It is often said that economists failed to see a crisis coming in 2008. That is only half trueby Duncan Weldon / July 17, 2018 / Leave a comment
As the 10th anniversary of the fall of Lehman Brothers approaches, many books on the financial crisis will be published. Few are likely to match Adam Tooze’s Crashed in scope, ambition or rigour. This is truly contemporary history—the book runs right up to the end of 2017. It is hard to think of another author who can write as authoritatively on such a wide range of subjects—from the workings of the credit default swap market to the intricacies of Italian politics and the geopolitics of Ukraine.
Tooze, an Anglo-German historian based in the US, is best known for his work on the first half of the 20th century: The Wages of Destruction (2006), a revisionist account of the Nazi economy and war effort; and 2014’s The Deluge dealt with the aftermath of the First World War, and the reshaping of the global order in the 1920s. So Crashed might, at first sight, seem like a radical departure. But the essential themes are familiar territory for him: the interactions of economics, finance and geopolitics—and how the world order is reshaped by catastrophe.
The twist is that Crashed examines the financial crisis through a new lens: a sharp focus is kept on bank balance sheets, and the (often cross-border) capital movements between them. This is less a work of contemporary macro-economic history and more a work of contemporary macro-financial history.
The global depression of the 1930s can be understood in a traditional macro-economic framework—in terms of nation states, the collapse in their willingness to invest and consume, and the knock-on effect on their national income and budgets. Many have tried to explain our crisis in the same old frame. But in truth, it was different.
The integrated global economy of the 1990s and 2000s cannot be understood by focusing on what’s going on within and between nation states; instead you need to concentrate on the macrofinancial “interlocking matrix” of bank balance sheets, and how money flows between them—often without much regard for national borders. Capital controls had, after all, ceased to operate a generation or more earlier in most of the west: Britain’s were abolished in 1979 by Margaret Thatcher.
As Tooze sees it, switching our attention to the macrofinancial carries a…