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.
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. In some ways, that’s a good thing: The world learned much about responding to financial crises in 2008. 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.
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 seems 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 actually 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 macrofinance 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.