global and Tooze sketches out the politics of the pandemic on a large canvas.

Tooze is an old fashioned theorist of great power politics which, in our time, works via elite governance. These elites are more or less co-ordinated with each other and, for that matter, more or less concerned with the issue of their own democratic legitimacy. While Tooze’s scope is global, he is particularly concerned with three blocs: the EU, the USA and China. This book can usefully be read against the backdrop of his previous book, Crashed, an outstanding narrative of the financial crisis of 2007-8. That which connects these books is that we are once again dealing with risk societies in Ulrich Beck’s sense: “our modern economic and social system is is systematically generating disease risk” – the key word being “systematic” in a way that connects this book to its predecessor (p.31) Once again, as in the financial crisis of 2007-8, this risk has been “mispriced” by markets. Yet again, the investments in public health infrastructure to address this risk has been inadequate – the funding of the WHO being a case in point (pp.32–34). It matters here that these are global risks requiring robust, and well funded, trans-national institutions. In their absence, there had to be various forms of rapid catch-up in the face of (another Beck term) “organised irresponsibility”. If anything, I thought Tooze’s judgements were a little harsh at this point in his argument about our global preparedness: SARS and MERS came and went, no one wanted to jump the gun, and it was not clear how much pre-preparation would have been necessary to take the edge off the speed and extend of the coronavirus’ impact. As Keynes was keen to emphasise: some things we just cannot know in advance.

The most interesting single thread of argument in the book concerns finance and that will be my focus here. It is often said that our economies are “financialised”, usually not as a compliment, and this is matched by a sceptical backlash against the financial sector from the progressive Left. This book picks up where Crashed left off. Thirty years of political rhetoric from the 1980s to 2007 putatively saw the “rolling back” of the state, faced with the increased efficiency and benefits for human welfare from more extensive and deeper markets. The most important such markets, where the appetite for risk in calculating the returns on investment in productive capital was measured, are financial markets. Yet it turned out, in the political debacle that accompanied the bailouts after the 2007–8 crisis, that major actors on those markets were following the classic capitalist logic of socialising a massive, systemic, risk externality offloaded on to the state while taking the equally massive private profits that their activity generated (at virtually no risk to themselves). It turned out that the ordinary democratic citizen – and taxpayer – who had been assured that there was no alternative to the anti-democratic technocratic governance of the elites, had indeed been duped. The promise of elite governance was bankrupt; 2007–8 saw the start of a backlash against elite governments across the affluent societies of the West. This book fills out a key part of that narrative, namely, the ironic consequences of the insulation of central banking from democratic legitimation, putatively at the service of its “technocratic mandate” – a justification that some of us think is entirely bogus and, in fact, a political strategy disguised as a problem of knowledge (1).

The search for political alternatives has been on-going ever since. Issues such as massive inequality, rent seeking by insider elites, and the symbiosis between elites in government, the professional-managerial class, the global wealthy and the financial sector are openly debated in a way that they were not prior to the crisis. One of the most important issues that Tooze discusses in this book is whether the progressive Left is right to foresee that, after forty years on the retreat, the coronavirus crisis coming so soon after the financial crisis affords them an historical moment to seize the political momentum. In particular, can they turn the sovereign power of the state in money creation to progressive ends?

Tooze’s answer is “no”, but it is worth setting out the details of how he reaches that conclusion. His argument has four parts. First, Tooze explains the mechanism by which states backstop the financial sector via the activity of central banks: we learned from Crashed that the Federal Reserve System of the USA is, in effect, the central bank for global capitalism. It is the backstopping bank to the other central banks with which it has direct relationships via liquidity swap lines.

Second, he notes that we live in an age of capital abundance without the threat of inflation: Crashed explained how $15tn either of direct cash or guarantees was pumped into the global economy in the 2007-8 crisis, but the inflationary crisis that ought to have succeeded that event, on classical assumptions, failed to materialise. On the contrary, even neo-classical economists worried, instead, about a period of secular stagnation that seemed to reproduce Japan’s “lost decade” of near zero interest rates, no growth, the overhang of private debt, and the threat of deflation. As we will see below, this was particularly problematic for a governing ideology that offered decreases in democratic legitimacy in return for the prospect of continual economic growth.

Third, Tooze notes that there is a symbiotic, indeed mutually destructive, relationship between the state’s central banks and a hypertrophied financial sector. This is an important part of his argument influenced by the work of Daniela Gabor and her research collaborators (2).

Fourth, and this is crucial for Shutdown, practice has completely outrun theory. The governing ideology of elites from the Nixon Shock to the present day was that floating, fiat, currencies threatened to put monetary policy in the hands of progressive forces – real Keynesians, not the fake ones – and so a key complement to the mantra of “there is no alternative” in economic policy is the creation of independent central banks tasked with the “fundamental” issue of creating a stable price environment. What that means, in effect, is the targeting of inflation above all else – employment go hang – because the future of rentier-investor capitalism depended on protecting the asset holder and expanding the class of the indebted.

I would put Tooze’s point this way: the state never went away during the era of so-called “neo-liberalism” – it came down, heavily, on labour in all its forms – and it did so always at the service of the rentier-investor class. Unfortunately, the resulting social system – to borrow a Rawlsian term – has proven to be unstable. I would add a distinction, intended to be helpful for Tooze’s argument, between that which George Soros called “market fundamentalism” as a set of ideas, and neo-liberalism as the upshot of applying them in a context where imbalances of power either already existed or were created (3). The power of the state was rolled back on where it furthered the sectional interests of the rentier-investor class to do so. (See my Republic of Equals, OUP, 2017 (4)) Elsewhere the state was put at the service of private corporate profit, just as Joan Robinson and Hyman Minsky predicted, as the rampant inequality of the period from 1980–2020 saw stagnant wages, massive private indebtedness, and precarious employment for the many (5). These developments were accompanied by disproportionate returns, excess saving, and total political domination for the few. This is not, nor was it ever, Soros’s market fundamentalism: it is socialism for major corporations (financial and non-financial) and for rich people globally, but particularly so in the USA. The reason is that we are not, currently, breaking free of neo-liberalism as the progressive Left hopes is that we were never neo-liberal in the first place. As Tooze pithily puts it, the GOP has “been for decades committed to blocking the construction of a state apparatus befitting of an advanced society and dismantling it where it does exist” (p.299). (I would add the caveat that the GOP is happy to construct its fortresses at the level of individual states – the federal structure of US governance allows them to build a national “vetocracy” while building regional power bases at state level. This further allows the electoral biases between the states, as built into the electoral college, to magnify their capacity to make mischief.)

All of this frames Tooze’s answer to the progressives’ question: it turns out that, in our world, fiscal (tax) policy and monetary (money supply) policy have indeed (as Paul Culley puts it) “merged”. Two allegedly distinct parts of government are, in practice, fused: for example, the state pays money directly into people’s bank accounts during the coronavirus crisis in order to furlough them from their work. That is government spending. It is “funded” when the Treasury department issues a bond instrument. Who buys those bonds? Another branch of government – the central bank. How does the central bank “afford” those purchases? It uses the power of a monetarily sovereign government, which cannot go bankrupt in its own currency, to create money (6). The assets and liabilities on the central bank’s balance sheet grow together like a broadening base of a pyramid. (7) It seems, then, just like Keynes and Abba Lerner (8)the proponent of “functional finance”) always claimed, that we can fund whatever social purposes we set ourselves. If this the truth that we learned when that $15tn was created during the financial crisis then we have, in the words of the Britney Spears song, “Oops, I did it again” – just done it again. Our governing elites, when they want to pursue their own social purposes, never seem troubled by the question of how “”we”” can afford it.

Why, then, the progressive asks will we not see this extension – really, recovery – of the full panoply of the monopoly powers of the state put at the service of a democratic socialism that we have always, clearly, been able to afford? Tooze insists that the optimistic progressive is reading the current moment incorrectly. As he notes, throughout the coronavirus crisis the image of war has been drawn on by various political leaders and in this case the metaphor of world war is no longer a metaphor – this crisis really does involve all seven billion of us on this planet. I would add to his analysis the observation that the idea of wartime democratisation is a familiar one: that when the mass of a population lives through a time of sacrifice, and when it sees what a fully mobilised state can achieve, there is pressure not to go back to the status quo ante. The Attlee government in the UK in 1945; the involvement of the French communist party in the negotiations that led to the trentes glorieuses in France; indeed, a wave of sympathy for communism across the European continent that America struggled to contain – all of this was the upshot of wartime democratisation. If there is mass popular support for radical reform and the tools are at hand why is this not the progressive moment – especially when it comes to the Green New Deal?

Tooze’s diagnosis is that elites only lifted the curtain on what could be achieved by deploying all the sovereign powers of the state when they felt free to act with impunity: only after forty years of political action had destroyed all countervailing power. Early in the book he notes that “For all the centrist handwringing about ‘populism’, class antagonism was enfeebled, wage pressure was minimal, strikes nonexistent” (p.15). Central bankers may be “kicking over the traces” (p.189), but they are the only radical agents of social change who remain. They have to deny that this radicalism is, in fact, what they are engaged in and, in any case, their actions reinforce the power of finance. Public debt of all kinds, whether US Treasury debt or the creation of novel pooled debt in the form of Eurobonds, supplies the rocket fuel for collateral based market finance. Treasury bonds are the safe collateral needed for market based finance (for “safe” read “cheap”) while also serving the essential function of benchmarking an ideally risk free portfolio. Far from lamenting the inflationary pressures of state spending, asset managers are only too happy to see their fuel supply expanded – particularly if they can finally diversify beyond US Treasuries.

Progressives are, then, reading the current moment wrongly, that is to say from Tooze’s perspective, a-historically:

“Such comparisons with the mid-century heyday of Keynesianism no doubt help to capture the drama of the moment. They express the wish of many, on the left as well as the right, to return to that moment when the national economy was first constituted as an integrated and governable entity. As the interconnected implosion of demand and supply demonstrated, macroeconomic connections are very real. But as a frame for reading the crisis response in 2020, this retrofitting risks anachronism. The fiscal-monetary synthesis of 2020 was a synthesis for the twenty-first century. While it overturned the nostrums of neoliberalism, notably with regard to the scale of government interventions, it was framed by neoliberalism’s legacies, in the form of hyperglobalization, fragile and attenuated welfare states, profound social and economic inequality, and the overweening size and influence of private finance”. (p.132)”

As Tooze makes clear, this fragmentation of the opposition from the Left applies across the EU, the UK and the USA: the only meaningful political debate was between the technocratic centrists and the belligerent wing of “right populists” (p.284) further to the Right even of them.

I have heard political economist Mark Blyth make the same point by invoking Heraclitus: you cannot step into the same river twice. There is no going back to the political conditions that created the “good capitalism” of 1945–1970 because of what has happened in the interim. The point is deepened if the true heirs of Keynes – Joan Robinson and Hyman Minsky – were right that the conditions put in place in the post-WWII USA created the structural tensions that culminated in the 1970s and could only be contained by the overt state syndicalism of the last forty years. The state never “went away” for all of us – it only went away from the lives of the poorest and worst off in the form of austerity politics and reduced public provision. We cannot re-boot from 1945 because we are , politically, in the hands of the big winners of the last forty years. Any progressive measures in the interim will be what they allow us to get away with.

The details matter, and progressives are guilty of applying the duck test. The new monetary regime looks as though we have democratic control of both tax (fiscal) and monetary policy working in combination to pursue progressive ends. But central banks have, in fact, been led entirely the interest of their “clients” in the financial sector. This sector has engaged in more and more risky practices knowing full well that it is backstopped by what Daniela Gabor calls the “derisking state” (9). If the image of “shadow banking” is of an unregulated fringe operating in the shadows, that is a misunderstanding of the fact that shadow banking is actually the core of the transformation of the financial sector into that which Gabor (and others) usefully call “market based finance” with no interest in federally insured and regulated deposits because they are not risky enough to generate a return (10). It is shadow banking that is the voracious consumer of state issued bonds turning central banks into what Alberto Giovannini calls “collateral factories” to feed the beast (11). Charged with the impossible task of stabilising an inherently unstable system, central banks pursue their own agendas and, in the process, reduce borrowing “costs” for governments, but as Gabor puts it “this is a side effect, not a policy target” of their actions (12). It is an institutional mis-alignment of incentives that sees central banks myopically take care of the brief assigned to them – macro-financial stability – with their direct aim being (as Tooze puts it) “to manage interest rates and ensure financial stability” (p.148). However, he continues:

“[W]hich in practice meant underwriting the high-risk investment strategies of hedge funds and other similar investment vehicles. Rather remarkably, they insisted that tending to financial markets was a more legitimate social mission than openly acknowledging the highly functional, indeed essential, role they played in backstopping the government budget at a time of crisis” (pp. 148–9)

In her own contribution to post-pandemic macro-economics, Gabor refers to this transformation as a “Revolution without revolutionaries” (13). What explains these bizarre developments?

Shadow banks, in our economies, have several key features: they are maxed out on leverage so when they post collateral for their borrowing any change to its underlying value immediately impacts their overall position: profitability demands that they be leveraged to the maximal degree at all times (or money is being left on the table). When that collateral is a sovereign bond, its “price” is determined by its supply and demand – and the producer is the central bank. This forces the role of central bank intervention to change from the classic Bagehot role being a lender of last resort to being a market maker of last resort because the central bank, trying to prop up a distressed institution by lending to it, increase and does not decrease the margin call on that institution triggered by the drop in the value of its collateral (14). Thus the central bank targets not the distressed institution, but the macro-level, systemic, price of collateral in the system. The central bank becomes the ultimate supplier of liquidity in the system – the role of the dealer of last resort – while also adding another tool to its armoury of macro-, systemic, stablisation, namely, Quantitative Easing (15).

The interest rates set by central banks are supposed to have a “signalling role” for private credit creators (Gabor, 2021, p.6). That signalling role is threatened when interest rates hit zero – so the central bank also engages in quantitative easing policies. The reason is simple enough: when interest rates go below zero, banks might as well hoard their cash rather than lend it out. QE then moves from targeting the interest rate to targeting the level of reserves in the banking system (16). When a central bank buys financial assets, more cash goes into the system, and the value of the remaining assets in the system goes up. Bond yields go down, with the ultimate aim of driving down borrowing costs throughout the economy and sending the cash in the system out in search of higher returns – for example, into private company bonds and equities (shares) – hence the “juicing” of the US stock market by the Fed that so pleased President Trump. All of this does ease government borrowing costs, but central banks are adamant that this is not their aim – their aim is within their narrow brief of inflation targeting.

Thus Tooze documents the operation of a system of perverse incentives where, in order to advance desirable social ends such as tiding our economies over the coronavirus pandemic, central banks secure that indirect end via the direct aim of taking care of hedge fund billionaires and the rentier-investor class more generally. Off the page, then, is the diagnosis of the critical macro-finance theorists such as Gabor who have been deeply influenced by Hyman Minsky (17): that our economies are driven by financialised cycles, punctuated by periodic crises, that culminated in what Thomas Palley called the culmination of a Minskyan “super-cycle” in the catastrophic events of 2007–8 so well documented in Crashed (18). The background effect is a cycle of increasing inequality, a rich gets richer dynamic, more financialisation as excessive savings are recycled, producing an increasingly fragile system that crashes, is re-booted, and in the process the institutional and social dynamic is reinforced (19). Every recovery is a recovery for the rich, and every crisis deepens the next crisis and moves it closer towards the present. And on we go, with central banks aiming to dampen this process of instability while, in fact, accelerating it via their complicity in a system that they lack the power either to control or to dismantle.

Thus it is that, on the one hand, Tooze argues that the CARES Act in the USA seems to be its first large-scale exercise in public socialism since the New Deal. But, on the other hand, both the mode of its delivery and its purpose are anti-progressive. A historian of Germany, Tooze knows that the Bismarckian welfare state was created to stop its working class turning to communism (p.139) and here, too, the purpose of this social legislation is conservative. Tancredi Falconeri’s “everything must change so that everything can stay the same” is the most pertinent diagnosis (p.293). As for the mode of delivery, as Tooze notes in the US pandemic response:

“For all the talk of a new social contract and the scale of the spending, coronavirus fiscal policy was a much a reflection of pre-existing interests and inequalities as any other area of government action….Every detail of the trillion dollar programs reveals the mark of inequality” (p.141)

Even the CARES Act contained a typical American boondoggle whereby lobbyists smuggled significant breaks for the very wealthy into the legislation. Under Trump, the net benefit to America’s wealthiest citizens ran to the tune of $174bn. Nice (non-)work if you can get it.

This is in keeping with the other major theme of this book, not simply of central banking being liberated in a time of superabundance, but the latter itself. On page 172 Tooze quotes Goldman Sachs’s chief economist for Latin America “we are living in a world with abundant liquidity.” Just as proponents of the Green New Deal, such as Robert Hockett, have long emphasised the right kind of public investment does not “crowd out” private investment: it crowds it in (20). Perhaps Tooze does not focus enough on the fact the global credit card seems indefinitely expansible because, in the search for yield, there is so much capital out there that investors will take any deal. That is a recurrent theme throughout the book: while the EU area may have thoroughly botched its fiscal response to the coronavirus crisis – here Tooze repeats his negative scorecard for the EU Project in Crashed – borrowing across the EU was cheap with the ECB taking on its books 40% of German and Italian debt (p.283). The summative judgement of the whole book is that “the problem was not money. The problem was how to use it” (p.284).

That plays a role in his regional diagnoses: the mid-size emerging markets, with some exceptions, have weathered the storm because they repeated their strategy of resilience developed prior to the 2007-8 crisis (as documented in Martin Wolf’s The Shifts and the Shocks (2015)). They built up substantial foreign exchange reserves, borrow in their own currency and resist dollar pegs, thereby creating scope of action for – of course – their own central banks. (There is some tension here between this mechanism and Tooze’s broader generalisation that the spread of the US dollar helps to stabilise the global economy “at many points” including these regional nodes (p.294). These emerging market economies are in the dollar system but have successfully insulated themselves from its pressures.)

At the global level, this crisis is different because the real economy, for the most part, simply went into hibernation. The question was what people would actually live on during this hiatus and the answer, crudely, is the global credit card. Financialisation, for all its ills, allowed us collectively to weather the storm – which is not to ignore the tragedy of the lives lost, many avoidably so, as also documented in this narrative.

This point becomes important as the book develops and Tooze turns his attention to the global distribution of vaccines. It turns out that nation-states, or blocks of such states such as the EU, have cast aside their fiscal discipline in their domestic budgets. But when it comes to the global bet that the $25bn it would take to vaccinate everyone in the world would, according to the IMF, restore $9tn to global GDP by 2025 (p.244) there is no one willing to take that deal. Once again, our trans-national institutions are not working as they should – beyond, that is, the global scientific community. The only thing as absurd as this signal failure of global financialisation was the insistence, by the major private players in Big Pharma involved in the vaccine project, that they retain their intellectual property rights (p.245). Only states cowed into learned helplessness would let them get away with this.

On the issue of climate change, Tooze is clear that the coronavirus pandemic is, as he puts it, the first major crisis of the Anthropocene and that is its long term significance: “an exceptional and transient crisis, no doubt, but also a way station on an ascending curve of radical change” (p.292). We had better come to a measured assessment of our collective crisis response as it is the first of many to come. The constellation of climate issues in 2020 drove the point home – from cyclones to locus plagues to wildfires. At this point Tooze’s project in Shutdown segues into his forthcoming climate change project and China is crucial. Might the tectonic plates in global politics be shifting?

As he notes, the standard play from the elites’ playbook is to dismiss all resistance to their collective failure as evidence of “populism”. However, perhaps aware that this is not enough, the EU’s elites have tried to burnish their progressive credential by taking up the mantle of climate change. There is, once again, some convergence with Blyth’s ideas in a paper he co-wrote with Thomas Oatley: that we can detect the workings of the Cunning of History in the spectacular extent of American inequality (21). The wealth is in the hands of the Biden favouring US coastal elites and the Biden administration, like its European elite counterpart, has also seen the opportunity to develop its radical credentials by positioning itself as a Green administration. Blyth and Oatley think that American inequality supplies a war chest for that part of the American corporate elite willing to align itself behind a Green transition against the ancien regime of fossil fuel interests that overlap, interestingly, with Trump’s core support. Those whose livelihoods are going to be made obsolete will have to be bought off, just as Tooze notes that 17.5 billion euros was earmarked to ease the passage of the EC’s draft climate law “to pay off Polish miners.”

His chapter devoted to China (chapter ten) is significantly titled “momentum” (echoing Xi’s speech in January 2021 (p.298)): given the capacity for state control in its authoritarian political system, the coronavirus pandemic has deepened China’s comparative economic advantage over the affluent West because of the speed of its recovery (p.195). The predicted date at which China’s GDP will outstrip that of the USA has been brought forward to 2028–9. As trust in the Chinese Communist Party declines in the affluent West, it has taken the opportunity to suppress the last vestiges of democratic resistance in Hong Kong, and to proceed with ambitious plans for further investment and decarbonisation that has key players in the Western investment ecosystem champing at the bit to be let in to China’s vast market. Investment firms want stability and a favourable investment environment and are, in that respect, no more concerned than the CCP with details such as democratic legitimacy. Bridgewater are emblematic here, with Ray Dalio’s pivot to China because of a disillusionment with America’s transition to a rentier economy with “loose” monetary policy. The bottom line is that QE has “crushed” US Treasury yields and Chinese sovereign debt was the safer haven in 2020, the ideology of the CCP notwithstanding (p.203).

As a chronicler of elites and their pet project of “”globalisation””, Tooze studies those aspects of the global economy where inter-dependence is most marked – notably the financial system. If it is true that China will, indeed, be carbon neutral by 2060 then it will be even more attractive to an EU-Chinese axis at the expense of the USA. In the immediate future, the US foreign policy and military establishment has pivoted to a new Cold War with China as its target with a view to “containing” America’s strongest geo-political rival. It is, as Tooze notes, a fundamental threat to the globalists’ vision of a “flat” world as the US tries to choke off Chinese access to key technologies and China moves to a dual component form of development with one component being wholly autarchic. Qua student of this trans-national elite project, Tooze thinks it has gone too far effectively to be reversed (p.297) – except in the case of China. Here we are dealing with “the greatest social experiment of all time” (p.298) and here there can only be questions, not answers. The CCP does not intend to “converge” on liberal norms: this is a Marxism for the twenty-first century that has learned from the errors of the Soviet Union.

As Tooze notes, Biden did come into office aligning the US as confronting two global challenges that required national mobilisation: climate change and China (p.296). A degree of scepticism as to whether the US can rise to these tasks emerges from the governance crisis in the USA that is the subject of Tooze’s chapter eleven, “America’s National Crisis’. Tooze documents the success with which America’s corporate oligarchy has totally destabilised any normal form of democratic politics. The simply bizarre spectacle of the GOP turning on corporate CEOs as anti-American apostles of woke-ism is only one of the multiple divisions charted in this chapter as the ruling elite splinters. We can at least conclude that the promise of the ‘doux commerce’ tradition that Americans can at least come together in market transactions, has not withstood the latest round of the culture wars. In a chapter replete with ironies, the controversy over keeping American business open – or re-opening it – saw “enraged petty capitalists and right-wing oligarchs” arrayed against “corporate liberalism.” (p.216). There is palpable frustration as Tooze the theorist tries to make sense of the policy absurdities of the GOP: a party of fiscal discipline always in favour of military adventurism and tax cuts for the rich; of small government but in favour of a massive military and “a party of self-reliance that counted on the Fed to juice the stock market” (p.219) The oversized ego of POTUS 45, who knew that he gained electorally from fear and chaos, overshadows this whole chapter. The resolution to Tooze’s puzzle, as he at times hints, is the potency of a politics of identity that benefits the American Right just as it fragments and disperses what (passes for) the American Left.

Tooze is under no illusions about the Biden administration’s radical credentials: as he notes, it is indebted to those of its wealthy backers who threatened to split the anti-Trump vote had there been any serious prospect of the Democratic Party nominating Bernie Sanders as its presidential candidate (p.227). He is clearly on side with the “modernising” forces of the USA, by which I think he means those forces that would, at least, suggest that the richest society that there has ever been could afford a social democratic welfare state. Yet he is sceptical that Biden administration policy actually matches its high flown rhetoric: once again, the developmental state is sidelined, reduced to the role of catalyst for private investment decisions resting, as he under-stately puts it “on optimistic assumptions” (p.300). The only – tattered – hope is that the institutional fragmentation of America’s political institutions mean that “it can continue to function in a divided way” driven by a kind of pragmatic survival instinct.

Tooze’s aims are diagnostic: if we live in a dollar denominated system, and the US must be at the forefront of the emerging climate crisis, do we want its powers re-unified under a revanchist fossil fuel regime? Or is there a sense of “better” in which it would be better if it remained “a more incoherent American regime in which key levers of power remain the purview of functional elites, globalised interests, and modernising coalitions in key centres like New York and Silicon Valley.” (p.301). Let’s put a name to it, which Tooze won’t, are the rest of us better off if the US becomes more, not less, oligarchic? From this perspective, it seems that the path-dependent nature of our current models of “technocratic” governance demand not more democratic legitimacy, but even less.

The origin of the diagnosis seems to lie in the fact that what most alarms Tooze is the mismatch between the global power of the politics of the US dollar and the fragility of its political foundation in US domestic politics. Had the fiscal package that Trump signed at the last minute in December, 2020, not been signed it would all have been up to the Fed and as he notes its policy instruments are effective but “”blunt””. By the skin of its teeth, the US combined fiscal stimulus with expansive monetary policy and “pumped demand into the world economy” (p.273). That is good news, but there is a close possible world in which US domestic polarisation had undercut the fiscal stimulus while the Fed’s “compensatory” QE deepened domestic inequality and led to currency wars with countries seeking to protect themselves from a devalued dollar.

In practical terms, this meant that there was to be no repeat of any measures to address the pandemic of the scale of the CARES Act. Once again, only the Fed could step up in the face of dysfunction in America’s oligarchic governance, notably, via its purchase of the municipal debt incurred by the local governments at the cutting edge of dealing with the pandemic. In the process there was a major portent of a fundamental shift in the Fed’s macro-economic policy: via its re-framing of it inflation target for the first time in a generation the US economy might be allowed to “run hot”. That is an appropriate context for the current moral panic surrounding inflation that is affecting the rentier-investor class and its influential spokespeople in the media. As Tooze noted in a complementary recent publication ‘The Gatekeeper’ – his best short form essay – the answer to secular stagnation is to allow the economy to run hot so that private agents of all kinds – consumers and businesses – will stop hoarding cash and be forced to spend it rather than see it lose its real purchasing power (22).

Amidst all the suffering and the chaos, there is a basically optimistic perspective to be taken away from this book, not least its conclusion that “the scientific community’s response to the coronavirus will go down in history as one of humanity’s more remarkable collective achievements” (p.237) – a nice example of Tooze’s capacity for British under-statement. The opening stages of a vaccine response were primed, as it were, by the research provoked by the SARS outbreak in 2003 (p.238). If this was a vaccine race, as Tooze chooses to describe it, that is because it has been our collective political choice to organise pharmaceutical research and bioscience in this way. Despite the idiocies of respecting the Pharmaceutical industry’s interest in preserving its rent generating intellectual property protections – a topic where, we learn, the Gates Foundation holds strong views (p.245) – no less than 90 global vaccines are in production. This optimism, however, is balanced by the failure of our global institutions to organise a solution in our collective self interest to global vaccination, combined with effective debt relief for the world’s poorest countries – what actually took place is well described by Tooze as a “mockery” (p.259). It seems that financial innovation within the affluent West is not to be matched by the creative use of the world’s only global currency, the special drawing rights at the IMF, to underpin an effective response from the G20. Here the malign influence of Trump is clearly evident and, more generally, American resistance to the rise of a global rival to the US dollar.

At this point of the argument, the USA’s polarised politics really does play out on the global stage. Equally problematic, as Tooze notes in his chapter 13, are the scale of China’s debt imperialism via its belt and road initiative, and the outsize role played in the financing of the debt of the world’s poorest countries by private lenders working in conjunction with the private ratings agencies. All of these factors undercut the Debt Service Suspension Initiative. That a framework is emerging to resolve the collective action problem when the relief of debts by public agencies serves only to cross-subsidise the gains of private lenders is encouraging, but, once again, this essentially political project faltered as an immediate response to the pandemic. Tooze is the authoritative guide to the competition between Chinese state investment via the belt and road initiative, and a plurality of competing schemes from the Western powers with one common feature – a limited degree of public investment is leveraged by private sector actors. The problem with the latter is two-fold: the private investor seeks the guaranteed returns from “middle income, not low income” countries (p.264) and the bottom line sums are simply not enough. For the 670 million people who live in the world’s poorest countries, their mere existence “did not pose a systemic risk to the centres of economic and political power in the global north” (pp.264–5). Given the nature of the governance regime we are living under, that means that, in effect, they simply didn’t count (enough).

Early in the book, Tooze cites a template for explaining multiple crises developed by Xi Ping’s intellectual advisor Chen Yixin: the risk matrix of “back flow” from state action; the merging of superficially separate threats; the layering of distinct threats from separate domains; global communication linkages; the magnifier effect of an internet based informational ecosystem; a copycat effect where problems in one place are imitated elsewhere (pp.6-7). By the Conclusion to this book this image of a polycrisis recurs in the context of a crisis of a “model of American-led globalisation”: that Tooze judges to be “in deep trouble” as it had been “for some time” (p.288). In Crashed, Tooze notes that he had to make a rapid course adjustment when it seemed to him that Obama’s efforts to recover from the 2007-8 crisis had largely succeeded, only for Tooze to realise both that it had not, and that the political fallout from that crisis were on-going and escalating. Anxious to avoid such premature optimism this time round in this new book, Tooze emphasises just how deeply in crisis the US remains. He is guardedly optimistic that the Biden administration has learned the lessons from 2007–8 and has “gone big” with its fiscal stimulus via its infrastructure plan. This development reinforces Tooze’s central thesis: that the Fed has finally worked out that it is no longer the 1980s: with organised labour defeated decisively, the economy can be run hot without the mythical threat from the wage price spiral that is the nightmare of monetarists. Tooze’s view, shared by many, is that the Fed has put itself in a position where, in effect, it underwrites the bond market in a way from which it cannot withdraw. (Blyth calls this “a moral hazard extortion game” (23).) The idea of “normalising” the Fed’s relation to the bond market has, in the light of the events of 2020, receded to a future that seems likely never to arrive. Tooze takes this emblematic of the general theme that the pandemic has highlighted a degree of state involvement in the economy from which, across jurisdictions, it is unable to retreat.

This is a book, then, primarily written for students of irony. Radical political action is being taken by the most unaccountable of politic actors, central banks, beneficiaries of an institutional set up designed to protect them from democratic “pressure”. This development is celebrated by progressives, who affect to despise unaccountable technocratic elites, notwithstanding the fact that the elite cadre of the world’s central banker are the most unaccountable elite of them all. We can expect the conditions imposed by the pandemic to have exacerbated the degree of our domination by elite financial interests. In this “revolution without revolutionaries” it is capitalism, itself, that is going through its own revolution and very much on its own terms.

At the outset of the book Tooze describes its central theme as “a comprehensive crisis of the Neo-liberal era” (p.22). His diagnosis is that the governing elites managed what I would call a “kludge”: a financial and a medical fix that failed to co-ordinate across nation-states in the interests of either efficiency or fairness (p.292). In Tooze’s terms, this is “crisis management on an ever-larger scale, crisis-driven and ad hoc” and we can look forward to more of the same. That is why central banking, so central to his narrative, is paradigmatic for how we are to read the long term effects of the crisis. Now that the curtain has been drawn back – what next? Tooze describes the model on offer from our technocratic elites as a “growth model” – their answer to everything. He also takes at face value, as the chronicler of their mores, that we have just witnessed an example of “technocratic governance”. He frames the issue, then, as to how this technocratic governance that comes up with an ad hoc solution to crises, economic or biological, can be reconciled with democratic legitimacy. For the reasons noted, I do not accept this framing, and Tooze has provided all the evidence we need to challenge it. But that is a large issue for another occasion.

Crashed was written in the light of a resigned acceptance that at least in one domain, finance, a tight form of globalisation was a fait accompli. Shutdown takes the argument a step further: that regime forms part of a broader model of oligarchic governance that may, in the case of the USA, produce less damaging global consequences than (for example) a presidential win for a 78-year old Donald Trump in 2024 (Biden’s current age). If you have any residual faith in democracy, let’s hope the leading interpreter of our current politics and its global challenges is wrong and that we face better choices than which form of oligarchic governance we would like to live under. It is worth bearing in mind, here, as I noted in Republic of Equals, that the ruling elites in the USA are uniquely free of the putative pressures of globalisation that they impose on others (pp.333–336).

Overall, then, this is a deeply interesting book that deserves the wide audience it will undoubtedly receive. It will be a public service if the broader reading public reads it alongside the usual suspects of academics working in history, geography, economics and, for that matter, philosophy. While we will be seeing a plethora of books on this subject matter in the months to come, it seems to me highly unlikely that they will be more insightful than Tooze’s opening effort. As with Crashed, we are once again all very much in his debt.


(1) As discussed in my ‘Is the Democratisation of Central Banking a Technocratic Problem?‘; see also Stefan Eich (2021) ‘Independence From What?’
(2) Notably in three papers: Daniela Gabor (2020) Critical Macro-finance: A Theoretical Lens. Finance and Society, 6(1), 45–55; Gabor, Yannis Dafermos and Jo Michell (2020) ‘Institutional Supercycles: An Evolutionary Macro-Finance Approach‘, Rebuilding Macroeconomics Working Paper series; Daniela Gabor (2021) ‘The Wall Street Consensus’, Development and Change, vol. 52, issue 3, pp. 429–459.
(3) George Soros (1998) The Crisis of Global Capitalism, Public Affairs.
(4) Alan Thomas (2017) Republic of Equals, Oxford University Press, esp p.62, p.65.
(5) See Alan Thomas, Alfred Archer and Bart Engelen (forthcoming) Extravagance and Misery: the Emotional Regime of Market Societies, chapters one and two.
(6) This is true of monetarily sovereign states: hence it is not an option available to any of the member states of the eurozone, whose ersatz “central bank, the ECB, operates under legal restrictions enthusiastically policed by the inflation phobic, anti-Keynesian, Bundesbank.
(7) This is called the “monetisation” of government debt instruments.
(8) Abba Lerner (1943) ‘Functional Finance and the Federal Debt’, Social Research, vol. 10, no. 1, pp.38–51.
(9) Daniela Gabor (2020) ‘Critical Macro-Finance’.
(10) Daniela Gabor and Cornel Ban (2016) ‘Banking on Bonds: the New Links between States and Markets’, Journal of Common Market Studies, vol.54, no.3, pp. 617–635.
(11) A. Giovannini (2013) ‘Risk Free Assets in Financial Markets’, BIS paper 72, pp.73–79.
(12) Daniela Gabor (2021) ‘Revolution Without Revolutionaries: Interrogating the Return of Monetary Financing’.
(13) Daniela Gabor (2021) ‘Revolution Without Revolutionaries: Interrogating the Return of Monetary Financing’.
(14) Perry Mehrling (2010) The New Lombard Street: How the Fed Became the Dealer of Last Resort, Princeton University Press. Mehrling draws a distinction between the orthodox central bank function of liquidity funding and the unorthodox extension of underwriting market liquidity by becoming, in effect, an insurer to the dealer system charging expensive premia for this service of protection against tail risks.
(15) Gabor, Dafermos and Michell are careful to explain how the process described by Mehrling is distinct from QE in spite of the similarity in the way the central bank actually operates (2020).
(16) The St.Louis Fed has a remarkably clear explanation of how QE works, written by Brett Fawley, that is worth consulting in detail.

Suppose you want to undertake a commitment, now, fully to pay an amount in the future — say five or ten years time. You would select an absolutely safe asset — a US Treasury bond — and determine its purchase price today. The discount rate you ought to use is equivalent to the yield on bonds of the same maturity (5 or 10 years).

But why would an investor buy a Treasury bond rather than simply take out a loan every day and rolling it over (re-financing) every day? What tempts them to buy a bond?

First of all, consider the length of the bond’s term and project what the overnight interest rate will be for every day of that term. Will the yield on the bond be higher? But tying up money is itself a risk, so the investor will also want to be paid a “risk premium” because central bank policy may change interest rates over the lifetime of the bond. Then, for some lenders, there is the risk of default (not, one might add, in the case of US Treasuries). Add in the effects of inflation on the real purchasing power of the return on the bond. Do all that arithmetic, and the yield on the bond must be higher than simply rolling over an investment on a daily basis.

How QE impacts on these calculations, as Fawley explains, is by sending to distinct kinds of signal. First, it does not directly say “short term borrowing costs in the future will be x, y or z”. It does signal that the central bank thinks that, by the mere act of engaging in QE, it can send the signal that interest rates will be low.

Second, an even more interesting effect of QE is on the premium paid both for risks and for the length of the holding of the bond (the term). As Fawley explains “If investors demand a premium for holding 10-year Treasuries over 5-year Treasuries, then this premium should depend in part on the relative supplies of 10-year and five-year Treasuries. If the Fed purchases 10-year Treasuries, removing them from the market, investors should require a smaller premium to hold the reduced quantity of 10-year Treasuries in their portfolio.” This is Tobin’s portfolio balancing effect: the longer the duration of an asset, the riskier it is to hold it (James Tobin, 1958 ‘Liquidity Preference as Behavior Towards Risk’, Review of Economic Studies, 25, pp.124–131).

Cancel a substantial amount of the assets with high duration in the market, while injecting cash, and investors will re-balance their portfolios. Why? There is less duration risk in the aggregate and the premium for holding it goes down. Again, why? This for three reasons: with the overall risk in their portfolio reduced, investors require less compensation to hold fewer of the riskier assets than they did when they held more. Or those who hold the long duration assets are the ones most willing to bear the risk because of their preferences, so the overall price of the risk goes down (the other investors required disproportionately higher compensation for bearing those risks). Or some investors actually want the long time horizon for, e.g. their retirement assets.

Fawley points out that this effect depends on investors actually being sensitive to this issue: if they are indifferent between 5-year and 10-year bonds, then this change would have no impact on their portfolios. But “imperfect asset substitutability” is a fact, therefore this portfolio rebalancing effect is one of the important effects of QE. A smaller premium = cheaper borrowing and Fawley argues that, empirically, the portfolio rebalancing effect was empirically the strongest effect of QE via its reduction in term premia. With yields reduced, investors are displaced into the purchase of private sector bonds and equities; private consumers see their long term borrowing made cheaper (notably their mortgages); there is a wealth effect when asset holders see the value of their assets inflated by state asset purchases.

(17) I discuss some of these issues in my attempt to interpret Minsky as a political philosopher, not solely an economist, in ‘Hyman Minsky: More than a Moment’, unpublished ms.
(18) Thomas Palley (2011) ‘A Theory of Minsky Super-cycles and Financial Crises’, Contributions to Political Economy, vol.30, no. 1, pp.31–46; Hyman Minsky (1986/2008) Stabilising an Unstable Economy, McGraw-Hill
(19) Thomas, Archer and Engelen (forthcoming), Extravagance and Misery, chapters one and two.
(20) Robert Hockett (2020) Financing the Green New Deal: A Plan of Action and Renewal, Palgrave Macmillan.
(21) Mark Blyth and Thomas Oatley, ‘The Death of the Carbon Coalition‘, Foreign Policy, February 12, 2021.
(22) Adam Tooze, ‘The Gatekeeper’, LRB, vol. 43, no. 8, 22nd April 2021.
(23) Mark Blyth, ‘Fed Defends the ‘Creditors Paradise’. In