Adam Tooze on Austerity and Debt Deflation

Why the economic historian is a masterful academic

1/ The consensus amongst the global macro investors who I follow is that the COVID-19 pandemic is going to lead to a global recession. Investors like RealVision’s Raoul Pal expect a false rally on the hope of a vaccine and then a larger unwinding due to the impacts of unemployment, business closures, household debt, and central bank monetary policy.

2/ Their consensus is that the early 2020s will be a time of austerity budgets and debt deflation. The model for this is Japan from 1991’s end of the Heisei Boom speculative bubble to the early 2010’s rise of Abenomics as an intervention. Banks with high debt became zombie banks. Wages stagnated. New investment in innovation slowed compared to Japan’s neighbours China and South Korea. We can possibly expect more of the same in the near future.

3/ One of the best public commentators on this is the Columbia University economic historian Adam Tooze. After building his reputation with books on the First World War and Nazi Germany’s rise-and-fall, Tooze wrote a 2018 book called Crashed about the 2008-09 Great Recession or Global Financial Crisis which was well received. One of Tooze’s innovations in this book was to consider the international impacts of this global crisis beyond the United States.

4/ Crashed’s success pivoted Tooze as an academic. He began to comment more on current economic policy and the role of central banks in particular. Rather than academic papers he also shifted his attention to blogging and to the social network Twitter. Tooze began doing research on current economic history.

5/ An example of Tooze’s public commentary is a recent Guardian article about the COVID-19 pandemic and the economic austerity that we may face. Tooze points out that the policy battles are not being fought yet. Instead, they will be fought several years after the COVID-19 pandemic has either normalised or a vaccine has been created.

6/ Tooze’s Guardian article is a kind of ‘near future’ horizon scanning. It connects his Crashed book and Twitter social network commentary to the likely life conditions that we will be living in. Like all good public commentary Tooze explains in very clear language what a debt deflation world could look like.

7/ Tooze’s success is a good model for new researchers to follow. First you immerse yourself in a field or discipline and learn its methodologies. This may be done in a PhD program but it can also be done through the systematic reading of an area that you are interested in. Then use publishing, blogs, social networks, and op-ed columns to engage with current debates, and to explain why your research problem is important to your audience.

8/ Many readers don’t have the institutional affiliation or the time to access the debates in academic journals. They don’t have the money to buy expensive academic books - that usually sell around 500 copies each for their publisher. Blogs, social networks, and op-ed columns are a way to quickly reach a broader audience. They also cut down the time between formulating your insights and addressing a major problem which might be changing rapidly.

9/ In the past few years the impact and engagement agenda has become central to research administration conversations in Australia and the United Kingdom. Tooze cuts through the bureaucratic language to show hoe impact and engagement can actually work. In doing so Tooze has reached a much larger potential audience than even his earlier books on economic history.

10/ This is why I regard Tooze as both a gifted economic historian and a masterful academic. With his book Crashed and his focus on contemporary monetary policy he has found what the trading psychologist Brett N. Steenbarger calls a niche in order to carry out his further research. If you want a first draft of history on what the post-COVID 19 world might be like, Tooze will be a thoughtful guide.