COMMENT

‘We are facing the prospect of a catastrophe’

YANNIS PALAIOLOGOS

'I don’t think there’s anything we can compare this to,' Adam Tooze says about the current pandemic.

TAGS: Interview, Coronavirus, Economy

The coronavirus pandemic is an unprecedented crisis that will shake our confidence in the robustness of Western institutions, according to Adam Tooze, the Kathryn and Shelby Cullom Davis Professor of History and director of the European Institute at the University of Columbia in New York.

“I don’t think there’s anything we can compare this to,” the British historian tells Kathimerini. “It’s impact on unemployment will remind us of the Great Depression. The fear in the financial market is reminiscent of 2008. The situation is likened to a war economy – though, unlike in a war, the aim here is demobilization, not mobilization. The only historical analogies are other moments of shutdown, like the Soviet economy after 1989 or Germany in 1945. What makes this recession completely unlike any other we’ve ever seen is the complete shutdown of the service sector, which is all about interpersonal interaction, which has now become a health threat.”

How does he assess the European response up until now? Europe “should have leapt to the aid of Italy. It should have recognized that this is a European challenge and adopted a European-wide policy of containing the virus that did not stigmatize the Italians but placed them on the front line in a common struggle. It failed to do that.” 

He is particularly scathing about the initial German policy of banning the export of personal protective equipment (“Someone should be shot in Berlin for that!” he exclaims) and about Christine Lagarde’s initial claim that the European Central Bank would not intervene to hold down bond yields (an “inconceivable failure to understand the significance of her words”). He admits though that Lagarde has since demonstrated “guts” in pushing the ECB to a “far more assertive position,” launching a new bond-buying program without the self-imposed limits of the past as to the percentage of country’s debt that it is allowed to purchase. 

Tooze is a strong backer of “corona bonds.” “It is a historic opportunity for Europe to demonstrate its relevance to its citizens,” he says. The nine leaders who co-signed the letter to European Council President Charles Michel in favor of common debt issuance “understand the significance of the moment. Berlin must again face huge questions as regards its position in this matter.” Interventions by the ECB and the European Stability Mechanism “will likely be enough to prevent a new sovereign debt crisis,” he believes. Nevertheless, “if risk-sharing is not possible even under these circumstances, you have to wonder if it will ever be conceivable. And this leads to the question: What is the point of the eurozone?”

On developments on the other side of the Atlantic, the Columbia professor says it is “historically significant” that the US stimulus package smashed the 1-trillion-dollar barrier, coming in at above 2 trillion (the Obama stimulus package in February 2009 was close to 800 billion dollars). But he warns that “it will not be enough” to manage the coming economic disaster “unless we get astonishingly lucky.” Two trillion dollars “is 40 percent of one quarter of US gross domestic product,” he points out. “For it to be enough, the recovery must begin automatically in the third quarter of 2020; that’s most unlikely. We are looking at unemployment numbers that are out of this world. This week as many as 3 million could be signing onto the unemployment rolls [the number ended up being 3.3 million]. The problem, in a society as unequal as that of the US, is that the economy is made up of people and businesses that have extremely fragile balance sheets. Savings are concentrated in the top 10-20 percent of the population. About 50 percent of US households have no reserves whatsoever, while the vast majority of American business can last perhaps a month with no revenue, but no longer than that. This crisis will cause scarring, permanent attritional damage – what economists call ‘hysteresis’; it’s a fantasy that the economy can just bounce back. To offset that damage will require even more stimulus.” 

How does he account for President Donald Trump’s performance during the pandemic – the initial downplaying of the emergency, the swift about-face and then, last week, the talk of “bringing the economy back” by Western Easter? “We are seeing an extraordinary demonstration of the swinging irrationality of a fundamentally unstable political vision,” he responds. “He swung between the need to act and the realization of what ‘acting’ means and the recoil from that. This oscillation, I’m afraid, will lead to the worst of all possible worlds: very severe economic damage as well as chaos in the health system, leading to very large casualties.” And yet in a recent Gallup poll, 60 percent of Americans were found to approve of the president’s handling of the crisis. “Perhaps because his behavior reflects the schizophrenia in many Americans’ heads, between the fear of the virus and the need to get on with their lives. Instead of suppressing his instincts in accordance with the advice of health experts, Trump is letting them play out in public. This will likely have profound negative effects.”

The Chinese experience

The management of the crisis by China, on the other hand, “highlights both the strengths and the weaknesses” of the regime, he notes. “The weakness could be seen early on, in the attempt to suppress the bad news and to make the whistle-blowing doctors go away. The strength was evident in the ability of the regime, as early as late January, with fewer than 20 fatalities, to shut down a city like Wuhan, then shut down the region of Hubei and the rest of the country. This allowed them to bring the R0 [the number of people each infected person transmits the virus to] under 1 and then turn to policies of managing the epidemic” whilst gradually restarting the economy. Tooze furthermore argues that, after the initial – short – period of attempting to bury the news, the Chinese were very quick to publish the data at their disposal. And he recalls that the US government withdrew the US Centers for Disease Control and Prevention’s (CDC) scientist stationed in China and tasked with liaising with the Chinese on such matters. 

What should trouble us, he says, “is that the West watched China struggle with this in February and we assumed that the problem was not going to come to us.” The noted historian strongly disagrees with explanations of the success of some countries over others in dealing with the pandemic that put weight on the greater efficiency of authoritarian institutions, or the advantages of a collectivist over an individualistic culture. 

“Taiwan and South Korea, which successfully managed the crisis, are vibrant democracies, and their citizens do not conform to stereotypes of Asian collectivism. What I am struck by is how much more sophisticated the state apparatus, the technological backbone and the research and development capacity is in these countries. These are places where experts and scientists are listened to. Based on all this, it does not surprise me that they were able to contain the virus. Contrary to this, we in the West have weakened our state infrastructure, we have ignored the warnings of the experts and we allowed business as usual to prevail, and now we are facing the prospect of a catastrophe – especially in the United States. The consequences will be so dramatic that people will question the legitimacy of the system.”

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