Over the last month weeks--two weeks of which I spent on a cruise--I have read three long books. I read The Path Between the Seas by David McCullough in preparation for cruising through the Panama Canal. It's a wonderful book, the kind of serious history that could become a best seller forty years ago, and the Canal turned out to be everything that I had hoped for. The second was Madame Bovary, which I finally got into and finished on my third or fourth try. And the last, which the cruise interrupted, was Crashed: How a Decade of Financial Crises Changed the World, by Adam Tooze, one of the foremost historians in the United States. Now 51, Tooze, a Brit, has taught at Yale and Columbia, and this is his third major work. He (and I) are among the few historians to have written very seriously about both Europe and the United States. His other two blockbusters are The Wages of Destruction, on the German war economy (which I had things to say about in Economic Diplomacy and the Origins of the Second World War), and The Deluge: The Great War, America and the Remaking of the Global Order, 1916-1931. Crashed is a financial, diplomatic and political history of the world since 2008 or so, and its mere scope--not to mention its many insights--marks it out as a most unusual work to appear nowadays. Viking Press deserves credit for commissioning and publishing it, but I have yet to read a review that really did it justice.
Rather than write a traditional review myself, I am going to approach the book from the standpoint of this blog more generally: the framework of the periodic 80-year crises that have convulsed the western world (and much of the rest of it) at least since the 18th century, and of which we are now in the midst of the most recent one. This view, in fact, comes up once during Tooze's book, when he is discussing Steve Bannon and the Trump Administration. Bannon, he says, saw the climax of the financial crisis in 2008 as the beginning of an apocalyptic "fourth turning," and his footnote cites Bannon's movie, Generation Zero, in which I, and Neil Howe, both appeared. He does not however mention Strauss and Howe, who discovered the 80-year cycle and analyzed it at length in two books. Their work can add a dimension to his.
Tooze's initial economic history of the last 75 years or so does parallel Strauss and Howe's vision of the saeculum (or 80-year period) that began in 1945 or so. The victorious Americans and British created a new international economic order after the Second World War, featuring a gold-exchange standard to keep currencies stable and the creation of money under control, the IMF to make international finance work smoothly and discipline errant nations, and the WTO to promote international trade. The United States also emerged from the New Deal with a very tightly regulated banking system. The system began to crack in the 1960s, when dollars piled up in Europe allowed European banks to expand the money supply more freely than the system originally allowed for, and broke down in important ways in the late 1960s and early 1970s, when flexible exchange rates replaced fixed ones. A decade and a half of inflation led in the 1980s to severe contraction, and then to the general turn away from economic regulation and high taxes under Thatcher in Britain and Reagan in the US. Deregulation continued in the 1990s, when New Deal regulation was abandoned, and big banks acquired unprecedented wealth and power. This coincided, of course, with an increase in inequality of both income and wealth, and it occurred, in the United States, under both Republican and Democratic institutions.
Hedge funds and a "shadow banking system" also allowed money to flow far more freely, and to flow into increasingly risky investments, such as subprime mortgages. The crash of 2008--exactly 79 years after the equally fateful crash of 1929--resulted. Tooze's book tells the story of the response to the crisis in the last decade--a very different response from the one that came from Franklin Roosevelt, leading to a very different economic picture now, in many ways, from the one that emerged from the Second World War.
Roosevelt, as I pointed out in No End Save Victory, interpreted the crash as an economic and moral failure in his first inaugural address and argued that the country needed new values as well as new regulations. The Glass-Steagall Act, the FDIC, and the Securities and Exchange Commission were designed to get speculation under control and avoid further panics such as had taken place at regular intervals after the Civil War (1872, 1894, 1907, 1929). They succeeded, and the United States did not experience another such panic for 79 years--until after these reforms had been undone. But the Bush and Obama Administrations--the latter of which included men like Larry Summers, who had helped design the new post-New Deal order--did not see the crisis that way. They saw it as a temporary liquidity crisis which the Federal Reserve could fix with massive infusions of liquidity. That was how Treasury Secretary Geithner and Federal Reserve Board Chair Bernanke handled the crisis, and it saved not only the big banks, but the freewheeling system of liquidity that had developed over the previous 40 years. One of the biggest lessons of Tooze's book is that the financial community--which provides the major capitalist governments with many of its economic policymakers--played a far more important role in devising and implementing the solutions to the crisis than the political process in any democracy. This was especially true in Europe, where bankers and finance ministers told the nation of Greece, in particular, in no uncertain terms, that it didn't matter whom their people elected to govern them--any government had to do what they asked to get the help they needed to survive. This is now the world we live in. The new regulations that the Obama Administration tried to impose were rather vague, and depended for their effectiveness on their implementation. The new administration is now discarding them wholesale.
The Federal Reserve took the lead in restoring liquidity both in the United States and Europe, both by buying toxic and other securities and by making dollars available to the Europeans by other means. The crisis, therefore, appeared to cement the global leadership of the United States, as President Obama, no less, noted in a speech that escaped my attention at the time.
Closely related to this problem is another: the whole management of the crisis, both here and Europe, was designed to shift the burden of its impact from the financial community to the rest of us. Whether the issue was subprime mortgages in the US or the Greek national debt, the proposed solutions put all the burdens upon the borrowers, not the lenders who had willingly made loans they should have known could never be paid back. Again and again, Tooze shows, European bondholders successfully resisted having to simply write off some of their bad loans. Meanwhile, many thousands of Americans lost their homes and their savings.
The contrast with FDR's New Deal approach is rather striking, and illustrates the difference in values between his generation, the Missionary generation (born approximately 1863-83) and the Boom generation (born 1943-60 in the US at least), which led us through this crisis. Roosevelt and his men blamed not only bankrupt economic and moral values, but also inequality itself, for the crisis, and imposed very high marginal tax rates, as well as regulation, to create a different world. Today's leadership sees nothing wrong in principle with the new power of financial institutions or our increasing inequality--which, as Thomas Piketty showed four years ago in his book, is a natural outcome of unregulated capitalism. Both 1929-33 and 2008 and its immediate aftermath were serious enough to make us question whether we were on the right path. In the first case, political authorities answered with a resounding no; in our own time, they reaffirmed the path that we were on. In Europe, too, the crisis became an excuse to try to roll back social spending and workers' rights in many nations--a process endorsed, as Tooze shows, by Angela Merkel, among many others. No major nation, as I write, has a governing elite that seriously disputes the power of modern finance and the necessity of enormous inequality. None of them responded to the Great Recession with New Deal-like measures to rebuild infrastructure and stimulate their economies, either--although China, as Tooze shows, did just that.
The new morality that is now emerging, moreover, is the morality of the Gilded Age. Tooze quotes Tim Cook, the CEO of Apple (whose name for some reason did not make the index), to the effect that antitrust issues, data protection, and government attempts to collect taxes are nothing but "political crap"--an echo of Cornelius Vanderbilt's famous declaration, "the public be damned." Peter Thiel goes even further, declaring that "competition is for losers." Thirty years ago Tom Wolfe created investment banker Sherman McCoy, a "master of the universe," in The Bonfire of the Vanities, but the Boomer McCoy is a field grade officer compared to the hedge fund and tech Xers and Millennials who are transforming our world today. Their prophets are the producers of the television series Billions, which, like The Wire, is worthy of Balzac or Zola, Wolfe's heroes.
There is far more to this book than I can mention in this post. Tooze looks carefully at the impact of the crisis on Eastern Europe. This story is remarkably parallel to one that I helped tell myself nearly 40 years ago. In the early 1930s, too, the newly independent states of Eastern Europe got into dreadful financial difficulties as a result of the depression, putting some of them at the mercy of western banks, and eventually leaving them with no option but to sell all the agricultural products that they could to Germany for Reichsmarks that could not be spent elsewhere. Now financial distress in Eastern Europe and in the former Soviet Union has led to intense great-power competition for influence again, fueled this time by financial help and energy supplies. Tooze also suggests, implicitly at least, why Vladimir Putin was so desperate to elect Donald Trump in 2016. The Obama Administration's sanctions had an extremely serious effect on the Russian economy and he really needs to find a way out of them.
There is however a catch, which Tooze explores at length in many contexts. While the elites of the western nations support globalization and its consequences, large parts of their electorates do not. This has led on the one hand to some resurgent leftism in nations like Spain, Greece, and to some extent in the United States (see Sanders, Bernie), and on the other, to right-wing anti-immigration populism, which led in Britain to Brexit and in the US to the election of Donald Trump--two developments which none of the elites actually favored, but which the Tory and Republican elites, respectively, allowed to happen. We do not yet know what the consequences of Brexit will be for Britain or the world economy, just as we do not know whether the United States can survive the incompetence and incoherence of Trump. And we do not know how the American electorate will eventually react when it turns out that--as Tooze had realized by the time he finished his book--Trump is really, in practice, an enthusiastic proponent of deregulation, more inequality, and more globalism, who has already been content with very slight changes to NAFTA and will in the end, I predict, accept even less from the Chinese and declare victory on that front, as well.
In the previous crisis, the New Deal, the allied victory in the Second World War, the Labour government in Britain, and the Marshall Plan and the economic recovery in Western Europe secured the very active allegiance of the electorates of the western nations while setting them on a path to greater equality and prosperity. I see nothing similar on the horizon now for any major western nation. Nor do we know, as Tooze points out in his last chapter, whether the Trump Administration, in particular, will be able to handle the next international economic crisis that breaks out--which Tooze is convinced that it is sure to do. That is one of the two huge questions that the book has left me with.
The second question however is even bigger, and it is one that Tooze does not, I think directly confront. It relates not to our politics but to the new economic system which he seems to know so well. Has deregulation made our international financial system inherently unstable? Is the insatiable greed of our bankers, hedge fund magnates, and others made excessive lending, and periodic crashes, inevitable, as in the late 19th century? I strongly suspect that the answer is yes, Tooze certainly raises this question a few times, usually in the words of others, but I don't think he really tries to answer it. He is still only 51, however, and I am sure that he will have plenty of time--and plenty of occasion--to revisit this question in the future. Meanwhile, he has performed a great service--and I am not aware of any other professional historian who could have written this book.