Panel discussion of Crashed

Adam Tooze will discuss Crashed :  How a decade of financial crises changed the world with participants in the WISER Political Economy Seminar.  This seminar will be co-hosted by SWOP, History Workshop, PARI, UJ History and WISER. 

Questions from the Panelists

[from Karl von Holdt] Adam, one of the strongest themes in your book is about the mismatch between national politics and the global financial system, and how particularly in the US and the EU national-level politics and domestic peculiarities prevented any adequate response to the financial crash of 2008/2009, or the series of crises that followed. The result was that the Federal Reserve, and towards the end of the Eurozone crisis the European Central Bank, were forced to come to the rescue with the very blunt monetary instruments at their disposal – extraordinary loans to banks, the opening of credit swap lines, and Quantitative Easing. Three questions arise from this.

Firstly, what would a more adequate set of national political responses looked like – your book seems to hint that dramatic fiscal stimulus, which could have been more targeted towards the general citizenry and particularly the poor, as perhaps happened in China, would have been the most productive response? Is that your view?

Secondly, how could national politics be transformed so as to get a better grip on the global financial system and its ongoing crisis? Could it be through national regulation, including a 'speed bump' tax on hot money, in order to re-anchor financial markets within the nationstate, or could it be through some kind of internationalisation of politics?

Finally, the net result of central bank stimulus throughout the decade of crises you investigate has been a series of very large bubbles in different financial markets, including in the US stock market, which, taken together with the massive debt-financed investment of China both internally and through the belt-and-road programme, suggests that the global economic recovery since 2009-2015 is very very precarious. Add to that the financial system interventions of the central banks yet again during the current pandemic crisis, and surely we have an unmanageable ballooning of bubbles globally? Is this the case, and given this, what are the future prospects for economic recovery and growth?

[Faeeza Ballim] Crashed convincingly argues for the need to move beyond the Keynesian boundedness of the national economy in understanding contemporary financial flows. While the Keynesian conception of the multiplier effect, which presumes that a given amount of government spending will have predictable effects in stimulating national economies, presumes a control of outcome that is lost when money is able to easily enter and exit the country, is it still possible to control and predict the global effect of central bank policies (particularly those in the US and Europe) in the new order of globally interconnected financial flows?

[Keith Breckenridge] The account of the Chinese reaction to the 2008 crisis is really astonishing -- combining essentially wartime monetary & fiscal policy, and bureaucratic enthusiasm (and capacity) in banks and local government. Shouldn’t it be more prominent in the debates about monetary and fiscal interventions? (Few states now seem able to implement the kinds of fiscal projects that Keynes considered normal.  The 2015 crisis is also interesting -- and I wonder if it doesn’t establish a wider global precedent for the kinds of capital controls that have remained in place in South Africa since the end of Apartheid.

[Laura Phillips] In your account of the crash, the IMF is both an important player and undergoes significant changes, with new leverage on the global stage. Could you reflect on how the IMF shaped and was shaped by the unfolding of events after 2008? How contingent were the IMF's interventions or did they reflect broader structural developments in geopolitics and attempts at financial regulation?

[Maxim Bolt] In Crashed, ‘politics’ is a crucial counterpoint to the ’system’. What are the parameters of politics here? At times, politics appears to refer to the dynamics and implications of engaging with national (often democratic) publics. At other times, politics seems to refer to elite politicking in an international field - contingent struggle among key actors. Bridging the two, but perhaps distinct, is an emphasis on attempts to control narratives (e.g. the recurring phrase ‘political theatre’). Does politics in fact refer to more than one thing in the crafting of the account? Or is it whatever lies outside accepted aspects of technical infrastructure and technocratic planning - i.e. whatever remains up for debate?

[Jonathan Klaaren] In Crashed, on p. 119, you observed that “Coping with highly integrated financial capitalism requires a state that is disciplined, has the capacity to act and has the will to do so. Coping with a banking crisis on the scale that was brewing in Europe required a very capable state indeed.”  In a NYRB book review of Katharine Pistor’s book, the Code of Capital (another book this reading group has read – detailing the role of lawyers in the creation and maintenance of contemporary global wealth and inequality), you wrote, urging her policy proposals to be stronger and less technical, that “if what we need is a reassertion of political sovereignty, then one of its central prerequisites is a reconstruction of state capacity.”  In the current global financial system you have described so well, is the priority to develop this increased state capacity still at the national level or is it equally (or even more) at the supranational level?

[Sharad Chari] Given (1) your work on statistics in the making of the modern national economy, as well as (2) your close reading of Foucault (and Foucauldians) on the governmentalization/ territorialization of 'the economy' in the early 20th century, and (3) given your caution at the beginning of Crashed that global finance a century later require us to give up the 'island model' of national economies in interaction - how do you think with Foucault's tools about the evidence by the end of Crashed that makes strange bedfellows of the Fed and the Communist Party of China? How does Foucault help us understand global finance capital at a time in which its politics are uncontainable in national territory? To use Foucault's metaphor, have scholars of global finance tended to "cut off the King's head" preemptively, when undemocratic (if not monarchical) institutions like the Fed and CPC are the ones that have been at the forefront of trying to regulate global finance? How does this gel with a Marxist/ Fanonite argument that these attempts have been concertedly in the interests of a global plutocracy and to the detriment of "the damned" majority?

[John Kruger] In your 16 April article in LRB, you state that “In the US, the national institutions of economic policy actually work: they demonstrated this is in 2008 and are doing so again now”. This is arguably also a theme of Crashed.

Is this not a bit misleading , or at least viewing economic policy too narrowly?  While important monetary and financial market interventions were made at critical points, other elements of economic policy in the United States (such as fiscal policy, trade policy, labour market policy and unemployment relief and industrial policy) seem to have little coherence. It could even be argued that an important component of economic policy in the US, financial regulation or the absence thereof, caused the crisis.

Financial market institutions (basically the Federal Reserve and the Treasury) were indeed able to respond to dire crisis and save the day. However, they have no reasonable diagnosis of the  underlying developments producing the eruptions they respond to. Could one not argue that the real problems are the underlying over-consumption, environmental and inequality trajectories which are not sustainable and that some fundamental adjustments will have to take place in the corporate and financial sectors? In the light of these underlying problems, should monetary easing by the Fed not be seen, not as “economic policy actually work[ing]” but as just another instance of “extend and pretend” while the contradictions multiply and the size of the future “hangover” builds up?

In Crashed you (together with most of us) are relieved that at crucial stages “pragmatic managerialism” conquered “conservative dogma” (p.19), although there was, after the successful monetary interventions by 2009, a disappointing return to austerity and the “pre-crisis centrist orthodoxy”(p.291). You, however, seem to hint that there could have been more “bold or imaginative” leadership rather than just “sound manage[ment] of the economy” (p. 281)? What would such “bold or imaginative” leadership have entailed? Can anything be done to get this type of leadership (coalition?) during the next phases of the COVID-19 crisis?

[Crispian Olver] Crashed provides a compelling story about the interconnectedness of transatlantic business and political elites, epitomised by a company such as Goldman Sachs from whose ranks Clinton, Bush and Trump treasury secretaries were drawn (Rubin, Paulson, and Mnuchin), as well as an Italian prime minister (Mario Monti), Merkel economic adviser (Otmar Issing) and ECB President (Mario Draghi), amongst others. You have written about the revolving door that feeds government in America and which is de rigueur for senior figures at Goldman Sachs, but the evidence you have presented suggests are more incestuous relationship that is deeply conflicted. Apart from Goldman’s leading role in building the derivatives business in the 1980s and 90s, it benefited massively from the AIG bailout to the value of about $13b based on its bet against the housing market in 2006. Paulson was part of the negotiating team that secured AIG. Goldman was a major beneficiary of the supply side interventions in the repo market and had extensive interests in the European bond market to whose rescue came ‘whatever it takes’ Draghi. The shape and timing of the response to 2008 was deeply influenced by the liberal globalist elite that Goldman Sachs seems to epitomise. Its implicit racism aside, one can almost agree with the Trump election advert that stated “It’s a global power structure that is responsible for the economic decisions that have robbed our working class, stripped our country of its wealth and put that money into the pockets of a handful of large corporations and political entities.” To what extent do you see the supposed liberal elite as a problem in this – were they an interconnected self-serving double-dipping deeply conflicted group on both sides of the Atlantic who have merely created the grounds for the next major crisis, or do you see them in softer terms, as a technocratic elite who came to the party, even if belatedly, and could have prevailed if they weren’t outmanoeuvred by the populist right.

...