The Economist Reviews Adam Tooze's Contemporary History of the COVID Economy

Shutdown: How Covid Shook the World’s Economy. By Adam Tooze. Viking; 368 pages; $28. Allen Lane; £25

The covid-19 pandemic may be the starkest example of globalisation that history has ever provided. It was not just that the virus spread rapidly round the world. As governments reacted by imposing shutdowns, almost 95% of the world’s economies suffered a simultaneous contraction in gdp per head.

Even the millions of workers who have been furloughed from their jobs will have struggled to find the time to keep up with all the ramifications. So Adam Tooze, a history professor at Columbia University, has taken on the ambitious task of producing an instant history of the pandemic’s economic fallout. As with his previous book, “Crashed”, about the financial crisis of 2008 and 2009, Mr Tooze displays a remarkable ability to master the detail. And his reach is extremely broad. This is truly a picture of the global impact of the crisis; it covers the disruption in the financial markets, as well as the ins and outs of government policy.

For readers buffeted by the news, one advantage of this instant history is that Mr Tooze reminds them what public figures said in the very early stages of the pandemic. On February 3rd 2020 Boris Johnson, Britain’s prime minister, warned of the danger that “new diseases such as coronavirus will trigger a panic”, leading to measures that “go beyond what is medically rational, to the point of doing real and unnecessary economic damage”. Within two months, he had locked down the British economy. On February 25th 2020 Larry Kudlow, an adviser to President Donald Trump, said that “we have contained this”, cheerfully adding: “I don’t think it’s going to be an economic tragedy at all.”

Central banks were quicker to grasp the implications of the disease. As Mr Tooze notes, they acted not just on an unprecedented scale but with great speed. “In 2008 there had still been a note of hesitancy about central-bank interventions. In 2020 that was gone,” he writes. Governments ended up backing this monetary stimulus with fiscal policy. The $14trn-worth of support they had provided by the end of 2020 was much larger than the stimulus they had offered in the wake of the global financial crisis.

Developing countries, meanwhile, suffered much less economic damage from the pandemic than would once have been expected. Since 2000 emerging markets have largely avoided two important and connected risks, namely pegging their exchange rates to the dollar and borrowing in foreign currencies. This saved them from the dilemma that had dogged many in the 1990s: whether to impose high interest rates to defend their currencies or to devalue and risk bankrupting those companies and banks that had borrowed in dollars. As a result, many emerging-market central banks were able to cut interest rates in response to the covid-induced slowdown; their borrowing costs in the international bond markets spiked only briefly before falling back to where they were before the pandemic.