• Christopher Soelistyo

Reading "Shutdown" by Adam Tooze

The Covid pandemic is the global crisis par excellence. Rarely, if ever, before had a singular event impacted so many people across the globe simultaneously. As the virus raced around the globe and governments reacted by imposing lockdowns, the world economy suffered a shock like never before.

This story is the focus on Shutdown, the newest book by economic historian Adam Tooze. It is a book about the Covid pandemic, but discussion of the actual virus and the effects of the disease can scarcely be found. Rather, Tooze's attention is placed on the measures taken in response to the pandemic in its first year by governments, markets and central banks. After all, these measures and their politics are what make the Covid era truly novel. As Tooze himself remarks, even though the flu pandemic of 1918-19 wrought far greater destruction, what was surprising was "how rapidly this appalling disaster was assimilated and how little it impacted the political history of its moment" (p.45). By contrast, Covid was critical to the political history of our own moment, necessitating as it did the most radical social and economic responses to deal with it.

Shutdown is not a big book, but it is very densely packed with ideas and insight. As such, I'll focus only one specific area - the firefighting efforts of governments and central banks in the spring of 2020 - at the necessary expense of other aspects of Tooze's narrative.


I. The Need for Action

II. The Fed Steps In

III. Taps On

IV. Global Finance

V. Reflections

I: The Need for Action

In the spring of 2020, the spread of SARS-CoV-2 around the world spurred a wide range of economic restrictions to prevent mass death and the breakdown of health systems worldwide. This included travel restrictions, lockdowns and social distancing measures. The most immediate short-term result was an incredible contraction of global supply: for example, to meet the same demand for air travel, a greater number of planes would be required due to in-flight social distancing restrictions. But of course, this was accompanied also by an immense contraction in global demand itself, as families kept to the safety of their homes amid the raging epidemic*. As such, shutting down the economy was not only a public health imperative, it was "the only thing that made business sense" (p.86).

*An IMF study using econometric analysis of cell phone data concluded that for advanced economies, out of all reduction in mobility within the first 90 days of each country's epidemic, less than half could be accounted for by lockdown restrictions. The rest was voluntary (p.96, this report).

An often forgotten aspect of government-mandated lockdowns is that they were imposed by deliberate choice. In response to the critical threat to health posed by Covid, governments around the world chose to disrupt the jobs of millions of people, and chose to threaten many industries with business failure. Of course, this choice may be a false one - after all, if millions or tens of millions die, surely, the economic impacts would not be insignificant? However, as we all know, not everybody agrees that locking down was even the right thing to do, as can be witnessed in phenomena such as the lieutenant governor of Texas, Dan Patrick, going on Fox News to complain that "No one reached out to me and said, as a senior citizen, are you willing to take a chance on your survival in exchange for keeping the America that all Americans love for your children and grandchildren? And if that's the exchange, I'm all in" (p.39). In the face of such opposition, the decision to impose Covid restrictions was inevitably fraught with politics.

The impacts of the Covid-induced economic shock were brutal. In Nigeria, there was a hunger crisis (p.100). In Bangladesh, an 85 percent drop in garment exports led to at least 1 million garment workers being unemployed or furloughed, pushing predictions of the poverty rate to 40 percent (p.103). In South Africa, the important tourism industry took a massive hit, such that employment declined by about 18 percent between February and April. Indeed, tourism suffered an enormous setback worldwide. The World Travel and Tourism Council warned that 75 million jobs and US$2.1 trillion of revenue were at risk (p.102). In Britain, large retailers such as Debenhams and Topshop went under, putting 25,000 jobs at risk. The hit to business suffered by M&S led to 8,000 workers losing their jobs. In the United States in late March, a staggering 6.648 million applied for unemployment benefits within a single week: ten times as much as the worst week in the 2008/09 financial crisis. This surge of unemployment disproportionately affected certain groups, such as Latina women, who were heavily involved in manual service labour and thus saw their unemployment rate rise above 20 percent (p.101). Never before had such a high proportion of the world's economies - over 90 percent - suffered a simultaneous annual contraction in per-capita GDP (p.4).

The percentage of economies worldwide that have suffered an annual contraction of per-capita GDP each year. Shaded regions refer to global recessions. The collective contraction of economies in 2021 was unprecedented, with greater global reach than even the Great Depression. Photocopied from p.4.

In the face of such a massive shock to people's livelihoods and the economy as a whole, governments around the world clearly needed to do something - something of a scale significant enough to stave off the threat to socio-economic order that it was arrayed against.

II: The Fed Steps In

The response in 2020 was massive fiscal intervention - including tax deductions and stimulus payments to households - and financial intervention - comprising money market operations, loans to businesses, interest rate cuts and more - a lot of it coming from the repertoire of 2008. Nowhere was this playbook employed to a larger scale than in the United States.

By February 2020, there was a flight to safety in financial markets, as traders shifted from risky assets such as shares to "safe haven" assets - in particular, US government bonds - "Treasuries" - which are the safest of them all. US Treasuries are the ultimate safe asset because the market for them is huge - US$17 trillion at the start of 2020 - and they are backed by the most powerful state in the world. As such, there was nothing new about February 2020; the price of equities was falling and price of Treasuries was rising. As the price of the bond rises, its yield (the return relative to the price) would decrease, thus lowering interest rates, which would facilitate business borrowing and investment, and kick the economy back into action (pp.111,112).

However, on March 9th, with financial markets in full-blown panic, even Treasures began to be sold off in a "full blown dash for cash". This completely destabilised the Treasury market, with prices "danc[ing] erratically" in the most important financial market in the world. Furthermore, the decrease in Treasury prices and increase in yields was pushing interest rates up, which was the opposite of what was needed in this recessionary environment. By March 12th, US stock markets were suffering losses "worse than anything in 2008". If the state of financial panic continued, it would have been "more destabilizing even than the failure of Lehman brothers" (pp.111,112).

Falling interest rates cast a gloomy outlook on the profitability of banks, leading to a precipitous sell-off of their shares. Thankfully, tough regulations imposed on the banking sector after 2008 had hardened them to just this scenario. A simulation run by the Economist predicted that if major US banks had suffered the spring of 2020 in the same state that they were in back in 2008, core capital across the entire system would have collapsed to 1.5 percent of assets, "less than a sixth of what is considered safe"; this would have required a raft of "gigantic and politically toxic bailouts" (p.114)*.

*The original Economist article mentions that several big banks would have seen their core capital slashed to zero, i.e. technical insolvency. Depositors would have fled in a "full-scale bank run". The taxpayer-funded bailout would have been "even bigger than in the [2008] financial crisis".

The prospect of "escalating dysfunction" in the Treasury market was horrifying because a 'safe' asset that could no longer be dependably sold for a predictable price was no longer a safe asset. Furthermore, as Bank of America strategist Mark Cabana warned, if the US Treasury market was in turmoil, it would be "difficult for other markets to price effectively and could lead to large-scale position liquidations elsewhere". In other words, "if you could not be sure of being able to convert your piggy bank of safe Treasuries into cash, it was not safe to hold the rest of your portfolio either, and if that was true for the United States, it was also true for the rest of the world"; hence, there were outflows from "all kinds of euro area funds" not seen on a scale since 2008 (p.119)

The only cure that could restore confidence to the financial markets was "limitless cash"; and in the world's dollar-centred financial system, that could only be provided by the US Federal Reserve system (the "Fed"), America's central bank. The first interventions were conducted by the Federal Reserve Bank of New York in early March. On March 9th, it put up $150 billion for re-purchase agreement ("repo") operations, whereby the New York Fed purchases Treasuries from a dealer, who then re-purchases them at a higher price a short time after (p.121, here). On March 11th, it expanded this to $175 billion, as well as adding a further $95 billion in a separate repo program. On March 12th, the floodgates opened; the New York Fed offered $500 billion in three-month repo (i.e., where re-purchase is due in three months) on March 12th, as well as a further $500 billion in three-month repo on top of $500 billion in one-month repo on March 13th. Thereafter, $500 billion in one- and three-month repo would be offered on a weekly basis, as well as $175 billion in overnight repo (with re-purchase the next day) on a daily basis, as well $45 billion in two-week term repo on a bi-weekly basis (pp.121,122).

The scale of repo operations conducted by the New York Fed was gargantuan. By engaging in them, the Fed was injecting enormous amounts of liquidity into the American economy and keeping the Treasury market running at a time when it was in danger of seizing up. Aside from this, the Fed engaged in other forms of expansionary monetary policy. On March 3rd and March 15th it delivered cuts of 0.5 and 1.0 percentage points respectively to the target federal funds rate, one of the most important interest rates in the US economy. On March 15th, the Fed board also agreed to slash the reserve requirement ratios of banks to zero. In normal times, banks are required to hold enough cash to cover the possibility of sudden withdrawals (this is determined by the reserve requirement ratio), while all the surplus cash is eligible for lending to consumers and businesses. Now, all of a bank's cash was eligible for lending.

However, there was still the problem of the appreciation of the dollar. The flight to safety had unleashed a "dash for cash", and there was no cash more safe than US dollars. Hence, by mid-March, the values of benchmark currencies such as the euro and pound sterling had plunged against the dollar. Pound sterling was at its lowest level against the dollar since 1985 (p.124). As such, the markets for bonds denominated in euros and pound sterling were crashing, which spurred bond-buying programs by the Bank of England and European Central Bank (p.125). Dollar appreciation was a problem for other countries because, in order to defend the value of their currencies, central banks would have to keep interest rates high, which made difficult any kind of expansionary monetary policy.

To remedy this issue, the Fed expanded its existing network of liquidity swap lines - currency exchange arrangements with other central banks. At the beginning of the Covid crisis, the Fed shared swap lines with the central banks of Canada, the UK, Japan, the eurozone (the ECB) and Switzerland. On March 19th, it expanded this to nine more central banks: in Singapore, Australia, Brazil, Denmark, South Korea, Mexico, New Zealand, Norway and Sweden. On March 20th, the provision of dollars to the ECB and the Bank of Japan was accelerated. Hence, the appreciation of the dollar eased, opening for other central banks more breathing space. By the third week of March, thirty-nine central banks had lowered interest rates, allowing them more manoeuvre in monetary policy (p.126).

Still, the downward pressure on American stock markets was relentless. By March 23rd, the S&P 500 index had dropped 34 percent from a high in mid-February, its biggest drop since the 2007-09 recession. It was clear that the Fed had to do more.

On March 23rd, Fed chair Jerome Powell projected determination. In an announcement before the day's trading opened, Powell declared that "Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate". Powell's strategy was to launch a three-pronged approach.

The first step was to increase loans to banks using asset-backed securities* as collateral, thereby increasing their liquidity; this was done with the Fed's so-called "Term Asset-Backed Securities Loan Facility" (TALF), first deployed during the 2008 crisis. These loans fulfilled the "classic function" of central banks, to "provide liquidity in emergencies against good collateral". However, they were largely limited to the financial system, and moreover, were issued only against minimally risky ("AAA-rated") securities (p.127).

*Asset-backed securities are financial securities backed by incoming-generating assets such as student loans, home equity loans, auto loans etc.

The second step was to expand support to corporations. The Fed proposed a value of $750 billion for two credit facilities: the Primary Market Corporate Credit Facility, which would buy corporate debt directly from the corporations themselves through bond or loan issuances, and the Secondary Market Corporate Credit Facility, which would buy pre-existing corporate bonds from other investors. By engaging in purchases of corporate bonds, the Fed was incurring much greater risk of loss than in its extension of aid to banks under TALF (p.127).

The third step was to throw its full support behind the market for public debt. This was achieved mostly via outright purchases of Treasuries and agency mortgage-backed securities*. By the weekend of March 20th-21st, the Fed had already announced $500 billion in Treasury purchases and $200 billion of purchases in agency mortgage-backed securities. On March 23rd, it now pledged open-ended support: it would "purchase Treasury securities and agency mortgage-backed securities in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy" (p.129).

*Agency mortgage-backed securities are mortgage-backed securities issued by US government-sponsored enterprises: Freddie Mac, Fannie Mae or Ginnie Mae.

The scale of intervention was astonishing: in the last week of March, the Fed bought no less than $375 billion' worth of Treasuries and $250 billion in mortgage-backed securities; at its peak, the Fed was buying bonds at a rate of $1 million per second. The effects were clear: "confidence returned, credit flowed, and financial markets ... began an astonishing recovery". In fact, by mid-August 2020, the S&P 500 had recovered all its losses since February and had begun climbing to record heights (p.129).

The unprecedented scale of intervention in March 2020 can be seen as the culmination of a trend throughout the past two decades, since the dot-com bust 2000/01, where central bankers "moved from being ringmasters to ever more frantic jugglers of liquidity". The first milestone down the road was the 2008 financial crisis and its long aftermath, symbolised by ECB president Mario Draghi's declaration in 2012 to do "whatever it takes". In 2020, they acted "with an alacrity that betrayed the increasing disinhibition of the preceding decades", raising questions about just what the "new normal" of central banking policy would be (p.130).

III: Taps On

In March 2020, the Fed's massive bout of financial intervention was flanked by an equally gargantuan measure of fiscal intervention, the "largest slug of fiscal support ever delivered to an economy - anywhere, ever". On March 25th, after two weeks of negotiation, the US senate voted to approve the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which allocated $2.2 trillion - 10 percent of US GDP - in fiscal injections via extra spending and tax cuts (this would eventually increase to $2.7 trillion). This was the largest salvo in a worldwide fiscal effort that, according to IMF estimations, amounted to $14 trillion by January 2021 (p.131).

For a brief moment, the CARES Act upended the dubious honour enjoyed by the United States among rich nations of having a uniquely weak welfare system. The fiscal effort was aimed at all sectors of society. Of the $2.7 trillion appropriated under the Act, $610 billion was used to provide unemployment and stimulus payments to households, whilst $525 billion was set aside to support big businesses, and $185 billion was reserved for health providers. For small businesses, the Act established the Paycheck Protection Program, which provided loans to businesses with 500 or fewer employees on the condition that they retain their workers during the crisis - in this sense, it was "the closest thing America could manage to a European-style furlough scheme". For the US airline industry, the Act allocated $61 billion, part of a global effort to save this industry that, within the OECD alone, ran to $160 billion by August 2020 (p.140).

Monthly US household income, compared to the level of February 2020 (expressed in trillions of USD). As regular incomes fell, unemployment benefits and non-unemployment-related transfer payments served to keep aggregate household incomes afloat. Photocopied from p.138.

Despite the unprecedented nature of spending in the US, the biggest surprise was the case of Europe, which, during the eurozone crisis had become the "poster child for austerity". "Frugal" northern nations such as Germany and the Netherlands refused to extend unqualified assistance to ailing southern nations such as Greece, Spain or Italy out of an ideological phobia of moral hazard, preferring to let them languish under painful fiscal austerity (after all, who could forget the infamous remark of former Dutch finance minister Jeroen Dijsselbloem, whose suggestion that southern Europeans had squandered their money on "booze and women" stirred a scandal, as well as calls for his resignation). The result was an "acrimonious legacy", between the north and the south. However, in the face of a pandemic, the Europeans banded together in a rare moment of solidarity - albeit still with some resistance from the Dutch (p.131).

The scale of the challenge forced even the most reluctant states to action. Germany, which had in 2009 added a "debt brake" to its constitution that limited annual borrowing to 0.35 percent of GDP, actually suspended the brake on March 25th when it announced a massive fiscal program that added €123 billion to the budget, on top of loan guarantees that extended the scale of German government assistance to €750 billion. Calls for suspending the debt brake had been already made in late February by Germany's finance minister, Olaf Scholz - who in December 2021 replaced Merkel as Chancellor of Germany. Significantly, Berlin did not raise protest when, on March 23rd the European Commission took the step of removing certain budget rules that constrained the spending of all euro area members (budget deficits and public debt must be kept below 3 and 60 percent of GDP respectively) (p.134).

The fiscal effort of G20 economies, expressed as a percentage of GDP. Overall, Germany committed to the largest fiscal effort, as a percentage of GDP. However, most of this was taken by loan guarantees, rather than direct expenditure. The United States committed the largest relative expenditure, along with Canada, Australia and Japan. However, the sheer scale of the US economy made it decisive. Photocopied from p.133.

Perhaps the most surprising development occurred on July 21st, when the European Council agreed on the establishment of a recovery fund (termed "Next Generation EU") that would be powered by the issuance of €750 billion of Eurobonds*, common debt jointly issued by the members of the eurozone. The provision of common debt was always strongly opposed by the Northern Europeans, who claimed that it would "punish the countries that had saved for such a rainy day". After all, in 2012, Angela Merkel had promised German voters that "I don't see total debt liability [i.e., mutual eurozone debt] for as long as I live". In 2020, despite initial opposition to the idea, Merkel finally came around. According to Tooze, Merkel's volte-face was driven by her "appreciation that coronavirus presented Europe with a new type of challenge" that "demonstrated the obsolescence of the nation-state". In other words, she appreciated that the common threat demanded a common response, that "Europe must act together" because "the nation-state alone has no future" (p.185).

*Also referred to as "corona bonds" in this context.

In the West, the scale of economic intervention was breathtaking, and stirred talk of a "new social contract", a revolution in society/government relations - especially in the United States, where the CARES Act was arguably "America's first experiment since the 1960s with welfare on a scale befitting a rich country". However, as Tooze reminds us, "virtually none of the politicians who voted for the huge spending had started the year planning to change society". In fact, the fiscal and financial interventions of 2020 were largely conservative in nature, intended to preserve social structures and norms, along with their attendant hierarchies* (p.139).

*Tooze notes that the origins of the welfare state in Bismarckian Germany in the 1880s were rooted fundamentally in conservatism, to "preserve the social status hierarchy across the vicissitudes of sickness, old age and, eventually, unemployment" (p.139).

This can be witnessed both in the CARES Act and in its Fed's monetary interventions in March 2020. A financial crisis would have been disastrous for the US economy as a whole (and as a result, much of the world). However, the benefits of financial market recovery after March were inevitably "distributed unequally" - in particular, they benefitted most those heavily involved in financial markets, such as holders of corporate shares. Hence, in 2020, the world's billionaires saw their wealth rise by $1.9 trillion, in sharp contrast to the plight of national economies worldwide. Furthermore, the main channels of Fed support for the economy were through the provision of aid to banks and corporations; by supporting American business via the purchase of corporate bonds or the issuance of loans, the Fed was taking on a significant risk of loss. And who would cover that loss? The Treasury, funded by the American taxpayer (pp.127-129).

Furthermore, a brief look at the CARES Act reveals that only less than a third of the $2.7 trillion was allocated for support to individual households; the rest was set aside for businesses. Neither was the Act "revolutionary" at all when it came to tax cuts. One provision of the Act was to lift certain restrictions that had mitigated the effects of huge tax cuts implemented by the Trump administration in 2017, which primarily benefited higher income earners. To pass Congress, the cuts had come with restrictions on, for instance, the tax deductions available to firms on debt interest payment. The CARES Act lifted those limitations. The benefit to America's richest ran to $174 billion. Hence, for all the talk of a new social contract, fiscal policy in early 2020 was "as much a reflection of preexisting interests and inequalities as any other area of government action" (p.141).

One could ask, furthermore, how it was that the Treasury was able to support a fiscal effort on this scale. The succinct answer was that "one branch of government, the central bank, was buying the debt issued by another branch of government, the Treasury" (p.144). The Fed was financing the Treasury's massive deficits with its large-scale purchases of US government bonds. Furthermore, the Fed would not typically buy newly issued debt directly from the Treasury - rather, it bought bonds held by banks and investment funds. As payment, the Fed offered them "cash", which manifested on a practical level as digital reserve deposits, held by private banks, at the central bank. To ensure these deposits stayed put, the Fed paid interest on them. Hence, the under this system, the Treasury paid interest (bond payments) to the central bank, which in turn paid interest to the private banks. The dual effect was to provide liquidity to the banking sector, as well as enable to Treasury to issue massive amounts of government debt, which in turn financed the government's fiscal programs. In an echo of 2008, this episode demonstrated the symbiotic relationship between the Treasury, the Fed, and America's private banking sector (pp.145,150).

On the face of it, what was occurring at this moment was a novel, powerful synthesis of monetary and fiscal policy to support the ailing American economy, a phenomenon that was further repeated in the eurozone, the United Kingdom and elsewhere. Despite this, central banks continued to insist that their support for fiscal policy was "no more than an incidental side effect of their frantic and clumsy efforts to manage the economy by way of financial markets", despite the "relentless accumulation of government debt on their balance sheets". They insisted that all their bond purchases had "nothing to do with financing public spending", even though they were playing a vital role in backstopping the government budget at a time of national crisis (p.148).

Central bank purchases of government bonds to support fiscal crisis-fighting measures. Purchases were spearheaded with by the US Federal Reserve. Photocopied from p.144.

IV: Global Finance

The rich countries of the North Atlantic were able to deploy government intervention on a tremendous scale. But what about the emerging markets? Unsurprisingly, they too suffered a massive hit from the Covid shock. In the spring of 2020, the value of the Brazilian currency plunged 25 percent, and the stock market in São Paulo had lost half its value by late March (p.155). The collapsing tourism industry brought bleak prospects for tourism-dependent economies in sub-Saharan Africa, and plunging commodities prices put huge pressure on oil and gas exporters such as Algeria, Angola, Ecuador, Nigeria and Iraq, among others (p.161). As a result, between mid-January and mid-May 2020, equity and bond markets in twenty-one large emerging economies suffered a collective cross-border outflow of $103 billion, more than four times the outflow in September 2008 (p.155).

Capital outflows - a consequence of the dash for US dollars - could lead to the depreciation of a country's currency, which would typically require interest rate raises by central banks to prop up the currency. However, this would jeopardise the central banks' ability to lower interest rates in order to support the economy in a time of crisis. The only way out was to somehow strengthen the currency.

To do this, massive bond-buying operations were conducted by the central banks of Indonesia, Brazil, Chile, Colombia, India, Mexico, Russia and Turkey; these had the additional effect of funding government crisis spending, just as in the United States. In many cases, the emerging markets had the necessary foreign exchange reserves to accomplish this; however, if they had had to continue these operations over many months, "even the most robust emerging markets might have been in trouble" (p.165).

One solution was to access US dollars using the Fed's swap lines; however, of the emerging markets, only Brazil, Mexico and South Korea enjoyed existing swap lines. In any case, the major saving grace was not the swap lines, but the "huge wave of liquidity" unleashed by the Fed beginning in March, which pushed up Treasury prices, lowered US interest rates and pushed down the value of the dollar. As a consequence, currencies of emerging markets rallied, making these markets more attractive as destinations for capital inflows (p.165).

One other mode of support for emerging markets was the International Monetary Fund (IMF). On April 14th, 2020, eighteen heads of state in Europe and Africa released a joint statement calling for the issuance of new "special drawing rights" (SDRs) for developing countries. SDRs - international reserve assets held in accounts at the IMF - are the "closest thing we have to a world currency". Their issuance would have given poor countries some much needed purchasing power. However, this initiative was effectively blocked by the Trump administration, who considered it politically unacceptable that new money would be put "in the pockets of Venezuela and Iran"*. However, United States raised no objections to a G20 initiative, launched in May, to introduce a moratorium on loan payments for bilateral government-to-government loans owed by the seventy-three poorest countries. This initiative crucially included China - by far the "most important source of bilateral funding" to poor countries - without whom the initiative would have been ineffective (p.162).

*IMF voting power is assigned to each country in rough proportion to that country's contribution to IMF resources. As the largest shareholder, the United States holds 16.5 percent of the IMF's votes. This makes it the sole country capable of exercise an effective veto on major decisions, which may require a 70-85 percent supermajority.

The moratorium covered only the poorest of the world's countries, thereby excluding middle-income countries such as China, Mexico or Russia, whose debts were an order of magnitude larger. However, again, it was the IMF who stepped in. By the end of July, it had approved $88.1 billion in funding to eighty-four countries. As Tooze notes, the majority of this lending was not actually drawn. Rather, gaining approval for IMF credit at all served as a way of "bolstering available reserves and signaling credit-worthiness to other potential lenders" (p.163). Again, it was the efforts of the United States, and the IMF in which it has great influence, that helped emerging markets tide over the spring of 2020.

V: Reflections

Everyone takes something different from the same course of events. For me, the aspect of Tooze's narrative that stood out was how the Covid crisis revealed some basic truths of the world in which we live (as I see them!). In particular, it revealed who were the guarantors and primary decision-makers responsible for maintaining the global economic system - and defending it in a time of great crisis.

Even though the Covid crisis affected billions around the world, the narrative of the book captured in this review focuses primarily on an extremely limited group of people, sitting in Frankfurt, Wall Street and the City of London, who manage money markets and government finances in the world's richest nations. They are relatively very few in number, and they dabble in an esoteric world of high finance - however, as Tooze demonstrates, they were crucial to stabilising the world economy in the spring of 2020.

Also revealing was the manner in which governments and central banks pumped support to their societies. In most cases, the majority of support was fed to the corporate and economic elites - those who own stock, those who run businesses and so on. The loosening tax regulations and extension of credit to business under the CARES Act merely emphasised this point. However, there was a definite logic to this, because after all, businesses play a massive role in the functioning of society in the first place. Supporting business was necessary to keep the labour force out of unemployment and retain the manufacturing and services capacity inherent in the pre-Covid economy. Crisis-fighting measures thus shone a spotlight on the hierarchy of the national economy, with central bankers, commercial bankers and corporate elites as its guarantors.

This concept of hierarchy could be further extended to the international scene. As in 2008, some countries needed far more support than others, particularly the emerging markets. A surging dollar put massive pressure on their currencies, which raised the spectre of high interest rates. They were saved by support by the IMF, as well as the massive burst of liquidity released by the Fed. In both these cases, American approval - or at least compliance - was necessary. The SDR initiative, supported by no less than eighteen states in Europe and Africa, was blocked by one state - the United States of America. In the end it accepted the debt moratorium scheme, but of course, without the participation of China, another big player on the world economic scene, the scheme would have fallen into irrelevance. Thus to a significant degree, the balance of the entire world economy was built on the "quadrilateral that links the U.S. labor market, the U.S. bond market, fiscal policy, and Fed interventions" (p.290). The rich countries of the Global North were shown to be the guarantors of this world economy, with the United States as its ultimate core.

We can therefore expand Tooze's remark that American fiscal policy in the spring of 2020 was "as much a reflection of preexisting interests and inequalities as any other area of government action" (p.141). Rather, the entire story of the world economy at the birth of the Covid era acts as a mirror reflecting the preexisting interests, inequalities and relationships of power that hold together the world as whole.

The most pernicious fact of these relationships of power is that they often go unseen, or at least unnoticed. Here, they express themselves through "the high-level, seemingly technocratic decisions of central bankers and finance ministries [that] drive history in a way few people understand" (in the words of a Guardian review of the book). The strength of Tooze's work - which was also demonstrated in his earlier book, The Wages of Destruction (see my review here) - is that he makes these relationships visible, enabled by his understanding both of the "seemingly technocratic decisions" and of how they can affect our political and historical moment. It is a strength that is readily apparent in Shutdown.