The holy grail of physics is a unified field theory that somehow explains both the micro and macro aspects of how the world works. The same holds true for what Thomas Carlyle called the “dismal science” of economics, as we seek to understand the causes and consequences of the 2008 financial meltdown.
In this week’s WhoWhatWhy podcast, Jeff Schechtman talks with economic historian Adam Tooze, professor of history at Columbia University and award-winning author, about a reinterpretation of the 2008 financial crisis through the lens of what came before and what followed in its wake.
On this tenth anniversary of the collapse of Lehman Brothers, Tooze explains how, contrary to popular mythology, this was not just a problem that started in the US and rippled outward, but a global problem: the first real crisis of the global age.
He explains how decades of not fully understanding financial entanglement helped set in motion the shock waves that were felt around the world and that are still reverberating today in the economics of Europe and the developing world and in politics in the US.
In his conversation with Schechtman, Tooze shows how financial globalization engaged the entire world, how China ended up owning America’s public debt, and how Europe’s megabanks helped funnel trillions of dollars into the riskiest American mortgages.
Tooze points out that the threat of financial instability in European and American banking is still with us, although invisible. And how the 2008 crisis not only changed the financial landscape, but gave rise to a new regime of global governance in response. He reminds us that China is, without question, the most important factor in the world economy: 30 percent of all global economic growth now comes from China. That's more than the US and Europe combined. GM today sells more cars in China than in the US.
While we may not have realized it, at the height of crisis the Federal Reserve stuffed Europe’s banks with trillions of dollars of liquidity and outsourced $4.5 trillion in credit to European and Asian central banks.
Tooze also talks about the near-miss economic crisis in China in 2015-2016, and why this is a harbinger of just how dangerous things might become in the near future.
Adam Tooze is the author of Crashed: How a Decade of Financial Crises Changed the World (Viking, August 7, 2018).