Shutdown

Summary

Slate Money – "Shutdown" (September 11, 2021)

Host: Felix Salmon (A), Emily Peck (B),
Featured Guest: Adam Tooze, economic historian and author of Shutdown: How Covid Shook the World’s Economy (C)

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Episode Overview

This special episode of Slate Money centers around Adam Tooze’s new book, Shutdown, a sweeping analysis of the worldwide economic impact of the COVID-19 pandemic. Tooze joins Felix Salmon and Emily Peck to break down how close the global financial system came to disaster in March 2020, the unprecedented actions of the Federal Reserve and central banks, China’s distinct pandemic trajectory, and the looming humanitarian catastrophe in Afghanistan. The discussion is rich with historical perspective, sharp economic insights, and a candid exploration of what “winning” and “losing” meant for nations in 2020.

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Main Themes and Discussion Points

1. Adam Tooze's Book: Shutdown

• Introduction to the Book
  Shutdown: How Covid Shook the World’s Economy is described as "the definitive pandemic book before the pandemic is even over" (A, 02:07). Tooze’s core thesis is about the surprising realization that societies can—and did—afford the extraordinary spending required in crisis.

  “What we have learned is that whatever we can actually do, we can afford to pay for. And that, I think, is the central message.” — Adam Tooze (C, 02:21)

• The book is positioned as a follow-on from debates post-2008 and conversations with the Modern Monetary Theory (MMT) group.

The "Keynesian Rift"

• Tooze frames the moment as a “Keynesian Rift,” expanding macroeconomic policy to levels previously unthinkable, not just in the US but globally (C, 02:21).

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2. The Treasury Market Crisis of March 2020

• How Close the World Came to Financial Meltdown

  • The episode vividly revisits March 2020, when the US Treasury market—the world’s deepest and most liquid—“almost broke in two” (A, 08:28).

  • Extraordinary Fed intervention:

    “They were buying a million dollars a second in the last week of March. ... They bought 5% of the US Treasury market in a matter of weeks.” — Adam Tooze (C, 09:23)

  • The entire financial system, portfolios, and asset allocation strategies depended on the liquidity of Treasuries. If that failed, the world was staring at a “death spiral”: forced sales, cascading into equities and corporate bonds (C, 17:09).

  • Memorable Analogy

    “If you can’t stabilize [the Treasury] market...your entire portfolio is illiquid, and that's not a sustainable position. So then you need to shrink the entire portfolio really dramatically. In other words, we would have seen spiraling fire sales.” — Adam Tooze (C, 17:09)

  • The Fed didn’t just rescue America, but global finance—liquidity for emerging markets depended on strong US dollar and Treasury markets (C, 13:11).

Timestamps for Key Segments:

• [02:21] – Tooze's main thesis: Keynesian Rift.
• [05:15] – The near-breakdown of the Treasury market.
• [09:23] – Fed’s emergency actions by the numbers.

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3. The International Perspective & China’s Ascendancy

• China’s Response & "Winning" the Pandemic
  • Tooze and the hosts discuss how, despite initial missteps, China emerged from 2020 having maintained social stability and economic growth—in sharp contrast to Western dysfunction (C, 21:23).

    “It’s as though in the first half of the game, China shipped two goals and then in the second half...the opposing team came out, ran down to its own goal, and spent the next half firing the ball into its own net.” — Adam Tooze (C, 21:23)

  • The episode highlights how effective social control, lockdowns, and the central party’s authority led to China’s rapid recovery, while the West faltered with internal division and inconsistent policy.
• US-China Geopolitical Tensions

  • The pandemic crystallized a shift from counterinsurgency (Afghanistan) to peer-to-peer competition, especially in technology and industrial policy (C, 24:44).

    “We are now in a much tougher, much more aggressive, winner-takes-all strategic competition.” — Adam Tooze (C, 23:23)

  • [21:23–24:44] – China “wins” the pandemic, US/Europe lose coherence.

  • [24:44–27:38] – Rise of US-China economic “war.”

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4. US Societal and Economic Fracture: “The Fed with Nukes”

• The US is described as a country where financial rescues are smooth and swift, but “social rescue” is chaotic and adversarial, reflecting deep social divides (C, 26:51–31:16).

  “We used to say about post-Soviet Russia it was a gas station with nukes. ...The United States is like a Federal Reserve with nukes and a frankly non-existent welfare system." — Adam Tooze (C, 29:15)

• Massive asset gains for the top half, but “the bottom 50–100 million” suffered social and educational crises, with little structural support (C, 27:38–29:15).

• Delayed, temporary, and brittle social safety nets compared to the immediate financial market responses (C, 31:16).

  • [27:38–32:06] – Discussion of US wealth, social safety nets, and disparities.

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5. Afghanistan: Humanitarian and Financial Crisis

• The Looming "Sudden Stop"
  • Tooze draws parallels between the “financial heart attack” averted in March 2020 and the “sudden stop” now facing Afghanistan following US withdrawal (C, 33:59).
  • Afghan cities are described as fueled by modern imports, totally dependent on foreign currency and aid—now cut off, risking mass urban destitution and famine.

    “It’s more like cutting off the oxygen to a kid in intensive care.” — Adam Tooze (C, 39:37)

• Sanctions and International Aid

  • Adam argues that sanctioned financial flows are pushing Afghanistan “in the direction of demodernization,” matching what the Taliban wants (C, 39:19).

  • Only multilateral, non-US humanitarian aid offers any hope for staving off mass crisis (C, 38:18, 39:37).

  • [33:59–41:01] – Afghanistan’s economic implosion explained.

  • [41:01–44:00] – Discussion on what (little) Western spending actually accomplished in Afghanistan.

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Notable Quotes & Memorable Moments

• On MMT and Government Spending:

  “We can afford anything we can actually do. So it's the actually doing that...has been revealed as the central issue.” — Adam Tooze (C, 04:12)

• On the Scale of Fed Intervention:

  “They were buying a million dollars a second...over $70 billion [in Treasuries] a day...They bought 5% of the Treasury market in a matter of weeks.” — Adam Tooze (C, 09:23)

• On the US Systemic Divide:

  “There are two realities and they coexist within this country...The United States is like a Federal Reserve with nukes and a frankly non existent national welfare system.” — Adam Tooze (C, 29:15)

• On Afghanistan:

  “It's more like cutting off the oxygen to a kid in intensive care. We've just had the baby, ...and we're basically saying in the incubator, we're turning off its food.” — Adam Tooze (C, 39:37)

• Dark Humor:

  “Better yet, just put it in GameStop.” — Felix Salmon (A, 32:06)

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Numbers Round (44:02–46:00)

• Felix Salmon:
  $7.3 trillion — Total spent on private defense contractors since 9/11; Lockheed Martin’s share price up 10x in 20 years (A, 41:54).
• Emily Peck:
  $17,010 — Price of a Theranos lab coat on Poshmark, nod to the ongoing Elizabeth Holmes trial (B, 44:06).
• Adam Tooze:
  -0.008% — Negative yield on a Greek 5-year bond, underscoring how financial conditions have shifted since the eurocrisis (C, 45:22).

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Timestamps for Key Segments

| Segment | Topic | Time | |---|---|---| | Book thesis & Keynesian Rift | 02:21 | | Treasury market crisis | 05:15–11:38 | | Fed's emergency actions | 09:23 | | China’s pandemic "win" | 21:23–24:44 | | US-China economic “war” | 24:44–27:38 | | US economic/social disparities | 27:38–32:06 | | Afghanistan crisis explained | 33:59–41:01 | | Numbers round & Theranos story | 44:02–45:22 |

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Tone and Language

Throughout the episode, conversation is incisive, often wry, and plainly explanatory, with frequent analogies, vivid metaphors, and a candid acknowledgment of the limits and ironies in global financial and political systems.

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Conclusion

The episode offers a compelling synthesis of the extraordinary economic interventions of 2020, the resilience and fragility of the global system, the new geopolitics of post-pandemic power, and the continued divides—both within and between nations. Through Adam Tooze's historical breadth and clarity, the Slate Money team provides both a record of a year of shocks and a primer on the challenges ahead.

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Select Episode Quotes (by timestamp):

• “What we have learned is that whatever we can actually do, we can afford to pay for.” — Adam Tooze (02:21)
• “This was a nightmare scenario, death spiral…total meltdown.” — Adam Tooze (17:09)
• “It’s more like cutting off the oxygen to a kid in intensive care.” — Adam Tooze (39:37)
• “The United States is like a Federal Reserve with nukes and a frankly non existent national welfare system.” — Adam Tooze (29:15)

Transcript

[A]

Foreign. Welcome to the shutdown episode of Slate Money, your guide to the business and finance news of the week. I'm Felix Hammond of Axios. I'm here with Emily Beck of Fundrise.

[B]

Hello.

[A]

We are incredibly blessed and happy this week because we have the one and only Adam Tooze on the show. Adam, welcome.

[C]

Hi.

[A]

Good to be here, I should say. Welcome back. We had you on our Germany episode, which was kind of my favorite episode in ages. I loved that so much. And we have invited you back and you were like, well, can I come back when I have a book to plug? And we're like, of course you can come back when you have a book to plug. So what is your book?

[C]

It is called Shutdown How Covid Shook the World's Economy, and it's out now.

[A]

We are going to talk a lot about this book because it's a great book. It's a pretty definitive book when it comes to talking about exactly what happened in 2020. We're going to talk about the Fed. We're going to talk about China. We're also going to have a segment on Afghanistan. Because you didn't just stop after writing this book, you have kept on with all manner of projects and balls in the air. I am a proud subscriber to your substack, which I hope everyone check checks out. But you also have a podcast you're launching. What's that?

[C]

It's called Ones and Twos, and it's going to be backed by foreign policy. And we're going to be every week discussing two numbers that help us map the world. I gather that's a segment that you guys love, too.

[A]

Oh, I love that we know nothing about numbers rounds. I'm so glad that the numbers round has spread to the ivory towers of foreign policy.

[C]

So.

[A]

So, yeah, Ones and Twos coming out. And, Adam, Twos. I guess we should drop your affiliation in here somewhere with Columbia. A Columbia historian coming up on Slate Money. So, Adam, you have published the definitive pandemic book before the pandemic is even over. I'm not quite sure how that's even possible. What would you say is, like, the main message of this book? What's the big takeaway that people should leave with after having read it?

[C]

I do think it is this point, the Keynesian Rift, this idea that what we discovered was not that we could fix the pandemic because we're not done with the pandemic at the time of publication by any means, or that it leaves you with any very optimistic assessment of the state of American society, or indeed European collective, you know, the capacity for collective action in Europe. But what we have learned is that whatever we can actually do, we can afford to pay for. And that, I think, is the central message. This is obviously a direct follow on from conversations that many people have been having since 2008. It's a kind of conversation with the MMT crowd, with conversations which have fed into the discussions of the early economic policy of the Biden administration. That's, I think, that the particular claim I want to demonstrate, and furthermore, this isn't true just for the rich world. So we mustn't think of this just country by country. But if you've got the right settings on Federal Reserve policy, we can in fact, loosen the monetary framework for the entire world. And out there in the emerging market economies, there are lots of highly sophisticated actors now that can take advantage of that. So there's a sort of balance.

[A]

So in terms of, you know, the Committee to Save the World, and talking of which, I note that Bob Rubin reviewed your book in the New York Times, which, wow, you know, he was the early Committee to Save the World within the framework of, like, constraints of how much money he had to save the world with. And he'd had. He had to, like, rummage around in bottom drawers to find whatever money he needed to save the world. In the current Committee to Save the World, which is, you know, Jay Powell and the central bankers, they just print up whatever they need. And not only does it save America, but you're saying that it saves, I don't know, sub Saharan Africa or South America or like other places too.

[C]

Well, what it saves is their banks. What it saves is their financial system. What it means is that we don't suffer a heart attack on top of the cancer and the steady degenerative disease we're also suffering from. So that's what it does. What we've learned is how to prevent, to be specific here, the extraordinary turmoil that we saw in global financial markets in March 2020, adding to our troubles. And what we were able to do is to neutralize that as a problem, in fact, to an extraordinary extent. So Peru, by the end of 2020, was able to issue a century, really very modest interest rates. Now, that doesn't mean that they don't have a constitutional crisis going on, and it doesn't mean that they've been able to contain the pandemic in lima, where there's 10 million people, of whom 70% are in informal employment. It hasn't solved those problems. This is the sting in the tail of the Keynes quote, we can afford anything we can actually do. So it's the actually doing that, as it were, has been revealed to us as the central issue. But as far as money and finance is concerned, we do indeed have an incredible capacity to just neutralize the problem.

[B]

Reading your book and going back to March 2020 and you really sort of lay out the crisis, the financial crisis we were facing at that time, it was kind of a shock to reread it and realize just how close we had come to. Just like you said, a total heart attack. I wonder if you could lay that out a little bit for listeners because I think at this stage in 2021, with everyone talking about inflation, people might have forgotten how close we came to collapse. I mean, it was really striking that the bond market went bonkers.

[C]

Absolutely. And it's the treasury market. Right. So in a sense this is the key thing for people interested in finance, I think, always to juggle in their heads. Right. There's the headline grabbing equity story, the big name tech fang and so on. Everyone gets excited rooting for your team or something in a sports competition. Then there's the boring, really boring bond equivalent of that, which is fixed income debt issued by those same companies which no one ever talks about. It's a big market, but it's just unfathomably tedious. Then there's the fixed income thing where all the politics is concentrated, which is the macroeconomic bit of the financial markets where you're not betting on a team, you're betting on, as it were, the viability of the entire franchise. And that's government debt. And the biggest market of all in that is the U.S. treasury market. That is the gigantic whopper, the $20 trillion market to end all markets. That's where, as it were, the benchmark interest rates globally are set. And it's this very complex picture of the Federal Reserve, central banks, massive demographic forces, all of that. But the fundamental assumption in that market is you can always transact. Furthermore, you can transact in huge volume without it affecting the price. So this is pretty close to a perfect market when very big actors can make very big moves without it affecting price. That tells you that the market is so gigantic that individual rationality can be separated from the aggregate. It's a very basic axiom of a certain sort of thinking about economics. And the terrifying thing that happened in the second and third week of March is that broke down a the prices for U.S. treasuries were moving in the wrong way, I mean the right way in Inverted commas. The one we've gotten used to is that when equities go down, people panic and run into bonds, so their prices go up. And if their prices go up, then the yield, the effective interest rate you're getting goes down. And so that's a kind of self stabilizing thing. It juices the economy to have lower interest rates. So the first weird thing we had was that in fact, the price of bonds was falling too. The price of Treasuries was falling too. So that's telling you, everyone's selling everything. They're selling equities and Treasuries. The only thing they want almost by process of deduction, is cash. And then the other thing that happened is that because so many people were trying to sell at once in this market, which is normally just assumed to be just this giant machine, it stopped working. You couldn't transact. I was speaking to a bunch of investors in Hong Kong and giving them flashbacks and one of them was telling me about just that he can remember the day, it was the 18th of March and he tried to sell $2 billion worth of treasuries and couldn't sell them. There was no bid. That is utterly terrifying because this is the piggy bank. When you allocate a portfolio, most the big portfolio allocators don't hold much cash. What they hold is things they can sell instantly or very quickly at a price they can know.

[A]

Let me ask you about the causality here, because there was this big treasury crisis and you can kind of see, like right now we're coming up to another, you know, one of those periodic times when we hit a debt ceiling debate and everyone worries about the treasury market and government defaults and all of that. None of which ever seems to have any effect on the treasury market or treasury yields or anything like that. And yet a pandemic had this, you know, almost existential effect on the treasury market and almost broke it in two. And it was only absolutely extraordinary action from the Federal Reserve pulling out all of the stops that had been invented for the global financial crisis and then some that prevented this. What is it about a pandemic or this pandemic that had such an outsized effect on U.S. government bonds.

[C]

Yeah. So I mean, the action of the Fed, as you said, it's worth just saying some of the numbers. I mean, they were buying a million dollars a second in the last week of March. They were buying over $70 billion of treasuries a day. Those are the sort of numbers we saw per month in the era of good King BERNANKE, they bought 5% of the U.S. treasury market in a matter of weeks, 1 in 20. This is the supposed solid foundation of the global financial system. And they had to buy 5% of it in a matter of weeks and put it on there and they're still buying. So, so it was absolutely gigantic. That tells you how terrifying this was because they wouldn't be doing that kind of thing unless they were really, really worried. But I think we have to distinguish here between two types of logic. They're not radically separate, but it's crucial to kind of keep them, I think, slightly distinct. One is the new flow of debt into the market. So the treasury issuance and part of which is the new deficits every year and part of which is rolling over existing outstanding Treasuries because it's a whole ecosystem of 3 years, 5 years, 10 years, 30 years, and all of those need to be shuffled and rolled all the time. That's one element and that's as it were, an incremental addition to this market, a subtraction from it, in addition to it, back and forth. And then there's the churn inside the market itself, the metabolism of that market on any given day. And it wasn't, as it were, a sudden shock announcement that oh hell, we're going to have huge deficits. The American government is going to load this market up with huge amounts of debt. But it was about of indigestion. People call it a plumbing problem within the market itself, produced by selling by hedge funds which had various types of very complicated leverage trades on and by mutual funds that were holding Treasuries as a liquidity reserve and by foreign exchange managers. So this was to a considerable extent a sell off by emerging market exchange fund holders. They weren't running out of dollars, they were reshuffling their dollar portfolio out of Treasuries into just cash. And it's that churn, and it's in the order of 600, $700 billion that produce this attack of indigestion and malfunctioning in the market.

[A]

And if I can just try and go down one more level of causality here. If I'm, I don't know, a Middle Eastern sovereign wealth fund or a South African insurance company or something, and I see this wave of COVID you know, spreading across the planet with terrifying exponential growth. What is, what is going through my mind that I see that? And I say to myself, well, what I want to do is turn my five year treasury bond into like overnight cash, especially when like cash itself, is ultimately still a claim on the US Government. What caused that selling.

[C]

So the other thing to figure in from the point of view of the emerging markets and those foreign reserve holders is that the dollar is rising in this period. So again, this isn't the nightmare scenario of the early 2000s where people sell Treasuries, sell dollars, the dollar falls, interest rate rises. That isn't the logic here. There was a global liquidity crunch as investors pulled back from emerging market investing. The dollar is rising. So those reserve managers in the emerging markets can see a funding squeeze coming down the pike quite fast, quite hard. And what they know they're going to need to do is provide cash dollars to a dollar poor dollar, short balance sheets in those emerging market economies. That's what they're doing. The ultimate.

[A]

So wait. Emily is shaking her head. Basically, the idea is that this crisis is going to be really damn expensive and it's going to be really damn expensive in places like South Africa. And the South Africans are going to need to borrow money. And so I'm going to want to give myself a bunch of dry powder in terms of cash that I can then lend to South Africa because they're going to need it. And so I'm selling my Treasuries in order to give myself the liquidity that these other countries are going to wind up needing. And the dollar is nice and strong. So now is the time to load up on dollars.

[B]

And furthermore, the hedge funds and MUT in the US are thinking that. They're thinking we're going to need a lot of cash to loan to emerging.

[C]

Markets in the mutual funds in the U.S. it's simply, okay, we've got a balance of different assets here. Shares are just tanking like crazy. This is not a moment to try and liquidate those. Let's go to our piggy bank. Let's try and liquidate our Treasuries instead. So that's why they were selling those trying to sell Shares in the second week of March 2020. This is not the moment to try and do that unless you're going to realize really huge losses.

[A]

If your mutual fund holders are panicking and selling their fund holdings, you don't want to be selling the stocks you're holding on their behalf. You want to be selling the Treasuries because they've retained their value. Yeah.

[C]

And then there are a bunch of hedge funds that were gambling basically on futures secured on these Treasuries which were conditioned on particular types of price movement. Between them, those became fundamentally destabilized by this unexpected shift in the correlation between shares and bonds. They then had what merged, they had strongly leveraged positions. So they really needed to fund what were now loss making positions. They faced margin calls, they needed to unwind those very quickly. And we think it's that kind of order. It's hundreds of millions from the foreign exchange reserve managers. It's a couple of hundred million from the mutual funds and about 100 billion or so from the hedge funds in that kind of stack that pile into the treasury market at the same time. And the big banks in the US which normally would have been in the business of warehousing this, because if there's a bunch of people trying to sell Treasuries desperately, Since these are U.S. treasuries, you know, in due course the price will come back. So if there's a fire sale of them and you've got the balance sheet capacity, pick the Treasuries up. Now it's a guaranteed profit, but that depends on the big banks having the balance sheet capacity. And this is where we do come back to the, as it were, a longer term story. Because the entire US ecosystem for Treasuries had basically, since the Republicans turned the fiscal taps on in 2017, become stuffed with Treasuries. There's a huge volume of treasury issuance going on from 2017. The balance sheets and the holdings of Treasuries on the part of the big market makers, the people like JP Morgan have all risen over this period. They're already warehousing a lot. There was the repo tremor, you may remember in September 2019 when this market already showed signs of instability. And then we add in 500 to $700 billion of sales in a matter of weeks between the end of February and early March. And that's where you get the story. And of course, everyone could do the math on this. Everyone's watching this in panic. And so the real risk is this is just the beginning. And by the time we get to April, people are trying to offload a trillion and then we're in real trouble. No one can contain that. So the first thing the Fed does, and this is very characteristic, is to just offer repo finance. And the significance of that is the Fed doesn't have to buy the Treasuries itself, it just makes it really cheap for private balance sheets to hold the Treasuries. For the banks, for the banks.

[A]

We'll lend money to the banks, they can buy up the Treasuries, but I feel like we're kind of disappearing down the rabbit hole here. And I don't want to spend too much time on Fed liquidity provision in March 2020.

[B]

I really don't think as a regular person, I really don't think people realize how close to disaster we were in March. If the Fed hadn't stepped in. Could you just, Adam, give me the very short what happens then kind of scenario?

[C]

Yeah, I mean, if you can't stabilize this market, then the entire portfolio application of everyone is destabilized. Right. Because you hold your riskier, illiquid assets on the assumption that you can backstop them with a piggy bank of liquid assets. The liquid assets that you use as your piggy bank are the Treasuries. If the treasury market is malfunctioning and is no longer liquid, your entire portfolio is illiquid, and that's not a sustainable position. So then you need to shrink the entire portfolio really dramatically. In other words, we would have seen spiraling fire sales of all other assets. Those bonds issued by companies would have become fragile. They would have needed to have been sold off. It would have spiraled into the equity market. And this is going back and forth because remember, the mutual funds are selling the Treasuries because they're suffering runs from their investors and they don't want to sell their equities because the equity price is falling. So the faster the equity price falls, the more the pressure there is to sell into the treasury markets malfunctioning. The. So this was the sort of nightmare scenario, death spiral, death spiral. And ultimately this does come back to the fiscal policy point. This is a moment when governments around the world really want to issue debt. And in Britain in the third week of March, the Bank of England has been sort of in incautious moments, has said this out loud, is we were worried about the ability of the UK government to fund itself. And you can see how worried they were because they basically reopened this historic, this weird thing in the UK treasury bank of England relationship where the treasury has an overdraft facility with the bank of England. So they don't even need to issue any gilts to get their hands on cash. They can just simply book it to an account in the bank of England. Now, no one really wants to use that on a huge scale. They did it briefly after 2008 and then round it down again. They didn't actually need to use it in 2020 because the interventions in the gilt market, the UK treasury market was strong enough and worked. But that shows you where this goes next. In other words, if you have this total meltdown, how does the government finance itself? Of course, it can ultimately do it just simply off the balance sheet of the central bank. But that means that this conventional funding mechanism has stopped.

[A]

And that in turn gave a big boost, as you say, to people in the MMT world, the modern monetary theory world, who are going around saying governments don't need to borrow money at all. They can just spend money.

[C]

They can short circuit this mechanism. It's a very roundabout way of chalking this up, but it is the mechanism we use. And so to suddenly shift out of it at a moment of shaking confidence would just add to the sense that this is the end of the world. It's technically true, we could do without it. But to step from one set of conventions a particular dance that you play, and it is a dance which has a particular group of actors that dance a certain way to saying, no, we're not doing that anymore, it's all pogo now, or whatever would just after the sense that literally the world as we knew it had ceased to exist. And no one wanted to take that risk at that moment.

[B]

Not a good time to do that with the pandemic bearing down.

[C]

Not really, no. Mosh pit is not what we needed at that moment.

[A]

I wanted to also talk because one of the other things you cover really well in the book is like placing everything in its proper sort of international context. And if we zoom out from the complete chaos of March 2020 to the chaos that we're still in right now with supply chains and with the delta variant and all of this kind of thing, one of the big, probably in many ways the sort of long term, biggest story that people haven't been paying nearly enough attention to is China and its central role, not only in terms of global supply chains, but in terms of really doing its own sort of revolutionary change like we've had. You know, Xi basically installed himself as president for life. He took over Hong Kong, he dismantled all of the, you know, freedoms there. And it seems like reading your book, that because of the incredible power that the Chinese Communist Party has over every aspect of daily life in China, the pandemic was really kind of consolidated a huge amount of power in this, like, incredible bipolar world that we seem to have found ourselves in.

[B]

I just want to say, just reading your book, before you answer, it really clarified to me, oh, China won the pandemic. And this is huge. And I don't hear anyone talking about it except in your book.

[C]

And it needn't have been that way. I mean, you know, finishing the book at the midst of soccer season in the summer, you know, it's as though in the first half of the game like China shipped two goals and then in the second half of the game, the opposing team came out, ran down to its own goal, and spended the next half of the game just firing the ball into its own net. And then at some point at the 90 minute mark, we said, you know what? I think the other side lost. Because if you'd stop the clock at the end of February, that would not have been your conclusion. Your conclusion would have been, this is the worst crisis to have hit the Chinese regime since the beginning of the reform period. Their disease reporting system, which they were very proud of and which they put in place after 2003 to prevent precisely this kind of incident from happening in this giant country which is like South America, North America and Europe bolted together and you're trying to run it from London. And so they put a reporting system in place that was supposed to mean that if something happened in Amazonia, they heard about it and it didn't work. Right, because there were all these layers in between. And the Wuhan and Hubei Party people wanted to stay on track for the big season in January and February. And that was a disaster, complete disaster. Then they had to do something which, contrary to the liberal prejudices about authoritarian regimes, they'd never done before. No one had ever attempted to lock down a city of 10 million people and then a huge province the size bigger than California in terms of population. No one had ever attempted to do that before. And then they suffered by far and away the worst economic shock that China has suffered since, well, since the Cultural Revolution, in fact, since the Great Leap Forward. I mean, it was a sudden and abrupt collapse in GDP and in the well protected modern bit of the Chinese economy. This is okay, as it's proved to be in the rest as well. But in the huge, semi informal, giant, small scale private sector of the Chinese economy, which is largely service sector based, face to face, it was an absolute catastrophe. And you can see the regime trying to process that fact in the spring, where they have these hidden arguments with Li Keqang kicking in and saying, we need to talk about the 600 million poor Chinese. And that was instantly repressed. So they know how wobbly they were, but they just don't. No one sees coming the complete disaster of Western crisis management. That I agree. By the summer, it's evident in their own light, to their own mind, in terms Just of the ordinary continuation of life. I'm sure you've got friends and acquaintances who are in China, but if anyone you were talking to in that period was saying it's just normal life here, by the summer of 2020, they were returning to something very much like. The difference, of course, is sure, they won, but the game has changed. And this is the other part of this story, is that we were once upon a time in a world of the Olympics, of governance, of comparative growth rates. When will China overtake? We're in a much darker world now, and that shift also happens in the course of 2020. So the Chinese may have won that old game, but they now find themselves playing in a much tougher, much more aggressive winner takes all kind of a strategic competition.

[A]

Because like hawkishness towards China, basically anti China sentiment, not only in the United States, but also in Europe, has been on the rise, has coincided with the rise of authoritarianism in China. And the realization that just because China is this very capitalist country doesn't mean that it's in any way sort of free or on our side.

[C]

Well, there's that. So there's the economic component, there's the human rights component, and then there's the third element which has come ever more to the fore, which is the geopolitical dimension. And sometime around about 10 years ago or so, an increasingly important group in the American national security establishment decided that Afghanistan and counterinsurgency really wasn't the big game and that peer to peer competition with China was. And they have been pushing very concertedly over that period. And it started under Secretary of State Clinton towards a reorientation towards what they now called the Indo Pacific. That's a category that didn't even exist three or four years ago. It's part of this grand strategic realignment. And in the summer of 2020, this culminated not so much in military measures directly, but in us. I mean, I use this language, I stick to it declaring economic war on China. And it wasn't about soybeans and steel or aluminium. It was about very targeted attacks on the leading edge of the Chinese tech industrial complex. And it's warlike in the sense that it's tactical. It's not just warlike in the sense that we say here and no further, and we will combat you if you go beyond this point. But we're also going to move tactically. So if Huawei attempts to source chips from some other source, we'll go after that supplier. We will apply leverage to companies in the Netherlands to prevent them from accessing the technology indirectly. It's a very fast moving campaign to block the development of the leading edge of the Chinese industrial economy.

[B]

It's interesting too, because the US is waging that kind of war against China, but it lost the war against China. If you look at it in the way that China figured out how to battle a deadly pandemic really quickly, lockdown, and people got to live as normal so their economy could bounce back quicker. And that was a key battle in the war. And the US Maybe it's doing all these maneuvers against China when it comes to trade or business, but the US hasn't been able to take care of this disease and is going to suffer and has suffered economically as a result. It's not fighting the war totally.

[A]

I want to take the other side of that, Emily. I think there's two things going on here. One is where we are now in September 2021. The US economy is looking pretty healthy. We've managed to bounce back surprisingly well and have exceeded all expect. In contrast, I should say to somewhere like Australia, which followed that idea of let's lock down and really concentrate on controlling the pandemic, which is still in lockdown and is having a very hard job of that. And I think that what China managed to do just really isn't possible in a free country like Australia is about as close as you can get. And no one's happy with, you know, no one in Australia is happy with the way that the Australians have approached it.

[C]

In fairness, I mean, the Australians just have a higher standard than the U.S. i mean, if the Australians were having the kind of epidemic that Kentucky is currently suffering from, they would be under a lockdown regime the likes of which we've never seen before. I mean, they basically are aiming for a much higher level of containment. America's given up in large parts of the country. I mean, you've got to compare, like, with America's absolutely huge. It's not as big as China. It's 330 million people. And in parts of this country, we've quite effectively fought the disease in due course. There are large parts of the country which are now living the nightmares of the spring of last year. The National Guard is being mobilized in Kentucky right now. It was a headline of the Financial Times this morning to help stabilize the hospital system there. So I think that for me is also the overall lesson. And it goes back to Emily's sort of hang on. So on the one hand, on the other vision of America, to me, 2020 poses the question of the Coherence of America at this moment. And that's a way also of reconciling Felix's point. So it is true that those Americans who have a large stake in this thing we call GDP and have large portfolios of assets invested in The S&P 500, they've done brilliantly made out gangbusters. But if you're in the bottom 50 to 100 million of the American population, then it may be true that you are now getting back into your low pay, precarious job. But you went through a huge shock last year which you do not have the balance sheet to really survive. Your children are probably one year behind in their bad public education. You do not really have the means to offset that. And the long run consequences of that going forward are quite unpredictable at this point and depend to a considerable extent on what welfare benefits Congress is willing to grant. And I think around about 10 million people lost benefit on Labor Day earlier this week. And that's just their two realities and they coexist within this country. And I think the same is true with regard to economic policy and military policy and social policy and pandemic policy. It's, you know, we used to say things about post Soviet Russia that, you know, it was a gas station with nukes. Well, the United States is like a Federal Reserve with nukes and a frankly non existent national welfare system. We don't, it turns out, have a national unemployment system in the United States. That's kind of a problem for a national economy. And then this is before we even get to the, you know, the drama. I mean we shouldn't use, I'm not one of those people who goes to the Weimar Republic, but nevertheless we saw in the United States last year a full on constitutional cris which required questions to be answered by the leading American soldiers about where they stood on the constitutional issue. I mean, in the middle of everything else going on. Exactly what you say. The social crisis, the failure to contain the pandemic, the mobilization of the military and quite successful monetary and fiscal policy are all happening at the same time. And I think that's kind of what we've got to encompass about that year.

[B]

Yeah, it's really striking how the Fed was able to, to save the markets from disaster again. But we don't have the same kind of smooth running save us from disaster mechanism on the social side. It's more of like a fight tooth and nail to rescue people who really need help to get those social policies out there. Like you just seeing what's going on now with the Reconciliation bill and the fight over that if the markets are in trouble and there's chance of a meltdown there, that's a well oiled machine of rescue at this point. People have figured a lot out and it helps everyone at the top. Yeah, maybe you didn't get a stimulus check, but Adam says in his book, like your stock, your 401k has exploded in value. It's insane. But then for everyone else it's like a battle to get anything that they need. And most of the fiscal policies that passed quickly in the pandemic were temporary.

[C]

Absolutely. And temporary in the sense of like there's that vertigitous moment just after Christmas where, you know, Trump's busy playing golf and just doesn't feel like signing the latest stimulus bill. And so this basic set of protections for American citizens expire. And so it's kind of a knife edge situation there. I mean, they were everyone's heroes. But there is a sort of genius logic to the folks who figured this out and said, right, so what I do is I take my stimulus, put it in equities. That's actually the way to bridge this gap. There may be very smart people in the MMT crowd saying I should have a Fed bank account. I'd like to have a Fed bank account. Bank account. Then they could issue me money through the Fed bank account. But since they're not doing that, what I can do is take my stimulus check, put it in equities and then hey presto, it turns out the Fed acts on those, so what's not to like?

[A]

Better yet, just put it in GameStop.

[C]

Well, but I mean, let's take that as an instance, right, of the gatekeepers and you suddenly realise the really big profits are to be made doing that. And then of course it becomes a whole thing.

[A]

Before we finish, I do want to spend segment of this here podcast on a completely different subject, which is, I don't know, I guess everything is interrelated. Any reader of Adam 2's knows that everything is interrelated. But you have recently been writing a lot about Afghanistan and I felt that your substack piece, especially even more than your foreign policy piece on this, was incredibly clear eyed about this very huge dilemma that is facing Treasury. And we have seen like the Technocrats, as you say, they came to the rescue in March 2020, they knew what to do and they, you know, they saved the planet. We now have a humanitarian crisis of absolutely astonishing proportions in Afghanistan. We have literally millions of people at risk of dying of starvation. It is A terrible place. And the money that was coming into the country month in and month out, while it was effectively a US Client state has just come to a sudden halt. And Most importantly, the $9 billion of reserves that the Afghan Central bank has have been frozen. The Afghan Central bank cannot access any of that money at the Federal Reserve or the IMF because the Afghan government is a terrorist organization. And according to the, you know, the rules of treasury, we don't allow terrorist organizations access to dollars. So this risks causing many more deaths than happened in the war in Afghanistan. This risks causing, as you say, millions of people dying. How do you analyze this and what is your advice to Treasury?

[C]

There are two overlaying problems. Afghanistan. I like to make these comparisons. It's kind of helpful. Afghanistan is almost exactly the same population as California, 39 million people. Half of those are desperately poor. Humanitarian relief cases. The millions of children suffering from acute malnutrition or risk of acute malnutrition, that's an enduring problem. And it's important to say this because whenever you campaign on the Afghanistan issue, people come and say, oh, well, but it's always like this. It's a failed state. It's never going to be anything other than poor. So let's acknowledge that reality to start with. So you have 20 million people who are on the edge in any given year, especially with the impact of drought, climate change, civil disturbance, are just not being able to survive. And then on top of that, the injection of money that we've provided over time has created an urban society of about 10 million people. That metabolism, that ecosystem is sustained by modern electricity, by modern forms of consumption, and it is dependent heavily on imports and the deficit, the trade deficit. Afghanistan is a quarter of Afghanistan's gdp. And even if you allow for opium, the. This is the other thing that media people throw in. Surely there's huge dark money. The farm gate price for opium revenue in Afghanistan, we estimated about $2 billion. So it would cover maybe a quarter to a third of the trade deficit. And the money's all spoken for already, like the money's already spent. The money doesn't sit around in some warlord's coffer. It already flows into the Afghan economy. So you can't suddenly say, right, well, we use the opium money to pay the import bill. It's already being used. So this is the situation. And the risk is that on top of the humanitarian crisis, which is terrible right now because of the drought and the disorder, we will basically inflict a financial heart attack, what economists call a sudden stop on that population of 10 million people in the cities who have over the last 20 years grown up as clients of the United States. And the truly terrifying thing that happens then is that those 10 million people who almost by definition are relatively speaking, slightly better off, so start competing for the available resources with the bottom 20 million. And what this unleashes is a spiral upward in food prices and a depreciation of the Afghani as everyone bids their local currency for whatever dollars they can get so as to be able to buy the crucial imports. The crucial imports are electricity, which is 75% of Afghanistan's electricity is imported petrol. The entire country runs on imported fuel, mainly from Iran. And flour. Why do they import flour? Because they don't have any mills to mill grain with. That's how underdeveloped this economy is. So the key elements of logistics and the continuation of modern life depend on imports. Those are highly sensitive to the exchange rate. So the real nightmare is that, as it were, you end up with a kind of Darwinian struggle for survival. And that is Amyata Sen. And all the smart analysts of famine tell us this. That's what actually creates the famine conditions. Because the people who are. It's an income distribution thing, it's an inequality thing. So it is imperative that we, as it were, ease that problem, that funding problem some way. Now, I don't think anyone seriously suggests that the Biden administration is now going to allow the Afghans uninhibited access to the $9 billion. The $9 billion would cover Afghanistan's imports for a year and a half. So it's a really substantial amount of money. But we clearly do need to find some mechanism for sluicing foreign exchange into the country. And we need to find some mechanism to prevent the macroeconomic crisis, the sudden stop crisis, and we need to find some way of continuing large scale humanitarian relief to address the problems of the 20 million or so Afghans who even in a good year can't really make out effectively. And those are the two interconnected problems that we have to address.

[A]

Humanitarian flows are still allowed. There was a brief period where remittances were not allowed, but those have now been turned back on again. But I wonder whether a humanitarian flow remotely adequate to the scale of the problem is even possible under a Taliban regime. Given that any kind of financial flows to the Taliban expressly forbidden because they are a terrorist organization, do you think humanitarian aid is even possible?

[C]

Well, I think it probably has to sidestep the United States. The less the United States is involved in this the better for everyone concerned. So the United States needs to step away from the problem. The money needs to be channeled by way of multilateral agencies. If it needs to come not from the Americans, who aren't necessarily even the largest donors. In any case, it would need to come from Europe, it would need to come from Asia and China. Of course, everyone turns their glance towards China as a potential support. Here. The $9 billion in the federal Reserve in New York, if one needed to, one could, if you like, use them as some kind of collateral. But frankly, this money needs to come in the form of grants, not loans, because this country is too poor anytime soon to pay this money back. But it has to sidestep the U.S. i think the less America is involved, in some sense, the better.

[B]

What is the point of the sanctions at this point? Like, America left Afghanistan, unfreeze the money and just wash our hands of it. America, like, isn't sanctions to, like, make a country do a thing, but, like, we tried that for 20 years.

[A]

This is the point that Adam made so incredibly well in his. In his email, was basically the point of the sanctions seems to be to push Afghanistan in the direction of what he calls demodernization, which is exactly the same direction that the Taliban is trying to push Afghanistan.

[C]

This is very different. So normally when we apply sanctions, we're applying it to a highly sophisticated society like Iran or Syria, and you squeeze an autonomous, highly sophisticated society strategically from the outside. In this case, Afghanistan in its modern bits, the bits we profess to support, though we've just abandoned them, is entirely dependent on us. So this is more like, you know, this isn't like a boot camp for an overgrown adult. This is more like cutting off the oxygen to a kid in intensive care. We've just had the baby. We've given birth to this baby, and we're basically saying in its incubator, we're turning off its food. And it's. And this is a patronizing image to use because obviously Afghanistan has its own dynamic. But the point I'm trying to make is that society is utterly dependent. And that 25%, a trade deficit of 25% of GDP. Obviously, if you're not used to thinking in macroeconomic terms, that may not make a big impression. But if you are, that's a shocking number. I mean, that's, you know, very few societies are that dependent on imported goods. And Afghanistan, it's not as though this is a big difference on big volumes. Like, Afghanistan's imports are 6 or 7 billion dollars a year. Afghanistan's exports are 1 billion dollars. It doesn't export anything. Its main export crops are things like gold, opium, if it was legal, and then dried fruit and nuts. It's not an economic engine that can sustain this modern society that we help to foster.

[B]

What a failure of 20 years. I mean, how many. The United States spent trillions of dollars in Afghanistan and they weren't able to stand up an economy at all.

[C]

We didn't spend it on Afghanistan. I mean, the trillions of dollars are flowing through the American military machine. So in terms of aid actual delivered to the civilian side of the Afghan society, you're talking single digit billions per annum over a 20 year period in a society of 40 million people, which is one of the poorest in the world. So it actually was more like dropping a barrel, just not that much. Military aid, security aid was equal, at least equal throughout the entire period. But those huge numbers that get banded around, that's all internal to the United States military machine. And a large component of it is health care and welfare for veterans when they return to the United States.

[A]

Which actually brings me to my number for this week's numbers round. I'm going to use this as a segue to kick off the numbers round because I just calculated this for Axios, the total amount of money spent on private sector defense contractors over the past 20 years since 9 11. I guess I should have said the number first. I'm doing it backwards here is $7.3 trillion. Overwhelmingly that comes from the Pentagon. It comes a little bit obviously from other countries that fought alongside the United States. But $7.3 trillion going to companies like Lockheed Martin and Raytheon and Boeing. And when we talk about 2.2 billion dol being spent in Afghanistan or something, it's kind of in Afghanistan, but a lot of that wound up contributing to Lockheed Martin's share price, which went up from $35 on 10 September 2001 to $350 now. It's actually gone up 10 times.

[B]

And we talk about we can't spend $3 trillion on giving people dental care and their Medicare benefits and paid leave for new mothers, but we can waste trillions of dollars on losing a war that leaves the people in the country worse off than where they started.

[C]

They're definitely better off than where we started. Yeah, absolutely. Yeah. Just look at life expectancy, education, they're significantly better off and there's many more of them.

[B]

But life, I looked at your chart, it went from like 45 to 52. To me. I'm like that's huge compared to the previous track record.

[C]

No, the sum total of our achievement is that Afghanistan conver with Haiti. And that's not nothing. Infant mortality fell enormously, maternal mortality crashed, and basic education and college education was extended to hundreds of thousands of people. I mean, is it, you know, was this an efficient use of resources? Would one expected to have achieved more? Once I think you realize how little was actually spent there, it's not as miserable an outcome as we think.

[B]

Oh, that's cheerful.

[A]

There you go. A little bit of cheer. Emily, do you have a cheerful number this week?

[C]

Sort of.

[B]

My number is $17,010. That is the current price of a Theranos lab coat on Poshmark sold by a former lab tech who was so disgusted with her job she walked out of the building.

[A]

Her lab coat.

[B]

Yes. And the reason it's $17,010 is because Theranos former headquarters was at 1701 Page Mill Road. And I'm talking about Theranos right now because the former founder, Elizabeth Holmes, is currently on trial for fraud because she lied about everything. Go back and listen to the John Carreyrou podcast episode of Slate Money for more details. Or you can listen to this week's Slate Waves podcast on which I appeared and we talked about girl bosses and asked the very important question, is Elizabeth Holmes? Was Elizabeth Holmes a girl boss? Which is sort of a concept that arose starting in the 2010s and is stands in for lady CEOs rah rah rah. And is Elizabeth Holmes one of them? You have to tune into that podcast also to find out my answer or.

[A]

Listen to John Carreyrou's podcast.

[B]

Because you know John Carreyrou's podcast or.

[A]

The H this is the 2020s. Everybody has a podcast. Even Adam Tooze has a podcast. Adam, what is your number this week?

[C]

It is minus 0.008 and that is the yield that you could gain on a five year bond issued by the government of Greece on the 9th of September 2021. And it is a wow number.

[A]

Greece is now issuing bonds at negative.

[C]

Yields at five years. It's a total stunner. I mean, if there was anything that demonstrated that we could afford anything we could actually do, this would be the one. And as my friends were saying, if you want to hear much more about this number, check out out Ones and Twos, the new podcast that we're launching with Foreign policy in the not too distant future.

[B]

That's exciting.

[A]

That is exciting. I'm definitely going to be tuning into that one. Adam, thank you very much for coming on the show. We're going to have a Slate plus segment on. Emily gets to choose the Slate plus segment this week because there's so much we wanted to ask you about.

[B]

Well, we did want to ask Adam lessons learned from this current crisis. I think we know some of the lessons learned from 08 at this point, but what are the lessons we're going to take away from the COVID meltdown?

[A]

Let's talk a little bit about that on Slate Plus. Many thanks to all of you guys for listening. Many thanks to Justmind, Molly and Cplay Narmada for producing. And many thanks to everyone for emailing us slatemoneylate.com we love the emails. We will be back next week with more Slate money.