The economic consequences of the pandemic

SHUTDOWN: How Covid Shook the World’s Economy by Adam Tooze (2021)

Adam Tooze is possibly the world’s foremost economic historian.  He wrote thick, comprehensive books on the Nazi economy (Wages of Destruction), the war debts crisis of the 1920s (The Deluge) and the 2008 financial crisis (Crashed!).  

His strengths are his international perspective (he is a British subject, educated in Germany who now teaches at Columbia University) and his deep understanding of high finance and how it affects society, politics and the overall economy.

Shutdown is not like his other books. It’s slim, and it is being published while the pandemic is still going on, not from the perspective of history.  This is because he thinks his message is too urgent to wait.

What is his message?

It is that we the public are on the brink of a new era, an era when our worst crises will not be the result of tyranny, corruption and human folly, but blowbacks from our natural environment.

And we are woefully unprepared for this. The coronavirus pandemic had taken 3.2 million lives, including half a million American dead, as of April, when Tooze completed his book.  The number is up to 4.5 million now.

The pandemic resulted in tens of trillions of dollars in economic loss. Yet only tens of billions has been spent on vaccine development, and much less than that on getting the vaccine to the public.

COVID-19 was not a black swan, a completely unpredictable event. It was a grey rhino, an event that many predicted, but were ignored. The climate crisis has bred other grey rhinos—devastating fires, floods, droughts and superstorms.

Tooze wrote that the reason we are unprepared is that the neoliberal policies of the past 50 years have stripped the governments of the USA, UK and much of the Western world of the capacity to respond to emergencies.

The neoliberal philosophy is that, in order to maximize efficiency, institutions should spend no more than they absolutely need in order to function. This means that there is no reserve capacity in case of emergencies, and hospital emergency rooms in the USA are overflowing with Covid patients.

What’s needed, he wrote, is something like the Green New Deal supported by Bernie Sanders, Alexandria Ocasio-Cortez and others.  Governments must spend whatever is necessary to be prepared for the predictable crises that lie ahead, and do it in a way that creates full employment and puts money in the pockets of working people.

The International Monetary Fund has estimated that a successful global vaccination program would add $7 trillion annually to the world economy by 2014.  Tooze said others estimate that such a vaccination program would cost $50 billion to $100 billion. Yet governments of rich countries, which have spent trillions of dollars on economic stimulus programs, say this is unaffordable.

Tooze quoted the great economist John Maynard Keynes: “Anything we can actually do, we can afford.”  

That is, if the human and physical resources to accomplish a goal exist, and the political will to accomplish the goal exists, the problem of finance can be solved.  People generally understand this in wartime.  Why not in peacetime?


But hold on.  President Trump’s Operation Warp Speed developed a COVID-19 vaccine in less than a year.  The United Kingdom, the European Union, Russia and China developed different vaccines within the same time period.  Nobody had ever created a coronavirus vaccine before.  So how can Tooze say that not enough was being done?

He pointed out that research on coronaviruses actually began many years ago.  Ashamed of their poor response to the AIDS crisis in Africa decades before, the pharmaceutical industry, government agencies and philanthropists banded together in 2000 to form a Global Alliance for Vaccines and Immunizations.  Later, in 2017, a Coalition for Epidemic Preparedness was formed to research a vaccine for “Disease X,” the unknown success to the MERS-CoV virus.  

When an actual “Disease X” made its appearance in Wuhan, China, and a research team there published its genetic code, the world’s pharmaceutical industry did not have to start with a blank slate.  Researchers at Moderna, Pfizer/BioNTech, Johnson & Johnson and AstraZeneca, as well as those in Russia and China, deserve a lot of credit for their achievement, but they didn’t start with blank pages.

Click to enlarge.

Now that vaccines are available for use, the U.S. government is hoarding them.   Tooze wrote that, as of April, the US Americans, comprising abut 7 percent of the world’s population, had received 25 percent of vaccinations worldwide.  

Currently the Centers for Disease Control is recommending a booster shot for Americans who’ve already received two, and many vaccine doses have expired because so many Americans refuse to get vaccinated.  Meanwhile fewer than 4 percent of the population of Africa have received vaccinations.

Some observers say that President Biden is as much of an America Firster as President Trump was.  Biden has promised to do better.

Rollouts of vaccines began in the USA and UK last December.  The pace was slower in the European Union.  Tooze gave the EU credit for equitable distribution of the vaccine among member states, but its main supplier, AstraZeneca, had problems meeting its delivery schedules.

A coalition of poor and middle-income countries joined to form a vaccine manufacturing organization called COVAX.  AstraZeneca agreed to be a supplier, and form partnerships with 10 manufacturers around the world. In early 2021, it committed to providing 3.21 millions doses, more than Pfizer/BioNTech and Moderna combined, but not enough to meet the need.

COVAX’s main manufacturing facility was the Serum Institute in India.  The Serum Institute had been founded in the 1970s to provide low-cost vaccines to poor countries, and was the largest vaccine manufacturer in the world.  But in March, as the Covid pandemic hit India, the Narendra Modi declared a moratorium on exports.  The Indian government recently announced it will resume exports in October.

The result of all this is that most of the world’s people look to China for vaccines, and China has created a solid manufacturing basis and a global supply network.  Russia’s Sputnik V vaccine also is available worldwide, but Tooze said that many people, including the Russians themselves, distrust the Russian vaccine because they distrust the Russian government.

What this means is that most of the world’s people will be vaccinated with a Chinese vaccine.  Which country will those people look to for world leadership?


Never before in history have people responded to the threat of an epidemic or pandemic by closing down important parts of the economy.

The International Labor Organization estimated that, in early April 2020, some 81 percent of the world’s paid work force was under some kind of restriction.  

Some 3 billion workers were furloughed worldwide; 1.6 billion students had their educations interrupted.  The World Bank estimated that the workers of the world lost $10 trillion in lifetime income.

Tooze said the reason for this is we the people as a society value human life more than we did, or, to put it another way, we as individuals are more risk-averse that before.

The reason is that, in earlier eras, death by disease was a normal thing.  Even well-to-do Victorian families expected the death of at least one of their children.  It is only during the past couple of generations that middle-class people in rich countries came to expect to live to old age and beyond without crippling injury or life-threatening disease.

Click to enlarge.

Tooze called his book Shutdown rather than Lockdown because he believes most of the closings were either voluntary or in response to popular demand.

The Chinese government, after an initial refusal to accept the reality of the disease, initiated massive, nation wide shutdowns, testing and quarantines in February, 2020, and eliminated the virus before it could take hold.  This was so big a hit to the Chinese economy that President Xi Jinping had to tell local governments to go slow and use common sense.

But it worked.  China stamped out the virus.   So did South Korea, emphasizing testing and quarantine more that shutdowns.  

Some Chinese thought President Xi over-reacted, according to Tooze.  But Xi was vindicated when governments in Europe and the Americas failed to stop the spread of the disease.

The leaders of many Western nations, including Donald Trump, the UK’s Boris Johnson, and Brazil’s Jair Bolsonaro, originally denied the seriousness of the pandemic.  But one by one they caved in, responding to public demands for action.  But by waiting, they allowed the disease to gain too large a foothold to be stopped.


The economic impact of the pandemic was greater than the impact of the financial crash of 2008, Tooze wrote.  

The International Labor Organization determined that 81 percent of the world’s work force in April, 2020,  was unemployed or under some kind of restriction.  Some 3 billion adults were furloughed or worked from home; 1.6 billion students had their education interrupted.  The World Bank estimated that $10 trillion in lifetime earnings were lost.

The economic loss was not due to government-ordered shutdowns alone.  In fact, the International Monetary Fund, using cell phone data, estimated that only about a third of the reduction in mobility in rich countries during the pandemic was due to lockdowns; the rest was due to individual decisions.

Click to enlarge.

The pandemic hit the retail, restaurant, entertainment and travel industries first.  Demand for all kinds of consumer goods, including automobiles, fell.  As always happens during recessions, business failures cascaded through the economy.

 There was a worse financial panic than in 2008.   As investors in mutual funds and hedge funds failed out, managers found the only assets they had that were salable were U.S. Treasury bonds, which had been considered the world’s safest investment.  But sales were so massive that the price of Treasury bonds fell.

This was an existential threat to the world financial system.  Banks and other financial systems depend on a stable dollar to do business in, and what props up the dollar is the fact that U.S. Treasury bonds maintain their value. 

But the worst didn’t happen.  Jerome Powell, the chair of the Federal Reserve Board, announced a massive bond-buying program by the Fed.  It also bought up private securities and provided credit to the rest of the worldwide banking system.  In effect, it bailed out the world.

The rest of the world also give up its inhibitions about borrowing and spending.

Click to enlarge.

The European Union waived its rules about government deficits.   The U.S. Congress appropriated $2.7 trillion under the U.S. CARES Act, three times the Obama stimulus.  This included $669 billion Paycheck Protection Plan.

In all, the OECD estimated that between January and March 2020, governments of rich countries borrowed $11 trillion.  By the end of the year, this came to $18 trillion.  About $12 trillion of that debt was issued by the United States, $1.8 by Japan and the rest by European governments.

This dwarfed anything that happened following the 2008 recession.  It also contradicted what most economists thought they knew about money.

According to accepted economic theory, all this borrowing and money creation should have created runaway inflation.  Yet nothing of the sort happened.

There is a school of thought called Modern Monetary Theory, which holds that governments should finance their expenditures by printing money.  So long as the amount of currency in circulation does not grow faster than the nation’s ability to create wealth, there will be no economic danger.  

Adam Tooze

Under MMT, there never would be any need for government debt, except for the usefulness of Treasury bonds in high finance.  There never would be any need for taxation, except to control inflation and reduce income inequality.

Whether this is feasible or not, it is the case that we the public live under an economic system that is governed by government subsidies and monopoly power, not the law of supply and demand.  Any time government tries to turn off the life support system, the patient begins to fail.

This is especially true of us in the USA, with our lack of a European-type or Canadian-type social safety net.  We are still living in an economic crisis, which is being held off by government stimulus programs and emergency measures that are regarded as temporary.  This cannot go on forever, which means that someday it will stop.


What if the Coronavirus Crisis Is Just a Trial Run? by Adam Tooze for the New York Times.

Has Covid ended the neoliberal era? by Adam Tooze for The Guardian.

Adam Tooze on Covid-19, China and the legacy of the 2020 economic shutdown, an interview for Vox.

Keynes and why we can afford anything we can do by Adam Tooze for Chartbook on Shutdown.

Writing in media res by Adam Tooze for Chartbook on Shutdown.

Why does the World Bank care about its bond rating? by Adam Tooze for Chartbook on Shutdown.

Neither Chernobyl nor Lehman by Adam Tooze for Chartbook on Shutdown.

Tags: , , ,

3 Responses to “The economic consequences of the pandemic”

  1. Fred (Au Natural) Says:

    “Governments must spend whatever is necessary to be prepared…”

    Never gonna happen. There will always be some fashionable, shiny sparkly program to throw money at. Too easy to kick the can down the road on the boring stuff.

    And then there will be conflicts based on what we want to prepare for. A fair number of people think we need to prepare for war.

    Liked by 1 person

  2. williambearcat Says:

    There are too many disasters. It’s similar to the person suffering heart disease, lung cancer, kidney failure, cirrhosis of the liver and gets Covid. Does it matter what kills him?

    Liked by 1 person

  3. philebersole Says:

    One of the themes of the old science fiction writers was an invasion from Mars or some other planet, and the world uniting to fight the common enemy.

    Well, the SARS-CoV-2 virus is an alien life-form that is attacking humanity, and we the human race are not uniting. Just the opposite.

    It is as if the characters in H.G. Wells’ “The War of the Worlds” were fighting the Martian tripods in the UK and USA, but giving them free rein in South America, Africa and India.

    Liked by 1 person

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: