The left of the late 1990s and early 2000s expected a “crisis of American hegemony,” says the historian Adam Tooze. It thought that America’s military failures would extend to economic policy. But when the financial crisis came in 2007–08, it wasn’t what those on the left had expected, and the reasons they were wrong still matter.
Tooze joined The Masthead for an episode of our series The Present Past, in which we look back to The Atlantic’s history for clues to understand the current moment.
This issue synthesizes our conversation with Tooze. You can listen to the full interview on SoundCloud, or you can get it directly in your podcast player.
By Matt Peterson
When The Masthead revisited George Soros’s 1997 cover story, “The Capitalist Threat,” last year, we found a nuanced thinker whose views had been obscured by opponents’ paranoid attacks. That conversation focused on Soros’s history and worldview, and it left me wondering about the thesis of his article. Soros warned in the story that freewheeling financial markets posed a threat to open, democratic societies. Did the 2007–08 crash vindicate him?
The economic historian Adam Tooze’s answer to that question is no, Soros misjudged what was at work in the relationship between economic and political power. He was worried that Americans wouldn’t be around to rescue the world from economic (or political) predators, as they had during the Cold War. But that’s not how the financial crisis played out. “Soros is pretty much of his time,” says Tooze, and the reasons why Soros miscalculated what was coming leads an important reassessment of American influence. The financial crisis changed American politics in profound and subtle ways that are still playing out today, with implications not just for politics and finance, but also for climate change and virtually every other domain of policy making.
Tooze is the author of Crashed: How a Decade of Financial Crises Changed the World and the Kathryn and Shelby Cullom Davis professor of history at Columbia University. You can listen to our interview with Tooze on the Masthead’s audio feed. Here are the highlights from our conversation.
“The crisis of 2008 was not the crisis that people expected,” Tooze told me. Mainstream economic commentators had long predicted that the United States’ vast public debt would produce some kind of government-driven catastrophe. “Simply by dumping U.S. Treasury bills and other dollar-denominated assets, China … could cause the value of the dollar to plummet, leading to a major crisis for the U.S. economy,” a commentator wrote in this magazine in 2004. What transpired was not that anticipated public-sector disaster, but a private one. The financial crisis, Tooze explained, was “a crisis of banking, of private relationships, of private contracts, of private debt.” The Federal Reserve intervened to provide dollars not only to American lenders but also throughout the global economy. Instead of weakness, the American state showed surprising resilience—or at least one part of the state did.
“The two bits of the American state that do continue to work are the Special Forces and the Federal Reserve,” Tooze quipped. America can kill Osama bin Laden and backstop global liquidity. “But then in other respects, of course, the decay, the crumbling, the disintegration is all too real,” he said. Pointing out Washington’s dysfunction is hardly controversial. What’s remarkable is the co-existence of political disorder with continued technocratic authority in some institutions, such as the Fed.
The high-functioning parts of the state are effectively providing political subsidies to the rest of government. “The efficacy of the Fed in ensuring that there isn't really going to be a disastrous crisis in the American bond market and that there is a ticking engine of recovery going on in Europe since 2009 has in a sense enabled Congress to behave less responsibly,” Tooze said. America’s flirtation with breaching the debt limit is the most obvious manifestation of the belief that what America went through in 2007 and 2008 was, in fact, not damaging enough. “There is a sense on the part of a minority of conservatives that you know the American dream is so broken, America is so damaged, beyond repair really, that one needs to smash it to remake it,” Tooze said.
America’s place in the world has changed, permanently. Some parts of the state—again, the Fed—have longer reach than they used to. But when liberals go back to Franklin D. Roosevelt’s presidency to make analogies of national revival, they obscure deep changes in the global economy. That’s particularly true on climate change. Tooze said that he wholeheartedly supports the idea of a Green New Deal. But that, like the original New Deal, it suggests the idea of renewed American sovereignty. And that’s just not possible, he said: “With regards to climate change, the West is a bystander. Now, we can be a helpful bystander. We can contribute our part. We can open up our technology to people who need it more urgently than we do. But the decision, the fate of humanity, is not going to be defined by us. It’s going to be defined by the electricity and power-generating decisions made by China and India in the next 20 years.”
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