By Adam Tooze
Almost two years since the novel coronavirus began to circulate through the human population, what lessons have we learned? And what do those lessons portend for future crises?
The most obvious is the hardest to digest: The world’s decision makers have given us a staggering demonstration of their collective inability to grasp what it would actually mean to govern the deeply globalized and interconnected world they have created. There is only one limited realm in which something like a concerted response has been managed: money and finance. But governments’ and central banks’ success in holding the world’s financial system together is contributing in the long run to inequality and social polarization. If 2020 was a trial run, we should be worried.
How did we get here? In a way, the failure was predictable. As instruments of coordination and cooperation, global institutions like the United Nations, the International Monetary Fund and the World Health Organization had proved fragile and toothless long before the pandemic. The explanation for this failure used to be geopolitical antagonism: Power blocs couldn’t come together when they had competing priorities and agendas. It was thus tempting to imagine that some common threat — perhaps an alien invasion — might make a reality of the United Nations.
The coronavirus, one might think, was precisely such an invasion. And yet faced with this common threat, cooperation failed. Rather than a concerted shutdown of global aviation, frontiers were closed on the fly; supplies of personal protective equipment were grabbed at airports; haphazard travel bans continue to this day.
With America in the lead, the world was more divided than ever. America’s failure to coordinate a response was no mere sideshow. Like it or not, this continental nation-state, with the world’s largest economy, facing Europe, South America and the Pacific, is constitutive of globalism as we know it. It was a horrible irony that Donald Trump, the first American president to repudiate this, was in the White House when a truly global crisis hit. That encouraged talk of Covid as the first “post-American” crisis. But America will have to diminish a lot more before we can count it out. What 2020 showed, in fact, was that America’s dysfunctions are the world’s problem.
Vaccines are a case in point. The development of Covid vaccines was a collective triumph of researchers, governments and businesses around the world. Mr. Trump’s Operation Warp Speed was the most successful of all. But that program was defined by the needs of the United States — not the world. Scandalously, the United States under Mr. Trump did not even join the United Nations’ Covax initiative. Even after vaccine rollout began in earnest in 2021, the United States continued to hoard doses.
The failure to develop a global vaccination program is not just dismaying. It ought also to be profoundly puzzling: It defies the self-interests of the richest countries in the world. Booster shots aside, the greater the volume of infection, the greater the risk of variants even more dangerous than Delta.
And the greater the economic damage, too. In July, the I.M.F. estimated that an investment of $50 billion in a comprehensive campaign for vaccination and other virus control efforts would generate some $9 trillion in additional global output by 2025 — a ratio of 180 to 1. What investment could hope to yield a higher rate of return? And yet none of the members of the Group of 20 have stepped up, not Europe, not the United States, not even China. Billions of people will be forced to wait until 2023 to receive even their first shot.
This failure is all the more glaring for another lesson that the pandemic revealed: Budget constraints don’t seem to exist; money is a mere technicality. The hard limits of financial sustainability, policed, we used to think, by ferocious bond markets, were blurred by the 2008 financial crisis. In 2020, they were erased.
Governments around the world issued debt as not seen since World War II, and yet interest rates plunged. As the private sector shut down, the public sector expanded. As government deficits grew, the monetary system responded elastically. Government spending made up for the loss of private incomes and spending.
This balancing of public and private spending works best if all countries are doing it simultaneously. This was one area where there was an alignment of national policies. In Europe, there was even a dramatic new phase of cooperation, with the launching of a 750 billion-euro recovery program funded, for the first time, by borrowing by Brussels rather than the European Union’s member states. Providing a supportive frame for this global expansion was Mr. Trump’s United States with its own gigantic fiscal and monetary expansion.
This was a surprise. Before 2020 there were conversations in the halls of the I.M.F. about whether a nationalist president and the flat-earthersin Congress would permit the Federal Reserve and the Treasury to play a leading role in a global financial crisis. Hank Paulson, George W. Bush’s Treasury secretary in 2008, refused to endorse Mr. Trump for just this reason. But when it came to it, Mr. Trump’s instincts all pushed in the right direction, at least on economic policy. If ever there was a president who took naturally to the idea of “fiat money,” it was Donald Trump. So long as his name was on the checks, more was better.
It helped that the response was led by professional central bankers. Global finance is a world with a clear hierarchy, with the Fed at the top, followed by the European Central Bank, the People’s Bank of China, the Bank of Japan and the Bank of England. But it is also a close-knit community with a shared mental map. Central bankers trade in electronic money that can be created at the tap of a keyboard. Creating it does not “cost” anything and does not require approval from elected legislatures. After 2008, tools like quantitative easing — the large-scale purchase of assets — were well oiled.
The world discovered that John Maynard Keynes was right when he declared during World War II that “anything we can actually do, we can afford.” The sheer scale of the action was intoxicating. Among the left wing of the Democratic Party, it generated excitement: If money was a mere technicality, what else could be done? Action on social justice, climate change, the Green New Deal, all seemed within reach.
But there were three interrelated problems.
First, the sense that government action had been liberated from the tyranny of finance was illusory. The interventions triggered in March 2020 were not free acts of creative political will. The central bankers were not buying government debt to help finance lockdown life-support checks. They were acting to rescue financial markets from melting down. “Too big to fail” has become a systemic imperative.
That meant, second, that the interventions were double-edged. Propping up the Treasury market enabled government spending on furlough schemes and paycheck protection plans to be funded in the normal way, by borrowing. But government IOUs are fuel for private speculation. When liquidity is flushed indiscriminately into the financial system, it inflates bubbles, generating new risks and outsize gains for those with substantial portfolios. Nowhere was this polarizing effect more pronounced than in the United States. While tens of millions struggled through the crisis, trillions of dollars piled up in the balance sheets of the wealthy.
Finally, the digital money creation was the easy bit. Keynes’s bon mot has a sting in its tail: We can afford anything we can actually do. The problem is agreeing on what to do and how to do it. In giving us a glimpse of financial freedom, 2020 also robbed us of pretenses and excuses. If we are not doing a global vaccine plan, it is not for lack of funds. It is because indifference, or selfish calculation — vaccinate America first — or real technical obstacles prevent us from “actually” doing it.
It turns out that budget constraints, in all their artificiality, had spared us from facing the all-too-limited willingness and capacity for collective action. Now if you hear someone arguing that we cannot afford to bring billions of people out of poverty or we cannot afford to transition the energy system away from fossil fuels, we know how to respond: Either you are invoking technological obstacles, in which case we need a suitably scaled, Warp Speed-style program to overcome them, or it is simply a matter of priorities. There are other things you would rather do.
The challenges won’t go away, and they won’t get smaller. The coronavirus was a shock, but a pandemic was long predicted. There is every reason to think that this one will not be a one-off. Whether the disease originated in zoonotic mutation or in a lab, there is more and worse where it came from. And it is not just viruses that we have to worry about, but also the mounting destabilization of the climate, collapsing biodiversity, large-scale desertification and pollution across the globe.
Looking back before 2020, it seemed that 2008 was the beginning of a new era of successive and interconnected disruptions, such as the global financial crisis, Mr. Trump’s election, and the trade and tech war with China. It all had a familiar ring to it. Great-power competition, nationalism and banking crises all harked back to the 19th and 20th centuries. Then came 2020. It has given us a glimpse of something radically new: the old tensions of politics, finance and geopolitics intersecting with a natural shock on a global scale.
The Biden administration declares that “America is back.” But to what is it returning? As recent events in Afghanistan demonstrate, President Biden is determined to clear the decks, brutally if necessary. As far as the Pentagon is concerned, at the top of the agenda is great-power competition with China — a 19th century writ large. But what of the interconnected global crises of the 21st century that cannot be attributed to a national antagonist? For those, the one model that we have is central bank financial market intervention — a form of crisis-fighting based on technical networks, rooted in existing hierarchies of power and backed by powerful self-interest. It is conservative, ad hoc and lacking in explicit political legitimacy. It tends to reinforce existing hierarchy and privilege.
The challenge for a progressive globalism fit for the next decades is both to multiply those crisis-fighting networks — into the fields of medical research and vaccine development, renewable energy and so on — and to make them more democratic, transparent and egalitarian.
Adam Tooze is an economic historian and the author of the forthcoming “Shutdown: How Covid Shook the World’s Economy,” from which this essay is adapted.