tooze perry anderson

iv. financial crisis
With Crashed, Tooze’s problematic finally enters into its own. Durand has provided so full an account of the very great achievement of the book that there is little need to recapitulate it here. It is enough to recall its main case. The financial crisis that broke out in 2008 was the product of a sudden paralysis of the interlocking matrix of corporate balance-sheets, as the interbank lending on which it depended seized up in the us and eu in the wake of the Lehman default; its global fall-out was a dramatic demonstration that the central axis of world finance was not, as often imagined, American-Asian, but American-European. As the danger of a second Great Depression loomed, it was the United States alone that averted it, with emergency measures taken by the Fed and the Treasury in a set of bold innovations—central bank swaps, quantitative easing, macroprudential regulation—stabilizing the system. European response, by contrast, was not only laggard but counterproductive, until Draghi repositioned the ecb four years later. Out of the crisis, us hegemony was reasserted, and the dollar emerged more dominant than ever in the global financial system. But a pragmatic managerialism that bailed out bankers and stock-holders left society as unequal and even more divided than before, detonating populist revolts that have destabilized both America and Europe in a mutation of the crisis that has yet to end. In spatial sweep, narrative brio and striking detail, no other work on the crash comes near Tooze’s account of it.
Where does his conclusion of the trilogy leave Durand’s two queries, of politics and method? In keeping with its predecessors, Crashed takes the hypertrophy of finance that is the heuristic object of Durand’s study as a situational given, without structural explanation. In that sense, it too starts in medias res. The conditions that generated the crisis of 2008 are reduced to the demise of Bretton Woods—attributed to pressure from ‘the struggle for income shares in an increasingly affluent society’ and ‘the liberalization of offshore dollar trading in London’, as if the war in Vietnam was a cost irrelevant to Nixon’s decision to cut the painter to gold—and the ensuing need for neoliberal discipline to halt inflation: three trifling sentences in a work of six hundred pages. It is as if the decade-by-decade decline in growth of the real economy, across advanced capitalism—the long down-turn that arrived in the seventies—had occurred on another planet.
If that structural framework, determining a system-wide displacement of productive capital into bloated global finance, is missing, the American response to the crisis suffers in this telling from a similar blankness of background, if more paradoxically. For at the outset, after stating that the us alone proved able to master the challenge posed by the crisis, Tooze writes: ‘that capacity is an effect of structure—the United States is the only state that can generate dollars’, then immediately adding ‘but it is also a matter of action, of policy choices—positive in the American case, disastrously negative in the European case’. The work that follows, however, brackets the structural capacity completely—it is not mentioned once thereafter—delivering instead an encomium of the policy choices taken by the Fed and the Treasury under Bernanke and Geithner as saving the world from disaster, albeit at the cost of some unhappy side-effects. What this edifying story omits is the simple, central fact of the unique leeway the us enjoyed in the prerogatives of the dollar, as the world’s premier reserve currency and store of value.
A historical comparison is enough to show why the Obama Administration could avert a depression as the Hoover Administration could not. When the Kreditanstalt collapsed in Austria in 1931—the real trigger, rather than the Wall Street crash of 1929, for the onset of the slump—Hoover, less rigid than his legend, passed the most expansionary budget of the decade, with a deficit of over half Federal expenditure. So strong, however, was domestic and foreign disapproval of such license that he back-tracked with tax increases the following year. For so long as the us was tethered to the gold standard, it could not afford significant fiscal or monetary loosening without risking a run on the dollar, which its authorities were not prepared to incur.49 Eight decades later, by contrast, the us could run a huge trade deficit and print money as it wished without fearing retribution from foreign bond-holders or investors, typically all the keener on T-bills and Wall Street stocks the more anxious economic conditions at large became. So the Obama Administration could run up the biggest peacetime fiscal deficit in us history—it jumped from 2.7 per cent of gdp in 2007 to 13 per cent in 2009—with impunity. No Eurozone country could do anything like this. There, the Stability and Growth Pact of 1997–99 in principle banned any deficit above 3 per cent, a rule cemented by the Fiscal Compact of 2013, even written into the constitutions of Italy and Spain. This enormous structural difference disappears in Crashed, where the institutional framework of the Treaty of Maastricht and the monetary union it created do not rate so much as an entry in the index. The divergent responses to the crisis of America and Europe were not just a question of policy options: they were the product of two radically contrasted—one enabling, the other inhibiting—structures.
The missing piece
Those who enjoyed the imperial latitude of the dollar have boasted not just of the success of the actions they took, but of their valour in taking them. The ghost-assisted memoirs of Bernanke and Geithner, entitled respectively The Courage to Act and Stress Test, present their time in office as a nerve-racking ordeal, bravely confronted and boldly surmounted, saving the nation with measures of unprecedented novelty as it teetered on the edge of an abyss. Crashed criticizes the implication that they themselves had no responsibility for the dangers they battled with, and that the upshot of their efforts was of undivided benefit to all. But it doesn’t seriously question the self-serving pathos of power heroically exercised.50
That is in part because there is a missing piece in the jigsaw puzzle of global finance that Tooze otherwise puts together with such skill. Japan, the third largest economy in the world, is scarcely to be found in Crashed. That is certainly not due to any lack of competence or interest on Tooze’s part; Deluge pays due attention to the country and its economy in the inter-war period. Rather, its omission is a requirement of the narrative, on which its inclusion would have cast a different light. For virtually all of the daring innovations with which Tooze credits the us authorities for stopping the crisis of 2008—and more—had been pioneered by their Japanese counterparts, most of them well beforehand, starting in the nineties, and in wider and ampler measure, without resort to chest-thumping. Not only qe—central bank purchase of bonds to inject cash into the financial system—and forward guidance, but pko—‘price-keeping operations’ (ironically so-named after the un euphemism) to support stock values, and qqe—central bank purchase of corporate bonds and equity. Not only zirp—zero interest rate policy—but the first use of negative interest rates, and of yield-curve control. All this on a scale making American use of heterodox tools look modest. The excess reserves created by the Bank of Japan’s use of qe have been larger than those created by the Fed, in an economy a quarter the size of the us.51 As a percentage of gdp, the boj’s balance-sheet is nearly four times bigger than the Fed’s.
This enormous injection of liquidity into the economy was possible not only because, unlike the United States, Japan has posted a trade surplus for most of the past forty years, but also because 95 per cent of its public debt, denominated in its own currency, is held by domestic institutions and households, making it virtually as proof against loss of foreign confidence as the supremacy of the dollar renders America’s, if not more so, even though the debt is double in size. So too, the most important innovation of all in ‘the completely new range of policy tools’, as Durand summarizes Tooze, ‘macro-prudential supervision’ of the financial system: in 1998–99 the Japanese Ministry of Finance’s resolution of eleven ‘city banks’ into just three ‘mega-banks’ and a domestic-operations-only fourth, not to speak of the Bank of Japan’s grip on a stock market where it is owner of 75 per cent of the exchange-traded fund market and a top ten share-holder in 40 per cent of Japanese companies,52 puts Geithner’s squeamish tinkering with Citigroup and the rest, and its enfeebled issue in Dodd–Frank, in the shade. More radical in all these ways than the Treasury, so too was the Ministry of Finance in the more traditional area of fiscal policy, unleashing ‘the largest single peace-time government expenditure in history’,53 amid successive stimulus packages in the nineties totalling some $1.3 trillion—nearly twice the size of Obama’s American Recovery and Reinvestment Act.54 In doing so, it could draw on historical precedent. Pre-war, Japan led the world in recovering from the Depression with its coordination of monetary expansion and full-throttle fiscal stimulus—something never attempted by the New Deal—under Finance Minister Takahashi Korekiyo.55
When the crisis of 2008 broke, manufacturing was hard hit: Japanese exports plunged by half and the country suffered a fall in gdp, something it had never known since the mid-seventies, even when the property bubble burst in 1989. But the financial system was little shaken by the Lehman shock:56 tribute to the fact that Japanese banks, unlike European ones, were not entangled in such a fatal nexus with their American counterparts. If the boj drew on dollar swaps from the Fed to lend to them, it was never obliged to do so, since the foreign-exchange reserves in Tokyo were over seven times larger than such loans, ‘so it could be said that Japan did not need its swap line’57—and so has no place in Tooze’s narrative of the crash. Yet few stock images of the period are so familiar as the awful fate of Japan, dutifully conjured up for White House consumption by Geithner: years of persistent stagnation since 1989, compared with buoyant American growth before 2008 and rebound since. Don’t they make its recent history an object lesson in what to avoid? Certainly, the Japanese variant has not escaped the common blights of advanced capitalism in this era—increased poverty, precarity, inequality; declining unions, arrested wages, rising profits. Yet its growth rate per capita has been not that much worse than America’s, as even Bernanke concedes;58 unemployment has never risen as high, there is less polarization of opulence and misery, the health, education, safety and life expectancy of its citizens are all superior. Behind a veil of Rawlsian ignorance, who would prefer existence in the Land of the Free?
Intensifying competition
More largely, if the underlying nature of the Great Recession, and what it might portend for the future, is never really addressed by Tooze, it is in part because here too the exclusion of Japan from his compass exacts a significant cost. In the nearly 2,000 footnote references of Crashed, there is none to the remarkable Taiwanese economist at Nomura Research, Richard Koo, one of the most original minds in the field,59 whose Balance-Sheet Recession of 2003 first explained the reasons why, after the collapse of Japanese asset prices in the nineties, ultra-low interest rates and massive injections of liquidity into the economy by the boj failed to overcome stagnation: essentially because companies had switched from the normal imperatives of profit maximization to debt minimization, ceasing to borrow—and invest—no matter how cheap or abundant the funds available to them.
But why then was there insufficient demand to induce firms to invest? Fifteen years later, in The Other Half of Macroeconomics and the Fate of Globalization, Koo went on to offer an answer. Historically, paths of growth could be divided into three periods: an era before the Lewis turning-point, when an abundant supply of surplus labour from the countryside allowed industrialization based on cheap wages and widening inequality to take off; a ‘golden age’ when the ltp was reached, as urbanization became standard, labour markets tightened, employers had to raise wages and productivity, and inequality contracted, powering mass consumption and much faster growth; finally a ‘pursued’ stage, post-ltp, when competitors enjoying pre-ltp wage-levels yet modern technologies invade the markets of those who are henceforward chased, shrinking their opportunities for domestic investment, and driving firms to export capital to cheap-wage locations abroad, depressing growth rates and increasing inequality at home. Workers, ‘exploited’ in the first phase, ‘pacified’ in the second, are ‘on their own’ in the third, deserted by employers and left on their uppers. The United States was the first to suffer from pursuit, by Japan and Germany in the sixties and seventies; Japan in turn was pursued by South Korea and Taiwan in the eighties, and now China was the pursuer of all of these. Characteristic of the contemporary period, Koo argues, is the quickening arrival and shortening life of the golden ages enjoyed by newcomers, as more and more countries join the global bandwagon.60
It can immediately be seen how the upshot of this comparative historical schema converges with Durand’s hypothesis of the vent of financialization in the ‘pursued’ economies; as too with Robert Brenner’s explanation of the long downturn that set in across them from the seventies onwards.61 Without taking note of Koo’s work, Lawrence Summers has recently offered a scenario that fits it in striking fashion from another angle. What if the standard recipes of the hour for avoiding another crisis—monetary flexibility, fiscal expansion, macro-prudential regulation—became inadequate? Then extreme measures might prove necessary. ‘Think of what Japanese macroeconomic policy has had to resort to in order to sustain demand and maintain 1 per cent annual growth over the last twenty years: interest rates, both short and long, close to zero, large fiscal deficits leading to a very large increase in public debt, massive central bank purchases, and recourse to external demand in the form of a current account surplus’—the last, crucially, ‘an option that would not be available to other countries if the same weakness were to affect all of them. Were Japan to be a template of things to come for the rest of the advanced countries, what would be needed would indeed be a macroeconomic policy revolution’. Was this a realistic prospect? ‘If the United States or Europe were to go into recession in the next couple of years, in all likelihood their situation would look much like that of Japan, with zero rates, large fiscal deficits, below-target inflation, and inadequate growth. We may be one cyclical downturn away from the need for a revolution’.62 Cutting the temerities of the Fed drily down to size, this from the embodiment of neoliberal swagger at Clinton’s side in the confident nineties.
Roots of the Eurocrisis
In the crisis, one monetary innovation which the Fed did claim as its own were its swap lines supplying dollar liquidity to European banks, on which Tooze lays legitimate emphasis as an unadvertised transgression of its domestic mandate.63 Yet the very interlocking of American and European financial systems that forms the central theme of his book makes it clear that, once embarked on bailing out us banks and insurance companies, the Fed had no option but to follow suit with European counterparts, so intertwined were the two—the latter indeed dominating the market in the riskiest layer of securitized mortgages in America. There is no call to make heroism out of such necessity. On the other side of the swaps, it seems fairly clear that European central banks, rather than being startled and overwhelmed by the generosity of us largesse, counted on it in advance. As one of Tooze’s anonymous central bankers—perhaps Mervyn King—told him: ‘Given our long history of relations with the Fed, we didn’t expect to have any difficulty getting hold of dollars’. Why this should be described as ‘an astonishingly audacious assumption’, rather than its comfortable opposite, is obscure Nevertheless, Tooze’s mastery of the North Atlantic nexus within the landscape of global finance yields a striking picture of its European wing, puncturing complacent self-images of the Old World. The notion that ‘social Europe’ differed in any significant way from the logic of financial capitalism in America he exposes as an illusion. In reality, Europe was far more heavily over-banked than the us. In size of assets, the three biggest banks in the world in 2007 were European, while the liabilities of the banking system in every member state of the Eurozone, measured against their gdp, were at least three times larger than those of America.65 It was no accident that the first tremors of the earthquake to come originated not in the us but in the eu, with the crisis of bnp Paribas and collapse of Northern Rock in August–September 2007. Entanglement with America to the west; predation in Europe itself to the east, where Tooze shows the extent of the financial appropriation of local assets in the former Communist countries by Dutch, Austrian and Scandinavian capital. Nor, of course, has he anything but scorn for the role of the ecb and the turn to austerity once the crisis broke.
There, in one of the many gripping set-pieces of the book, Tooze delivers a damning verdict on the treatment of Greece by the Commission, the ecb and the imf, and subsequently the European Council, which presided over its fate from 2010 onwards. The crushing of Syriza’s attempt to negotiate less draconian terms for its society and economy is not only vividly portrayed, but set in the wider context of the thwarting of governments of the left in these years by the external imposition of ‘political and financial discipline’ on them. No one could doubt on which side Tooze’s sympathies lie in this exercise of brute power. But just where did this discipline come from, and how far did it extend? At this crux, his account takes leave of absence. At its centre lies the nature of the European Union, and the position of Germany within it. Evasive on the first and inconsistent on the second, Crashed offers no coherent account of the relationship between them, for it is too protective of each.
Decisive in this regard is the book’s abstraction of the decisions taken by policy-makers from the structures in which they were working. What was the matrix of the monetary union created at Maastricht? In Crashed, Tooze vouchsafes barely a word on the Treaty, though elsewhere he has spoken of its aims as creating a ‘European society by stealth’, and ‘binding Germany to Europe’.66 Ignored is the carefully crafted ordo-liberal design of a single currency managed by a supranational bank, elevated clear of any democratic electorate, insulating market forces from a popular will inherently destructive of them—advocated by Hayek already before the War, and realized by his Freiburg disciples after it; the intellectual world of Quinn Slobodian’s Globalists. The sole mandate of the ecb would be price stability, to which a fiscal straitjacket was added in the nineties. The authors of each were German: Karl-Otto Pöhl and Theo Waigel. The provisions of the latter were soon flouted by Germany itself, penalties unenforced; of the former with more difficulty, since they prohibited the central bank from purchase of government bonds. But in due course that rule too was circumvented when need arose.67 qe started under Trichet at the ecb, if far too meagrely for Tooze.
Reorganizing Europe
Dismissing the idea that any inescapable conflict between markets and peoples, capitalism and democracy had much to do with pressures on Greece and weaker members of the Eurozone in the crisis, Tooze blames instead the refusal of the ecb to buy bonds in the required quantity. Once it did so under Draghi, however, the squeeze on Greece did not abate, but continued, as he himself notes.68 His account of the role of Germany in these years contradicts itself no less freely. On the one hand, he insists that its history forbade any ‘strategies of domination or even overly assertive leadership’, acquitting its political class of any such temptation. On the other, he is obliged to report that when Papandreou and Berlusconi were ousted as premiers of Greece and Italy in 2011, senior officials in Berlin could be heard boasting: ‘We do regime change better than the Americans’; and to admit that the Fiscal Compact of 2013 was a straightforward imposition of the German ‘debt brake’ on the rest of the Eurozone. Even Habermas could speak with dismay of Germany openly claiming hegemony in Europe The reality is that the European Union, as it came to be constructed at Maastricht, half-way between confederal and federal principles, was an institutionally complex, sui generis structure whose logic, as its membership expanded, virtually required a leading state or bloc of states to give it direction. By reason not only of the size of its economy and population, but also the local ideology and experience of its political class, Germany was the natural candidate for this role, as itself at once a federal union, architect of the central bank that would guide the monetary union of Europe, and source of the legal culture behind it. Perceptive German minds, contrary to Tooze, had no difficulty explaining their country’s role as the hegemonic power within the eu of the new century, as necessary to its coherence as Prussia had been to the Second Reich, another federal structure, under Bismarck.70 At inter-state level, of course, as Hayek had shown, popular sovereignty was excluded. At national level it remained, if now properly qualified. Regrettably, however, direct expression of the popular will, unacceptable in the Federal Republic, persisted in not a few member states. A referendum in France had nearly undone Maastricht itself, one in Denmark had excluded the country from the single currency, another in Ireland had threatened the same to the Treaty of Nice, and worst of all—truly dismaying—a European Constitution laying down the free market as a core value of the Union was overwhelmingly rejected, not only by the famously fickle French but even the staunch Dutch in the referendums of 2005. What was to be done? Germany lost no time. Merkel swiftly confected a facsimile of the charter as a treaty for signature by governments, who could be relied on to do their duty, as opposed to voters who could not, and at Lisbon the requisite document was adopted nem con.
How do these events feature in Crashed? ‘Left-wing hostility to the pro-market character of the eu and nationalist hostility to Brussels’ united to deliver a profound shock to Europe’s elite. ‘Whatever the rights and wrongs of the constitution, popular democracy had asserted itself’. For the space of a sentence, one might say. Imperturbably, Tooze continues:
Given the reality of increasingly close economic and financial integration and the extension of the eu to Eastern Europe, the project of reorganizing Europe could not be simply abandoned. A substitute had to be found. If a true constitution was no longer a viable proposition, Europe would have to proceed by the tried-and-tested formula of intergovernmental treaty.This gave a key role to Germany and from November 2005 that meant Chancellor Angela Merkel.71
In other words, the vital task of ‘reorganizing Europe’ had nothing to do with democracy—quite the contrary, and the appointed leader in neutering it was—not a word of explanation is even required: who else?—the Chancellor of Germany. Its ‘key role’ was simply ‘given’.
Not that the nested structures of an ordo-liberal confederation and hegemony of Berlin within it have ever been a complete fit, or that the operationalization of the first invariably requires the second. Elsewhere, Tooze can be blunter about the activities of the ecb, German-designed but whose head has never so far been a German, describing the demand by Trichet and Draghi that the Spanish and Italian governments cut spending and increase taxes—in Italy, if necessary by invoking emergency Cold War powers, on pain of being denied purchase of local bonds—as a ‘blatant attempt to shift the balance of social and political power by means of monetary policy’.72 But neither episodes like this, nor the subsequent imposition of the Fiscal Compact—not by coincidence, grotesquely rammed into the constitutions of Spain and Italy—nor even the racking of Greece, not to speak of the still harsher fate of Cyprus (punished with a ruthless expropriation of local depositors, while eu financial institutions lost not a cent), which is passed over in silence, ever yield a critical overall reflection on the Union responsible for them. Of its own accord, a situational-tactical narrative excludes this.
Behind it, however, in this instance plainly lies a parti pris. The single currency is the ark of a covenant that is not to be questioned. Tooze does not enter into the particulars of its untouchability, depositing allusion to these into a footnote supported by a couple of technical say-so’s declaring doubts irreceivable. But an extreme susceptibility on the issue is plain from treatment of arguments at variance with this core value as little better than regression to tropes of national socialism.73 Evidence of the economic benefits of the euro, hard to come by, is not required.74 Explaining his pledge to do whatever it took to save it, Draghi did not waste time trying to demonstrate these. He simply told his listeners, in words Tooze might echo, that they should not underestimate ‘the amount of political capital that is being invested in the euro’. Political capital: what is that? The investment of the political class in its own immunity from popular jurisdiction within the zone franche of the single currency.
Yet though it is taken as granted in Crashed that the Union of Maastricht is a public good, its performance after 2008 offers Tooze few grounds for satisfaction. If at the end of the day the eurozone remained intact, it was not of its own doing. So utterly inadequate was its response to the crisis that by 2010, ‘European affairs could no longer be safely left to the Europeans’.75 Only American leadership and example, once the ecb had learnt to follow the Fed, could extricate it from floundering—‘the Eurozone was saved by its belated Americanization’. But that was in keeping with the origins of European integration, and the early, heady vision of its future that could now be envisaged once again: ‘America had reasserted a new version of liberal hegemony. Europe resumed the forward march to a United States of Europe it had begun under American guidance in 1947.’76
Feet of clay
What then of the United States itself? There, paradoxically, Trump’s victory in 2016, a more drastic reversal than any development in Europe, leads to a verdict on Obama’s record more caustic and consolidated than can be found in Tooze’s treatment of either the institutions or leading states of the eu. Due homage is paid to those who averted Armageddon. But they did so with technocratic fixes and ‘spectacularly lopsided bail-outs’ that made American capitalism even more concentrated and oligopolistic than before, yielding a ‘dismal recovery’—one so inequitable that 95 per cent of what growth it generated was annexed by the top 1 per cent of Americans, the remainder seeing virtually no improvement in their income after the crisis. Obama’s much touted health-care reform, the Affordable Care Act, even if it had created its own constituency, was by any larger measure ‘deeply disappointing’. Little or no support was forthcoming to distressed mortgage-holders: unlike the bankers and fund managers among whom Bernanke and Geithner would slide into luxurious berths after departing government service, ‘they were the powerless ones’. Centrist liberalism might seem to have triumphed, but its complacency was unwarranted. In 2014 the Democratic electoral rout should have been warning enough. Trump a few months away, Obama was telling people to ignore dark talk about society, and just take a walk in the sun, watch their kids playing and hear the birds chirping, to remind themselves what normal American life was like.77
Abroad, his administration had rescued Europe from financial breakdown and institutionalized the swap lines between the six principal central banks of the oecd. Even as the political scene was deteriorating at home, ‘the global dollar system was being given a new and unprecedentedly expansive foundation’.78 Yet however technically effective, this was an extension of the reach of American power without public authorization, comparable in its way to the electronic surveillance system of the nsa—each in their fashion offering a security blanket for the us and its allies. This pairing, unsettling for any patriot, is followed by the least conventional chapter of the book, a spirited critique of Western policy towards Russia and intervention in Ukraine, in which the us and eu share the odium of arrogance and blundering.
Already unexpectedly laudatory of Putin’s response to the financial crisis of 2008, ‘one of the largest in the world’, a package of measures ‘dwarfing those undertaken by West European governments’,79 Tooze leaves no doubt of his view about where primary blame lay in the descent of Ukraine into civil war five years later. When the arrival of a client regime mentored by us proconsuls in Kiev met retaliation from Moscow with a Russian take-over of the Crimea, the Obama Administration reached for its weapon of choice with states recalcitrant to the American will, and imposed sanctions—their first and only appearance in Crashed, though from the beginning of its story they were the inseparable, geopolitical face of the global dollar system whose expansion it records. Steadily ratcheted up by Washington, complemented with follow-my-leader steps from Brussels, and compounded by a steep fall in oil prices, the result was a worse economic crisis in Russia than in 2009, hitting the population much harder. The Treasury’s war, as an exultant practitioner has termed it, had racked up another benchmark as Obama exited: a new Cold War with Russia.80
Crashed ends with a chapter, ‘The Shape of Things to Come’, on China. Is that where the epic of American leadership of the world, in the trilogy Tooze has devoted to it, finally encounters its limits, terrain beyond its inspiration or control? By no means was the prc immune to the crisis of 2008, exports tumbling and unemployment rising. The ccp’s response was a ‘gigantic surge in stimulus spending’, amounting to over 19 per cent of gdp, that commands Tooze’s unstinting admiration. This was the largest Keynesian operation in history, a mobilization of resources on a scale Western economies had only ever achieved under the pressure of war. Its global impact was decisive. ‘In 2009, for the first time in the modern era, it was the movement of the Chinese economy that carried the entire world economy’. Relieved at the outcome though Washington might be, could it be altogether reassuring? For what it now faced, ‘for the first time since the rise of Nazi Germany’, was ‘a power that was, at one and the same time, a potential geopolitical competitor, a hostile regime type and a capitalist economic success story’. Integrated into the global economy though the prc might be, ‘deeply shared economic interests of the kind that legitimated the Fed’s swap lines to Europe’ would ‘be far harder to develop’. Not that all was necessarily lost. The descent of the Shanghai stock market and flight of wealth overseas in 2015 revealed not only the inexperience of the Chinese authorities in handling capital markets, but their dependence in managing the crisis on a helpful decision by the Fed not to raise interest rates. There, solidarity of financial purpose held good. But the Obama administration was not letting down its guard: its campaign for tpp was clearly designed to contain the prc. For the fact remains that ‘the victory of the West in the Cold War was far from complete. China’s triumph is a triumph for the Communist Party. This is still the fundamental reason for doubting the possibility of truly deep cooperation with China in global economic governance. Unlike South Korea, Japan or Europe, China is not a subordinate part of the American global network’. The concluding anxious concatenation says everything. What is ‘truly deep cooperation’? Subordination. What is ‘global economic governance’? One more cloying euphemism for us control. Tooze neither assumes the syllogisms as his own, nor repudiates them.
v. liberalism’s faultlines
Enough has been said to bring home the virtues of Tooze’s trilogy, an enterprise of formidable energy, ambition and imagination, vaulting in scope, absorbing in detail. What light then does a reading of it cast on the paradox of Durand’s judgement of its concluding volume? Methodologically, Tooze’s ‘situational and tactical approach’ plunges the reader immediately into the stream of events; structural features emerge only from the point of view of actors attempting to deal with them. Thus the inter-imperialist War, the Great Depression, and the hypertrophy of finance are taken as givens, as are in different ways the world-views of Wilson, Hitler or Geithner. The method makes for compelling historical narrative, but it is premised on repressing structural explanation. Politics and economics are indeed interrelated, as Durand observes, but restrictively: treating the latter simply as the pragmatic field within which the heroes and villains of the story make their policy decisions.
Thematically, the trilogy is unified by a single, highly individual optic: it is star-struck by America. Not uncritical of it; but, as it were, mesmerized. Tooze’s background in the Bonn Republic, where a long-lasting strand in post-war culture mingled wide-eyed excitement with studious reverence for the usa—a cross, one might say, between the fandom of a Wenders and the pupillage of a Habermas—clearly accounts for much of this. ‘Perhaps particularly as one who grew up in West Germany in the seventies and eighties, as I did’, Tooze explained to his lrb audience, ‘America is gravity’. That belief is the kink in the arc of his work. It is not an ideological vow, like Habermas’s ‘unconditional orientation to the West’, but something closer to a personal—or, as he would have it, generational—quirk. Some political consequences, of course, ensue. Domestically, Tooze has no difficulty finding fault with institutions, policies or persons in the us. Internationally, on the other hand, the us always looms too large in the balance of things—extravagantly in Wages, conspicuously in Deluge, still perceptibly in Crashed; and—not invariably, but too often—from Wilson and Dawes to Bernanke and Geithner, in the role of salvator mundi. The stripe of a particular exaggeration runs through the work.
The politics of a left-liberalism require no special reference to America, and if this is set aside, need to be considered in their own right. The compound, as noted, tends to be unstable. Tooze’s version is no exception, swerving from a marked inflexion to the right in Deluge to a critical turn to the left in Crashed. If a single token were to be picked of the change, it would be the disappearance in the latter of the Manichean establishment binary, dividing the world into ‘moderates’ and ‘extremists’, pervasive in the former. A radicalization is unmistakeable. But it is uneven. Certain of its limits can be seen if Crashed is compared with two earlier works covering the crisis of 2008–09 and its resolution, Simon Johnson and James Kwak’s 13 Bankers (2011) and Martin Wolf’s The Shifts and the Shocks (2014).81 Neither Johnson, former chief economist at the imf, nor Wolf, columnist and leader-writer for the Financial Times, would think of themselves as connected to a left, however liberal. Yet their treatment of Bernanke and Geithner is more stringent, and their conclusions harder-hitting, than anything to be found in Crashed.
Opening his book with Bernanke’s vainglorious speech of 2004 on the Great Moderation—hymning, in his words, ‘a world of outstanding stability and superlative monetary policy’—Wolf terms it, with polite contempt, ‘quaint’.82 It was the Panglossian confidence of economists like these that, absent exogenous shocks, crises were impossible, which four years later generated the crisis. For Johnson:
Paulson, Bernanke, Geithner and Summers chose the blank cheque option, over and over again. They did the opposite of what the United States had pressed upon emerging market governments of the 1990s. They did not take harsh measures to shut down or clean up sick banks. They did not cut major financial institutions off from the public dole. They did not touch the channels of political influence that the banks had used so adeptly to secure decades of deregulatory policies. They did not force out a single ceo of a major commercial or investment bank . . . The total cost of all those blank cheques is virtually incalculable.83
The difference is palpable, too, when it comes to prescription. What, post-crisis, is to be done? Johnson, after a blistering attack on the ‘American Oligarchy’ of half a dozen mega-banks, says the only remedy is to break them up, confining any financial institution to a hard cap of 4 per cent of gdp, and investment banks to 2 per cent. Wolf is willing to go much further, urging renewed consideration of Irving Fisher’s plan to abolish the ability of private banks to create money altogether, by obliging them to hold 100 per cent reserves against their deposits, and giving the state the exclusive right to issue money. No comparable proposals of any kind can be found in Crashed. Tooze can legitimately reply they would be out of place in the work of a historian. But as a prolific topical commentator in a wide variety of publications, the same does not apply. There too, however, abstention would seem to be the rule.
Liberalism has always contained different shades, and its dominant version has varied across countries and periods. In the capitalist world, going back to the eighties, the line of division separating a liberal politics from a politics of the left is their respective attitudes to the existing order of things: does it require structural change or situational adjustment?84 The degree envisaged of each defines relative locations on either side of the dividing-line. To see where Tooze’s position might lie requires a sense of the dominant liberalism of the period. That comes in two inter-related packages. Between states, the ‘liberal international order’ has for thirty years been the touchstone of geopolitical reason: free markets, free trade, free movement of capital and other human rights, policed by the most powerful nation on earth with help from its allies, in accordance with its rules and its sanctions, its rewards and its retributions. Within states, ‘neoliberalism’: privatization of goods and services, deregulation of industries and of finance, fiscal retrenchment, de-unionization, weakening of labour, strengthening of capital—compensated by recognition of gender and multicultural claims.
The first has reigned far more unchallenged than the second. Very few liberals have seriously contested the principles of free trade, the primacy of the United States, or the rule of international law as enshrined in a United Nations whose decisions the us has for the most part been able to determine at will. The liberal international order remains a precious icon. Many, on the other hand, have questioned or resisted the full application of neoliberal measures within their own societies, nowhere implemented in their entirety. The extent to which the first shapes the intellectual universe of contemporary liberalism can be judged by the adaptation of leading minds once on liberalism’s left to its requirements: thinkers like Rawls, Habermas and Bobbio all furnishing apologetic glosses on us wars of intervention against states declared outlaws by Washington, with or without the affidavit of the Security Council.85 Tooze has never compromised himself in this way. But the language of ‘global economic governance’, cleansed of any reference to its most prominent innovation, the proliferation of sanctions to strangle or bludgeon recalcitrant countries into line—‘war by other means’, as Ambassador Blackwill candidly describes it—offers a route to much the same.86
What of the national plane of politics? Tooze has written with all due trenchancy: ‘Under modern conditions, neoliberalism is, de facto, an anti-democratic politics, which resolves the tension between capitalism and democracy either by limiting the range of democratic discretion or by interfering directly in the democratic process’.87 He has attacked the escalation of economic inequalities under the neoliberal regimen with no less vigour, and criticized Pollyanna solutions to it. Piketty’s well-meaning proposal of a global wealth tax, he writes in Crashed, ‘wasn’t wrong’:
It just sidestepped the reason it was needed in the first place, the brutal struggle for privilege and power, which for decades had enabled those at the top to accumulate huge wealth, untroubled by any serious effort at redistribution. The answer, if there was one, was clearly not technical. It was political in the most comprehensive sense. Power had to be met with power.88
When writing in this vein, Tooze has certainly earned his place on the left of liberalism. But the compound is labile. Elsewhere in Crashed, he can write without demur of Obama’s failure to deliver ‘a concerted drive to unify American society around a sustained programme of investment-driven growth and comprehensive modernization’.89 Unify American society—or, power against power—cleave it?
If there is no clear-cut resolution of these tensions in Crashed, it is in part because so much rhetorical emphasis falls on the technical complexity of the ‘giant “systems” and “machines” of financial engineering’, and the vital role of a pragmatic managerialism in keeping them running. Central banks, Tooze has insisted, far from being stoppers of democracy, have often been flywheels of progress. After all, without the good sense of the Bank of England and the Federal Reserve, could the Entente have won the First World War, or the Allies the Second? Without helpful counteractions by Carney and Draghi, could the fall-out of unfortunate developments like the victory of Brexit in one referendum, or the defeat of Renzi in another, have been contained? ‘It would be a grave theoretical error and missed practical opportunity if technocratic structures were held to be a diminution of politics’. They can enhance them. Think of the ‘astounding flair for the situation’—magic term!—of someone like Mario Draghi.90
When he writes in this mode, rather than looking to possible avenues of democratic control over them, Tooze explains that ‘there are good reasons to defend technocratic government against the unreasoning passions of mass democracy. It is all too obvious today how important it is to be able to identify matters of potential technical agreement beyond politics.’ Sanity and lunacy so distributed, how can irrational masses be brought to accept rational decisions taken by the Bernankes and the Draghis? There, essential is that ‘coalitions be assembled for unpopular but essential actions’—not just as a conjunctural, but as a permanent necessity: ‘building such ad hoc and lopsided political coalitions is what the governance of capitalism under democratic conditions entails’.91
Unpopular but essential actions: Tooze’s indictment of the eu brutalization of Greece is searing enough. But does he have anything to say about Tsipras’s shredding of a referendum to comply with it? Nothing. A silent sigh of relief can be deduced. For wasn’t such surrender the responsible course of action, as Stresemann showed? It is enough to recall Durand’s verdict in Fictitious Capital on the overall tale Tooze’s book tells to see the difference between the two writers: ‘Finance is a master blackmailer. Financial hegemony dresses up in the liberal trappings of the market, yet captures the old sovereignty of the state all the better to squeeze the body of society to feed its own profits.’ That note is missing in Crashed. There, blackmail—not called as such—is regrettable, but acceptable.
Ad hoc and lopsided coalitions: to date, the most specific illustration Tooze has offered comes in a recent piece on Germany, his European land of reference, in the lrb. In it, he argues for the creation of a Red–Red–Green alliance of the spd, Die Linke and the Greens, in place of the current Black–Red coalition of the cdu–csu–spd that has ruled the country since 2013, as previously from 2005 to 2009. Within the alternative bloc of his hopes, his preference plainly goes to the spd, hailed as ‘no ordinary political party’, but one that for 150 years, from the time of Bismarck to that of Merkel, has ‘stood for a vision of a better, more democratic and socially just Germany’—as if these were adjectives that could encompass the vote for war credits in 1914, the use of the Freikorps to dispatch Luxemburg and Liebknecht, the McCarthyism of the Radikalenerlass in the seventies, and the practice of renditions in this century: not the whole record, but an indelible part of it. Today, obstructing the prospect of a Red–Red–Green alliance is ‘Die Linke’s ingrained hostility to nato’.92 The good sense of the spd’s Kaisertreu fealty to it goes without saying.  Such questions aside, what should be the programme of a future Red–Red–Green government? Formally speaking, Tooze’s article is a review of four recent books on Germany, to which he adds three others as he proceeds, though as often in the lrb reference to them is cursory, none accorded the dignity of an actual review. Much of the substance of the piece is devoted to the social consequences of Hartz iv, Schröder’s ‘tough new system of welfare and labour-market regulation’, imposed in 2005. Though he prefers a more to a less lenient view of its neoliberal agenda, and complains that the spd gets no credit for ‘earnest efforts to rebalance’ its consequences—a minimum-wage law has since belatedly ended a situation in which Germany was one of the last countries in Europe without one93—Tooze leaves no doubt that the condition of the country is far from ideal: inequality has soared, precarity has spread, and with it social and political unrest. To remedy such ills, what agenda of social repair does he outline for a Red–Red–Green coalition? Answer: Germany needs ‘a more pro-European government’, one capable of responding to the ‘bold vision of Europe’s future’ offered by a ‘charismatic’ Emmanuel Macron94—a leader famously capable of constructing a transverse, if lopsided coalition and taking unpopular, but essential decisions. Nothing else. ‘Europe can ill afford further delay’. That empty signifier is all.
It would be wrong to make too much of this. Tooze spreads himself widely, and his accents and formulations vary from place to place. That’s often the price of a growing reputation—la primadonna é mobile—and shouldn’t be taken too seriously. To criticisms of inconsistency, he can in any case reply quite reasonably that nothing he has written falls outside the parameters of a basic commitment to liberalism as it has developed in the West from the time of Wilson and Lloyd George to that of Geithner and Macron, and no one can accuse Crashed of lacking a social sensibility in keeping with this tradition. Yet in today’s world, the question can be asked: how far does that differ from running with the hare and hunting with the hounds—indignant sympathy for the hare, awed admiration for the hounds? ‘Power must be met with power’. Truly?