The Breakdown - How Much Should We Fear Post-Crisis Debt or Inflation? Feat. Adam Tooze

Episode Date: August 25, 2020

Our guest today is Adam Tooze. Adam holds the Shelby Cullom Davis Chair of History at Columbia University and serves as director of its European Institute. He is known for his books “The Deluge: The Great War, America and the Remaking of the Global Order” and “Crashed: How a Decade of Financial Crises Changed the World.”  In this conversation, he and NLW discuss: Historical analogies for our present moment  Federal Reserve policy and independence  How much we should fear debt and inflation post-coronavirus  How the economic and political crisis of 2020 has changed or reinforced the trajectory of the U.S., China and Europe Why there is no such thing as the post-American era   Find our guest online: Website: Adamtooze.com Twitter: @adam_tooze  

In a 1970s framework where you have powerful organized labor, inflation can actually be to the benefit of working people because their wages are protected. They don't have very many savings, certainly not savings in the form of nominal assets, which are subject to price erosion. And so historically speaking, all the way back to the great inflation, say the Bima Republic, inflations are a progressive in the sense of the technical sense of progressive redistributive mechanism handling a very big bill. So if you ask, who paid for work, World War I. In the end, it was overwhelmingly middle class and other middle class Germans who did not working class Germans because the inflation burns off those people's assets.

That's one way of thinking about it, so long as you do have large-scale organized labor to protect people's nominal incomes. If you don't, then, of course, the balance is much more difficult to figure out, and it's really a gamble on the possibility of indexing various types of income streams so that those who are most vulnerable are not profoundly damaged by rapidly rising costs living basically. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by crypto.com, BitStamp, and nexo.io, and produced and distributed by CoinDes. What's going on, guys? It is Monday, August 24th, and today I am thrilled to share an interview with Adam 2's.

Adam holds the Shelby Column Davis Chair of History at Columbia University, where he also serves as the director of the European Institute. He is an absolutely prolific writer constantly in the op-ed pages of The Guardian and Foreign Policy, as well as being known for his books The Deluge, The Great War, America, and the remaking of the Global Order 1916 to 1931, the wages of destruction, the making and breaking of the Nazi economy, and crashed how a decade of financial crises changed the world. the world. In 2019, foreign policy magazine named him one of their top global thinkers of the decade. In this conversation, Adam and I discuss historical analogies for our present moment, Federal Reserve Policy and Independence, how much we should fear debt and inflation post-COVID-19,

how the economic and political crises of 2020 have changed or reinforced the trajectory of the U.S., China, and Europe, and why there is no such thing as the post-American era. I'm incredibly excited to share this conversation and I hope you enjoy it as well. All right. We are back here with Adam Too's. Adam, it's so wonderful to have you on the show. It's a pleasure to be here. So I was thinking about this and I want to start with a question that I feel like must be the thing that you have gotten asked most in the last few months,

which has to do with what historical analogy is actually most useful to explain this moment. But maybe I try to ask it slightly differently. So I think that we plumb, obviously, for historical analogy, but rather than trying to say this is or isn't like a single movement, right, this wasn't like the Spanish flu or this isn't like 2008 in terms of our response, what historical moments have you found most useful either in how alike they are, how different they are in helping understand what we're experiencing right now? I think the question is really well put that way, I think, because if you look for precise

analogies, you're just really not going to find any that are at all useful. This is not like 2018 in that the genesis of the shock is completely different, and the financial crisis that resulted in March and April this year is also very different in its logic. Didn't involve the banks, didn't involve mortgages, for instance. And nevertheless, we were facing very serious financial disruption. It's very unlike previous pandemic episodes because the response has been so dramatic, both at the national and even more spectacular at the global level, this comprehensive effort at shut down to try and contain the epidemic that way.

It has no analogy. It doesn't, there's nothing like it in the Spanish flu episode of 1980, 191919. Much has been made of, you know, the differential response of various American cities, Philadelphia, New York, Chicago, San Francisco and so on. But there is no national response, really, let alone a global collective response. I spent years working on the archival material of 19-19 Paris Peace Conference and so on. And the flu just isn't subject of conversation. Amongst logistical planners, perhaps, in the military of the time, there was some debate about, you know, how to manage flows of sick people and to avoid them getting sick, but it never percolates

up to the global level. So in both of those ways, it's really quite different. forgot to think of analogies. Moments I have found useful to think with are on the one hand, the kind of emergence of modern anxiety around invisible threats of various types, which I think we can date to the history really, I think most prominently probably of nuclear fear in the 70s and 80s. I grew up in West Germany in the 1970s and 1980s, one of the countries most profoundly affected by this. I wasn't actually there at the time, but when the Chernobyl crisis happened, you know, the town that I grew up in Heidelberg was, you know, the radioactive cloud blew through. Playgrounds were closed. People had to consider whether they would go out in the street and buy

milk. So that kind of modern fear, I think, is very interesting as a way of trying to think about what we've been through experiencing this shock. And the other close in time to that, I think more generally, and when we think about how we've responded with monetary policy and fiscal policy and so on, I think we do have to go back to the 70s in the sense that this is the moment where you see on the one hand the emergence of that environmental politics, but on the other hand, also, of course, the advent of the Fiat money regime with the collapse of Breton Woods and the abandonment of any gold peg for any currency in the world, and a fully, therefore fully politicised monetary constitution, which we, you know, rapidly,

found ways of containing through independent central banks and so on. But it's the flexibility that that provides us that has enabled the absolutely extraordinary monetary policy response we've seen to this crisis. And the third element, which also links to the present, is China. So the 70s are the moment of, you know, the first really major crisis of America as a global power with the Waku, you know, the Vietnam crisis, the reheating of the Cold War with the Soviet Union. And the China play, which, of course, is unraveling before our eyes 50 years on, was key to the way in which the famously the Nixon administration sought to reestablish America's geopolitical position. So when I think about 2020 and what's happened at this moment, it's really the unraveling

or the full exposure, if you like, the potentialities of that first, I think, fully modern awareness of possibility in crisis, which I would locate in the 70s. I think it is super, super interesting points to, to connect this to. I was actually, we were watching the Umbrella Academy on Netflix this weekend. And it's part of this sort of long tradition of post-World War II nuclear-based fantasy or sci-fi, right? Where some, you know, nuclear accident happens and it mutates people. And that becomes sort of the basis of fiction. I was wondering what type of fiction will see coming out of the, you know, this, if we will, where the threat is instead not sort of nuclear in that same way, but this unseen virus. But that's neither here nor there. I think the point that I actually wanted to pick up from maybe is this idea of what this has to do or what this reflects about the state of political leadership in the world.

And, you know, one of the things that was interesting and very central to your book crashed was that it was sort of seductive, but perhaps a little wrong to view 2008 as it was initially viewed as an American crisis alone, and something sort of that was a post or sort of an example of America's decline. And I guess that the question then becomes, as has been argued narratively by some, is this the first crisis in the post-American era in some ways? I mean, I think one understands why people say that. I mean, the performance of the Trump administration has been shambolic and embarrassing, I think, for many people.

It's not true to say that America's national pandemic record is worse than that of comparable countries. In fact, it's better than many European countries, which are much smaller, of course. So if you compare New York with London and you end up with light-for-like comparisons. But in any case, the American has not come out of it. crisis well. So it's easy to see, I think, why people would jump to the conclusion that this is the first post-American crisis. Even if you are a declinist, even if you think America's power is waning, and this is a critical moment in that, I think the idea of a post-American world is really misleading, because the problem is, as it were, if you're in the rest of the

world, is that you've got a sick and ailing America in it. If only, you know, it were a world without that sick America in it, that would make things a lot easier. In fact, the world is one very profoundly shaped, I think, by a crisis of American politics, by a crisis of American power, which is very uneven. So at some levels, it's shockingly manifest. You know, the inability to act as a cooperative partner. Doesn't need to get leadership, just a cooperative partner on issues of public health, on climate policy and so on, on trade, on the one hand. And on the other, the continuing role of the United States, exemplified by the crisis itself as the anchor of the global financial system.

Whether we like it or not, the basic currency for international transactions throughout the world is the dollar. Even the Chinese business sector borrows heavily in dollars. And the Fed has proved itself again

after the shock of 2008 for the second time as an extremely cooperative, competent, proactive, imaginative, quite broad-minded hegemon in stabilising this system and thereby enabling others to act, whether it's through the swap line system,

which funnels dollars into the leading central banks of the world, including some EM, Mexico, Brazil, South Korea, if you're willing to treat South Korea as an EM anymore, or whether it's just simply through the cushion provided to the global financial system by the extraordinarily low interest rates in the US. Either way, the Fed continues to be, and was it actually a central precondition for the crisis policy response in the rest of the world this time round as well. So what I think we're seeing is an increasing disassociation of different parts of American power. We haven't even talked about hard power than the military side. What I do think we are seeing is a disarticulation, increase in incoherence, you know, the idea of a sort of monolithic American leadership or dominance, hegemony no longer makes much sense.

sense, but that crisis is very much still in the world and affecting the world. So a world within America in crisis, I think, is a better description than the post-American world. I think that is really interesting. Part of it, I wonder if it has to do with even just the way that we frame things is also shaped by where we frame things. And the first crisis in a post-American era sounds a lot better. you know, it's always as a headline. Yes, because it's a clean break, right? I mean, part of the reason it sounds better is it's kind of neat and tidy.

Whereas that isn't, that isn't, you know, that isn't our reality. Our reality is we move on, the game goes on, you know, the music continues to play, even if bits of American politics seem, for all intents and purposes, profoundly dysfunctional and broken. The world doesn't wait, the epidemic doesn't wait, the global economy doesn't wait, Nor, however, does the continuity, for instance, of American power when it comes to, you know, highly sophisticated military aircraft or aircraft carriers or whatever. All of that rumbles on to, despite the fact that Congress appears unable to, you know, conduct basic business. And, you know, without being unduly partisan, I think it's fair to say the problem largely consists of the GOP's massive internal dissension, extraordinary difficulty of American conservatives of, in fact, agreeing on a particular.

position and implementing it then as a form of government, which we saw in their, you know, botched efforts to repeal the Affordable Care Act, the Obamacare early on in the Trump administration. And as the Democrats are taking control of the House, with that kind of spectacular malfunction was less obvious because there was less ambition with regards to legislation. But with the crisis driving the need to actually generate policy, that that huge problem has resurfaced spectacularly this summer. So I think that's a great segue to another question that I had for you around how our expectations around monetary policy have shifted between 2008 and now.

You know, some have made the comment that this time around part of what felt different is that no one was bringing a no intervention or, you know, sort of hand-wringing around around this sort of intervention. It was really just a debate about which number to put before trillion, right? So I guess I'd love to see your perspective on this. Yeah, no, I think that's absolutely right. I mean, you can view it from the side of the central bankers and you can view it from the side of markets, I think.

And in both cases, there's clearly a shift. The holdouts, one has to say, as it were, you know, the honorable exception to this are sort of bonehard German, Dutch, Baltic conservatives who actually did flinch at the prospect in March of massively expanding the ECB's balance sheet. And you could see Christine Lagarde as ECB president on a knife's edge, and we know precisely when it was, it was in the press conference on March 12th when she said, you know, she said, Italians spreads, Italian spreads, Italian interest rates are not our problem. That lasted for about half an hour because the market's exploded as soon as she'd done that. And since then, the ECB has shifted. But you can see in Europe, I think, there is still

a kind of concerted rearguard action of conservatives who are, who are not. willing to simply go down the Bank of Japan route. I agree in the US. We know less, I think, about what has gone on inside the Fed in the crucial weeks in March. In due course, more may emerge, but I agree that everything was ready to go, that the team that had handled very large-scale asset purchases in 2008 was present and had schemes in place. And then they went hellful leather like we've never seen before. And it's important to stress just how gigantic the asset. purchases were. A lot of focus has been put on, you know, the Fed's backstop for private credit and so on. But in terms of just the quantum leap, it's the, you know, asset purchases running at a

million dollars a second in the last days of March, which are really dramatic. And there was no, there was no debate. On the market side as well, I mean, there's that great Robin Rigglesworth for the FT quote recently where he said, you know, people will, will, in times to come, people will tell their grandchildren of a time when banks paid real interest. Because after 2008, there was indeed the expectation that there would be a return to normality, that there would be a normalisation. And that framed everything. Sure, there was a deviation now interest rates were exceptional, though the central banks was acting. But it was only a matter of time before we returned to another world. I think that historical horizon

has shifted quite dramatically. We know now that what the 10-year expectation for the 10-year Treasury, which is as good a guide as we have, really, to market expectations about inflation over the medium term, long-term, really, 10-year time horizon is now below the Fed's inflation target. So the market is expecting negative real returns on 10-year treasuries over a 10-year time rush, which is a remarkable state of the test. So you wrote a great piece on this just recently, or I guess it was a little while. ago, but it's, I think, really relevant where the piece was called, should we be scared of the

coronavirus debt mountain? And basically, I think you called it the awesome dilemma of how to balance debt, GDP growth, inflation. And you took to task a little bit, the household analogy that we see so much. But I'd love to hear more about that piece or that line of thinking and maybe let's try to answer, should we be scared of this debt mountain? Well, I think we're in a moment where, no, reasonable people profoundly disagree about this. Let's start from that position. And very serious money, very serious investors are taking out inflation hedges right, left and centre. It isn't, as it were, a consensus in the market, because if it were, we'd see a huge upheaval in the bond market, which we're not seeing. But there is clearly a constituency of people who are profoundly worried

about the inflation prospects. And you can see why, right? I mean, by any conventional measure, we're engaged in a huge inflation. The inflation once upon a time simply used to mean the expansion of the supply or stock of money. It didn't actually mean the resulting price increases. So there was a linguistic change over the course of the 20th century, so that inflation became synonymous with price increases rather than the thing that people used to think caused price increases. What we've got right now is a huge expansion of the money supply, M2, M3,

all of those old measures have ballooned, but we don't appear to be any price movement at all. And so some people argue quite reasonably on the back of historical experience that this must surely in due course lead to accelerating increases. And there's a supply side story you can tell about growing inefficiency in the world economy as a result of COVID, you know, a reversal of the trends of globalization, the big, as it were, one-off gains which resulted from bolting on hundreds of millions of extra workers in Asia into the global swover force.

All of that's over. And so you're not going to get those kind of one-off deflationary shots. So is the world now set for inflation and research? It's a question that's out there. I take the reverse position on all those issues. I think that it's just not obvious how the monetary expansion fees through into inflation in a world in which the money just sits on bank balance, and has been doing so now for the best part of 10 years.

I don't think that the supply side deterioration is sufficient to allow them to believe that we'll see sustained price increases above. because we don't have a wage price spiral. We don't have powerful trade unions that motivate and drive, sustain price increases. And the pressure of global competition remains serious. So to my mind, there is a, you know,

it's given the other priorities that we have right now and given the severity of the stresses that we're under, it would be a huge mistake to prioritize inflation fighting. It would be preparing to fight the last war. whereas our problem is in fact to sustain demands, restore production, and to think through the structural implications of the shop for his entire service sector and so on. So for that reason, I'm also relaxed about the scale of government debt.

I don't see any problem with warehousing it on central bank balance sheets, even if that does involve an increase in bank reserves and therefore the potential for very rapid expansion in the money supply, there just seems to be very little risk that that will actually transpire. And so the economic policymaking is always going to be a balancing of costs and benefits and risks and opportunities. It seems that I'm worried that the politics of debt and debt reduction will return. you already begin to see it in various parts of the Biden camp. And it would be a huge distraction from other priorities.

I think it's the point that you started with that this is a non-consensus area of discussion and that there's actually incredibly fierce debate is one of the things that makes it so interesting and so important I think to spend time on right now is there's really, really very different perspectives on this. I guess one thing that I know you think about a lot in your writing is the impact of sort of some of these larger forces on the socioeconomic bottom of the ladder, right? And I think that one of the other interesting parts of this debate is that both sides who are fearful of kind of a debt and austerity conversation as well as those who are fearful of letting inflation run hot are worried about disproportional impact on the poor. How do you kind of make sense of those two sides of things right now in the current context? I agree, and you can spin the same argument that I was making

both ways, right? Because in a 1970s framework where you have powerful organized labor, inflation can actually be to the benefit of working people because their wages are protected. They don't have very many savings, certainly not savings in the form of nominal assets, which are subject to price erosion. And so historically speaking, all the way back to the great inflation, say, the Weimar Republic, inflations are a progressive in the sense of the technical sense of progressive redistributive mechanism for handling a very big bill. So if you ask who paid for World War I, in the end, it was overwhelmingly middle class and other middle class Germans who did not working class Germans because the inflation burns off those people's assets.

So that's one way of thinking about it, so long as you do have large-scale organized labor to protect people's nominal incomes. If you don't, then of course the balance is much, much more difficult to figure out. And it's really a gamble on the possibility of indexing various types of income streams so that those who are most vulnerable are not profoundly damaged by rapidly rising costs of living, basically. So it's a fine balance. Those of us, I think, who as it were, are willing to take risks, A, just don't think there is a large risk of inflation. And so that's, as it were, the first thing to discount. And then secondly, I'll also weighing the basic Phillips curve kind of logic, which is the real risk here is of sustained recession and mass unemployment. because if you ask, as it were, what makes the livelihoods of the worst of more precarious,

what hits particularly disadvantaged minority communities, notably in the United States, for instance, it's unemployment. And, you know, if we are beating about Russia, because we're basically talking about arguments to do with MMT and modern monetary theory, so called. And modern monetary theory has a wing, which, which is about central banking and money and the Treasury, it also has a wing which is about the full of employment guarantee and a jobs guarantee. And it has that wing because it's a social justice position because unemployment in the United States massively hurts people with less

education in lower income communities and above all people of color. And no one worse than African American men, black men, who fall out of the formal labor market first when the going gets tough. And so the full employment position, which ultimately transpired in the form of the Fed's mandate, the Humphrey Hawkins Amendment, is a late legacy of the civil rights movement. Greta Scott King, Martin Luther King's widow, was a huge advocate of a jobs guarantee because if you actually want to enfranchise, provide a stake in the society for disenfranchised excluded black communities and above all black men, you have to ensure that the labor market, in fact, provides employment for people. And so if the trade-off is inflation risk versus unemployment, then the social justice position

tends to favor, you know, taking risk, running the economy hot. And I think one of the claims that the Trump administration could actually legitimately make for itself at the beginning of this year is that, in a grossly inefficient way, many of us would argue, but nevertheless, in a fairly sustained way, they were running the economy hot. grossly inefficient because they were doing it by way of tax cuts, which were poorly targeted and benefited high-income groups far more than, you know, was really very sensible in my view. But obviously, there's a politics to that. But in any case, the net result was an economy that was running fairly hot. And that did have a differentially positive impact on low-skilled,

low-wage workers and particularly on African-American unemployment rates. That wasn't just, you know, Trump hype. There's a real reaction. to that. And it is, and it is, I think, something that the Dems really have to think about is why in the past they have been as cautious as they have been. Both in Clinton and the Bamba administration were profoundly cautious when it came to fiscal policy, even though it clearly differentially disadvantages the communities which they claim to stab them. What's going on, guys? I'm excited to share that one of this month's breakdown sponsors is crypto.com.

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with interest rates starting from only 5.9% APR. NXO also lets you earn up to 10% annually on your Fiat and digital assets. What's more, interest is paid out daily, and you can add or withdraw funds at any time. Get started at nexo.io. I think it's really interesting. I mean, one of the questions that it brings up for me is whether, and perhaps this is sort of at the center of the debate, whether the Fed is the right place for a full jobs guarantee, whether you can separate those two pieces, right? The idea of full jobs as a social justice position, as you put it, and the Federal Reserve or any central bank being the mechanism by which that's implemented. Oh, no, it can't be the Fed alone. And you're absolutely right that, you know, we talk about the Fed because it's, you know, one branch of the American government and the government. state machine that really does function and functions well. I mean, I used to joke that, you know,

the two bits of American government that function were like special forces and the Fed. You know, so there's a sort of, so that's why we end up talking about it a lot. But no, but a comprehensive economic policy obviously has to involve fiscal policy. One of the remarkable things that happened at the beginning of this crisis is that Congress showed up and actually did its job and delivered an expansive fiscal policy boost very rapidly, with an unprecedented speed and on a huge scale, bigger than virtually anywhere else in the advanced economy world. I mean, the Germans did a big stimulus, but most of it was formal credit guarantees.

The American fiscal stimulus was real money, and at least some of it, the stimulus checks and the supplement to unemployment benefit was fairly well targeted. It went to the people that actually needed the income boost, though there's complex arguments about whether they spent it on the things we would have wanted them to. PPP is a different matter, much less efficient in terms of sustaining demand and employment. But in any case, the fiscal policy was there. And we saw close and effective

cooperation between the Fed and the Treasury in smoothing out the bond market and making that work. I mean, there was a huge spasm in the American, in the U.S. Treasury market, which really set the alarm bells ringing, and not just in the U.S., but across the entire world in the second and third week of March this year. That's the real story of the financial crisis of COVID, is what happened to U.S. Treasury's starting on the 9th of March and really escalating through that week, Monday 9th, Tuesday, 10th, Wednesday, 11th, Thursday the 12th is probably the absolutely worst day he talked to people in the fixed income business. And they saw seeing seeing things they'd never seen before. And so if you're going to do the kind of fiscal expansion

that we've had to do, you need close cooperation between the Fed and the Treasury. That is then a very potent package. The two working hand-in-hand makes a very powerful combination. What's your take? So this brings up another question, which is the independence of the Fed and the Treasury, right? Because, I mean, you kind of have just argued the need for them to work in such concert in these sort of complex crises. But at the same time, there's obviously forces from the top on down who are trying to break the sort of independence in some ways. Do you think that that's likely to become a more salient political issue, or is that so kind of behind the scenes that it's not going to register for most people? Well, you know, I think it's a very interesting question to watch over the next couple of weeks, because we know how aggressive the Trump campaign was in 2016 and its assault on the Fed. The 2016 Trump campaign is the most vociferous that has ever been mounted against the Fed during a presidential election campaign. Certainly, probably way back to William Jennings-Bryan. And, like, you know, of course, there wasn't a Fed in William Jennings-Bryon-Dade. It was an astonishingly vociferous attack on Janet Yellen and the people that Janet Yellen apparently stood for.

And we know that relations between Powell and Trump were anything but harmonious through that first week of March. You know, on I think it's Tuesday the 10th of March, Trump is still tweeting, you know, where is the useless Fed? Why are they not showing up? We need cuts. We need stimulus now. we know behind closed doors he was abusive in his comments about the Fed. And there was very serious concern in Trump's entourage that he was actually going to try and fire power.

That, of course, has all gone away. So in a sense, COVID has done the Fed of favour in making it pretty clear that the Fed has to act and removing the intense politicisation that was going on. I mean, for me personally, the really extraordinary moment is the previous year. when 2019, where we have a former president of the New York Fed openly arguing on the pages of Bloomberg, no less, that the Fed should not accommodate the nationalist dysfunctional trade policy of the Trump administration. In other words, they should provide a crash barrier and allow the Trump administration to fail, thereby prejudicing its reelection chances and restoring the possibility of the election of a president

who actually respected the Fed's integrity and independence and would allow normal economic policy to resume. I mean, that's how bad things were getting. I mean, Dudley had to weigh, you know, grow back and the Fed disowned any comments he'd made, but it's pretty clear that people inside the Fed apparatus were thinking precisely that. Why are we accommodating a policy

which we know is destructive to the stability of the US, not just the US, but the world economy? Because every time we lower interest rates when the president tweets about the trade war, we are accommodating. And classically, central bankers are not, you know, that is not their role. This is what their independence is supposed to be precisely that they refuse that accommodation. So we were getting into some very deep water and COVID because it's allowed a

consertion, a coordination of forces around stimulus. And the Fed, after all, is calling on Congress now to do stimulus. And Trump is also clearly asking Congress to do stimulus and they're not. So they're actually on the same page. But I think it's interesting that when I thought we might be back in that moment, when no, what it was last week, wasn't it, when the Fed, when the minutes were published that revealed that the Fed had decided not to do EU curve control and the markets didn't like the sound of that because that basically suggested that was maybe a limit to how far the Fed would go

in manipulating interest rates, that could be the zone around which we could have another flare-up it seems. If the markets, if we see the S&P 500 selling off in the next couple of weeks, if we see a huge hit to the big tech stocks, for instance, and the Fed doesn't respond in some way, I think we could see another flare up because it's, you know, the question of independence is definitely posed. And not, I think, just from the right, effectively the MMT, the left-wing position, of course, also puts independence in question because it basically he says monetary policy should be subordinated, as should fiscal policy to the priority of full employment. And everything really has to be directed towards that goal. Yeah, it's fascinating.

I think the reaction to the yield curve control, I mean, really, like offhanded comments, you know, buried in those minutes was fascinating. It was quite intense, wasn't it? And I think, yeah, if we keep going down that line where all the Fed has to say is, you know, we're not going to go the full B-O-J route and the markets can't live with that. You know, it's a very, it's a very fine line. So I think watch that space because you could, you could easily see a return to tension if the positive, the good news story in the stock market. And fundamentally, I think that's the barometer that the Trump folks will track.

Because they know the unemployment story at this point is not going to turn well for them by November. So, you know, there'll be continued progress, but they're not going to get the dramatic breakthrough they want. So I think they need the equity markets to remain strong. I mean, that was certainly last week, Vice President Pence seemed to me he was testing out language around this. He called it the Great American Recovery in a tweet, which, if that's not designed for a campaign slogan, I don't know what it is. No, precisely. I think that's going to be, and conversely going back to 9th of March, I think the moment when we, I think, can say that the Trump administration really woke up, smelled the coffee and realized they, you know, they really had a crisis on

their hands was when the market collapsed on that Monday. So that is the loop. That is one version of reality, as it were, that we all are synced on. You know, we may not agree on many other measures. But, you know, there's not a lot of people saying, hell, let's stop publishing the S&P 500. Or if we only collected data points a little less frequently, you know, the scene would look good. You know, that is a benchmark of reality that actually does remain at fixed point. It's not a very good measure of the overall state of the economy.

It's a particularly bad measure of the welfare of the least well-off Americans, you know, because 20 to 30% of Americans have some kind of a direct stake in equity markets. The rest really don't. The bottom 50% have no wealth invested in that form of any type whatsoever, despite Robin Hood and the huge mobilization of retail investors through those channels, which has been another remarkable phenomenon of this moment. Yeah, there was a stat today in the Wall Street Journal. The top 10% of earners owned 80% of earners.

owned 87% of stocks in Q1 of this year, which is up from 82.4% in 2009. So when we reduced the economy to the S&P 500, we're basically saying it's your economy that matters to us, not the economy of the folks who are working shifts at restaurants or used to be. And I think it was a very striking moment when Powell, I can't remember, I think it was in April, where he gave testimony where he said, you know, something like 40% of households which have earned less than $30,000 a year have suffered the loss of at least one waged income. And that, for the Fed to be the agency that is incorporating the social dimension, the social

crisis into its policymaking is itself a remarkable moment. The New York Fed was publishing data on the food crisis last week. So that's a remarkable shift. Yeah, man, I could talk about the Fed all day, and I'm sure many of my listeners would like that. But I want to go to a couple other places because I think part of what's interesting to me is these questions of how the crisis and the response have either shifted or sort of reinforced the trajectory of key actors in the geopolitical future. And so we've talked a lot about the U.S., but I'm interested in your take on kind of Europe and China, how, again, this has either kind of shifted or reinforced the trajectory. Maybe let's start with Europe, because I know that you just wrote about this. You know, three months ago, people were talking actively and openly about whether this was a,

you know, whether the Euro, you know, would survive this, whether the European Union would survive this. And that's obviously been kind of landed in a very different place than I think a lot of people thought. Yes, that is one of the real surprises. You know, we have to correct for the fact that there is a constituency of folks in the English-speaking worlds who can never wait to restart the conversation about when the euro is going to fail. You never really reconciled to the idea that it was a sensible project in the first place and really expect the breakup of ways to happen.

But what was really striking this time was that it wasn't just that constituency. I mean, President Macron, France himself said that this was really a, you know, this was a life and death moment for Europe. And what has been impressive is that they actually moved forward. I am not a cheerleader.

I mean, I'm a, you know, die in the world, heart and soul, European, committed to the project of this. EU, but I am not a cheerleader for the policymaking in the Eurozone on the whole. But it is remarkable that they have managed to turn the crisis in a positive direction. Is the compromise they agreed in July enough? Is it radical enough? No. Does it go far enough? Absolutely not. Are we out of the woods yet? No. But nevertheless, they took a crisis and said, no, this is new. This is a new problem. Because it's a new problem, we don't need to dig ourselves into the old camps that we were in when we were

dealing with the Eurozone crisis up to 2010. And crucially, Berlin moved. So Berlin moved from being a naysayer all the way through April. Berlin was saying, no, we will not cooperate with the French, the Spanish, the Italians. And then something breaks in late April, early May. Merkel realizes, I think, how deep the problems of the Eurozone are and what the risks are. And the Franco-German axis reasserts itself. And on that basis, then you could get this deal. And that is a major shift. It's a positive surprise. It's one of the few good news. stories that's really come out at geopolitical level. But there are, you know, a lot of issues going forward that still have to be resolved because

the price you pay for defining the problem as a new problem is that you bracket dealing with any of the legacy issues. And they have not dealt with and not found a solution for those, which are basically Italy's public debt, which is going to be over 150% of GDP, which, you know, if you, Italy had its own central bank would not be a problem, but it doesn't. And so the ECB has to find a way politically of accommodating a large slice of Italy's public debt, because otherwise that's not a sustainable debt burden for a country with Italy's close to zero GDP growth. If Italy had positive nominal GDP growth, it wouldn't be such an issue, but it doesn't.

So that issue remains fundamentally unresolved. And the main burden of the crisis response is going to fall still on national budgets, even if it is true that the EU is now equipped itself. Nevertheless, you know, politics is a matter of, you know, what can be done in the given moment, given the prevailing circumstances and the Europeans made it a remarkable step forward. Have we seen markets reinforce that sort of factor or take that sort of view? It's really interesting, yeah. Markets have shifted. You know, I actually had to sort of do a little mental adjustment in July because for so long,

if you've written about the Eurozone crisis, it's that negative host. speculation against the euro, redenomination risk, you know, is the big driver. Spread, spread, spread, spread, spread, spreads. I know that very serious money is betting the other way now. They seem to actually believe that really the Europeans can move this forward. And of course, it's a story of contrasts, you know,

because it's a question of whether you want to put your money in euro assets or dollar assets or yen or renmin. and all of a sudden, A, a lot of European assets are undervalued, so, you know, the pricing looks attractive, and B, the exchange rate is now increasingly moving in the right direction, too. So, no, it has been a really remarkable re-evaluation. What about China? So the narrative, obviously this is a narrative football in a lot of ways, certainly in the US, around how to position China as part of this crisis.

But, you know, in terms of the trajectory that China was on vis-a-vis these other powers, what do you know, if you had to put a pin in kind of what this crisis has done, how would you describe it? I know, it's almost an impossible question. Well, I mean, again, I think it's a reversal of the narrative because I think in February, the dominant narrative, and I think even in China itself, the concern was that this was Beijing's Chernobyl moment. apparently, you know, Chinese were using the comments pages of the HBO series to voice SotoVoC criticism of the Chinese regime. So they kind of, you know, they got it. Everyone was on that storyline. And that's not what's transpired, right? The Chinese restored control, even if we

allow for the fact that their numbers may be, you know, rather, rather favorably inclined. It's, it's clear that they contain the crisis far more effectively than anyone in the West. their economy is the only major economy that's growing. They misplayed, obviously, the face-masked diplomacy and have run into a buzzsaw of hostility on the American side. But it's unclear to me whether the Americans are really going to be able to take the rest of the world with them. On Huawei, perhaps, because it's clearly a security issue. But on other issues, it's not obvious to me that they will be able to.

And there are large parts of the world where I think the balance, has shifted even further towards China than it was before this crisis struck. And I'm thinking Africa is the place which a lot of people were thinking about. But I actually think that in America may turn out to be more important, especially for the US, because the epidemic there obviously has been grievous. I mean, it's been an absolutely catastrophic hit for not just Brazil, but also the Peru's, the Chili's of this world, Colombia. And in all of those places, China's face mask diplomacy, large, generous donations of medical equipment, sometimes with funding to go with them, has gone down much better than it has in Europe where it's really met quite a frosty reception.

So this is still to be played out, obviously, and we don't know quite how far the uncoupling between the United States and China is going to go. We don't know how grievous the damage to the Chinese tech sector is going to be, how far they're going to be. how far they're going to be able to compensate for the really ruthless pursuit of China's tech industry by the Americans, unprecedented in its seriousness. But nevertheless, I think from China's point of view, broadly speaking, it confirms their impression that they need to push now, there's a window of opportunity for them to push, and on issues like Hong Kong, we should expect no compromise whatsoever. they were clearly bent already on cracking down

the Hong Kong before this crisis hit and the idea that somehow opposition from the West is going to make any difference to that I think is completely naive. They think they've got leverage. They're exerting very considerable leverage over major financial actors that are straddling that divide,

HSBC and standard of course in Hong Kong but also American money interests are very deeply involved. JP Morgan, the big fund managers, asset managers. So I think We should expect them to bow along their way, to be honest. So this gets us to kind of a theme, which I think goes right back to where we started the conversation.

But you wrote one piece called The Death of Globalization has been announced many times, but this is a perfect storm, which I'm interested in sharing a little bit more about. But another line that I pulled from somewhere actually didn't even write down which it was in the kind of flurry of rereading was this idea of globalization. as realism too. And I think this gets back basically to what you were saying about there's no such thing as a post-American era. But I would love to hear your take on this. And I guess maybe a third concept of yours to bring into this is the idea of this is the first crisis of the Anthropocene. Because I think that it maybe will help people understand, you know, again, this in historical context to the extent that we can't just draw, you know, easy historical analogy from, but are trying to understand where we might go from here and what this means.

Yeah. Thank you. That's a blizzard of concept. What I meant by this being a perfect storm is very specifically about trade, to be honest. If you use trade as your metric of globalization, I think there's reason to think that we may see not just as it were the stabilization at a high plateau that we've seen since 2011-12 in global trade as a share of, you know, imports, imports, exports as a share of GDP, global GDP in relation to GDP, we could actually see some contraction because the forces that drove the extraordinary expansion of global trade, be they trade policy changes, technological changes, income growth, are all now pointing in a different direction.

And so the perfect storm idea, I think, really bore was coined specifically with regard to the issue of trade. On the other hand, the idea of globalization as a kind of fate, as a reality that we have to deal with as a non-optional feature of the world that we're in, I think I would also want to insist on in the sense that even if we end up in some sort of profoundly antagonistic uncoupled relationship from China, our state will be that for somebody who's divorced, not somebody who's never been married. Those are two very different conditions to inhabit. We were once profoundly entangled with China and bear the marks of that integration. And of course, large parts of the world will continue to ever deepen their integration with China. So we're talking in that mode about changing modes of globalization, changing modes of interaction, not really a reversal, because you can't reverse the condition, right?

History is a one-way street fundamentally. Times arrow moves only in one direction. You cannot put your, this is my personal, as it were, philosophy of history anyway. It's just, I take the side of those who argue with all the way back to the very ancient Greeks or apparatus that, you know, you can't put your feet in the same river twice. So to that extent, there is no reversing of globalization, but there could be a moving forward into a new mode of globalisation, the new mode of global interaction. And that then links to the other huge sort of, you know, concept that you tossed into the

discussion, which is this idea of the Anthropocene, which is the phrase that's been used originally by geologists as a way of describing a world so radically transformed by human intervention and manipulation that it will show up at the geological level in due course. If you imagine geologists 2,000 years from now looking back through the strata, they will see the earth moving effects of humanity. They will see the mass extinctions that we have produced by our massive mobilization of natural resources. And that's obviously a cumulative process. And it goes all the way back really to the first dense periods of human population in Europe, for instance, in Yugoslavia, back to the Roman period, former Yugoslavia, to the Balkan coastline. when they were knocking down trees, cutting down trees that built navies.

But this intensifies over the millennia, and we have very good reason to think that since the 1950s, it's taken on a new dynamic, and since the 70s, 1970s ever more so, which brings me back to the beginning of our conversation, there is a reality to this massive impact of an increasingly large now, 7.8 billion people on the planet living at standards of living far higher than ever before,

mobilising resources ever before. And for at least the last 50 years, we have been pinching ourselves and going, can this really go on? Is this really sustainable? And the answer, of course, is not by most metrics. And of course, we disagree about exactly which one of the things will be the rub and that will stop this process. Could be climate change, could be species extinction, could be an exhaustion of certain resources. All of those are. options of being canvassed. But there is also the zoonotic disease mutation route by which are increasingly massive mobilization of life forms, spawns viruses that will have an absolutely catastrophic impact on humanity. And obviously, COVID isn't the killer virus. It's mildly fatal

to a very vulnerable group of population. But it's a harbinger. It's a warning of things which scientists have been predicting really since the 1980s at the very latest, since the AIDS shock, where we began to realize that we hadn't actually exhausted the range of killer diseases, that though we may have triumphed over smallpox, there were other things that could be in the pipeline, and that we would have, that we have some part in the acceleration of what comes through that pipeline. And that, to me, is the significance of COVID, is that this isn't a local shock, this isn't ebola, this isn't HIV, which were catastrophic for certain parts of the world and for certain communities, but not humanity as a whole. This disease isn't even catastrophic measured by those harsh standards,

but our response has produced a global crisis of a type we've never seen before. And if this is how we react to this kind of threat, imagine what it could be like if something emerged that truly was, you know, far, far more dangerous. Imagine if COVID actually killed young people rather than old people, or middle-aged people in the prime of life, parents, not pensioners, what the dynamic might have been like. So that's for me the significance of 2020 is we are seeing our extremely limited capacity to cope collectively with even this sort of a challenge. And there may be, there's every reason to think there's much more grievous things to come.

that's a pretty well i guess a little depressing but a pretty a pretty good spot to end but i guess i just had one more one more question uh that's pretty unique to you i guess um you wrote about the history of or rather the the way that we misremember or misinterpret or misulogize the history of World War II, this year in the context of the 75th anniversary of VE Day. And I wonder, as we go into this fundamentally new era, whether there are histories that we're forgetting or misremembering. And I wonder what history do we need or would be useful in dealing with this world that seems so fundamentally new? I agree. As a historian, this is a problem that, you know, that I racked my brains over regularly. I mean, I think I've already suggested part of the answer, which is that

I think we need to move our horizon forward. For me, the history that seems acutely relevant, not in the sense that it provides analogies, but in the sense that if you start there, you begin to understand how we've ended up where we are, is the history from really the late 60s onwards. It's the histories of the 1970s moment, the first crisis of American power, the dawning of environmental consciousness, the emergence of a Fiat money regime, the moment of the civil rights movement, for instance, and its crises,

the truly global world with OPEC as a major force in it. All of that, I think history is the history of our current moment. By implication, I'm also saying that it seems to me that some of the more familiar reference points, especially in discussions, say, of international money, are less relevant, perhaps, than we generally reckon with. And I'm particularly allergic to invocations of Bretton Woods in 1944

as a useful reference point for thinking about where we need to go from here. Because, I mean, I'm sure your listeners will be only too well aware. I mean, the ease with which people will say, well, you know, what we need now is a new Breton Woods or a new Marshall Plan, hark back to that kind of epic moment of American leadership on global affairs in the West anyway between, broadly speaking between America's entry into World War, World War II and the 1950s, is, I think, very unhelpful.

That's not the world that we inhabit at all, for better and for worse. I mean, the backdrop to Bret and Woods was both the D-Day landings and the crushing breakthrough of the Red Army on the Eastern Front that was going to wind up the Nazi Germany, a level of violence that we mercifully have never experienced in our lifetimes and hopefully never will. So behind that consertion, behind that state power,

lay violence that we have to acknowledge and take account of and recognize our distance from. So that will be my, I say it's a work in progress. I think it's the task, really, of the present to figure out what history is relevant to it. But my bet is that we're going to find that in the last half century

because we are on this upward curve. We are on this, what economic historians and environmentalists called the hockey stick. We are on the upward bent portion of the hockey stick. So we are not going to learn all that much by going down to the shaft, even to the moment of the king king.

We need to understand the world that we are ourselves in. Well, Adam, I really appreciate you taking the time today to try to help us sort through some of that world. For people who want to follow you more, where can they find you online? On Twitter. I am at Adam underscore 2's T-O-O-O-Z-E on Twitter. Wonderful.

Well, I'm sure that we will all catch you there, and again, I appreciate your time today. Pleasure. Thank you very much for having me on. Reflecting on that conversation, the thing that stands out is this idea of there being no such thing as a post-American era. There being no such thing as the idea of the end of globalization. All there is is a new world, a new form of global international. interconnection that has a very different type of America in it. It seems subtle. It could even seem

unnecessary to make that distinction. But I think it is. I think that we need to understand these shifts as evolutionary rather than some radical break with the past. And in fact, the reality is, that's what our history actually tells us. Many of the forces converging now are forces that were set in motion decades ago. I mean, even Adam's invocation of the 1970s as perhaps the most useful starting point for understanding what we're experiencing today is a reflection of that. It can be very appealing, especially as we think of headlines to talk about things like a post-American era, it can be very easy to try to put the policy of different U.S. administrations in strictly different buckets rather than as a continuation of one another in some way or shape.

form, but it may not reflect the world that we actually live in. And to the extent that we want to exert ourselves on the world, rather than just have it exerted upon us, I think it's better to define what actually is happening rather than try to wrap it up in too neat a narrative package. Anyways, guys, I hope you enjoyed this interview. We will be back tomorrow with another episode of The Breakdown. Until then, be safe and take care of each other. Peace.