by Adam Tooze

As the lockdowns began, the first impulse was to search for historical analogies—1914, 1929, 1941? Since then, what has come ever more to the fore is the historical novelty of the shock we are living through. There is something new under the sun. And it is horrifying.

The economic fallout defies calculation. Many countries face a far deeper and more savage economic shock than they have ever previously experienced. In sectors like retail, already under fierce pressure from online competition, the temporary lockdown may prove to be terminal. Many stores will not reopen, their jobs permanently lost. Millions of workers, small-business owners, and their families are facing catastrophe. The longer we sustain the lockdown, the deeper the economic scars, and the slower the recovery.

The longer we sustain the lockdown, the deeper the economic scars, and the slower the recovery.

What we thought we knew about the economy and finance has been radically disturbed. Since the shock of the 2008 financial crisis, there has been a lot of talk about the need to reckon with radical uncertainty. We now know what truly radical uncertainty looks like.

We are witnessing the largest combined fiscal effort since World War II, but it is already clear that the first round may not be enough. There are few illusions about the unprecedented acrobatics that central banks are performing. To deal with the accumulated liabilities, history suggests some radical alternatives, including a burst of inflation or an organized public default (which would not be as drastic as it sounds if it affects government debts held by central banks).

If the response by businesses and households is risk-aversion and a flight to safety, it will compound the forces of stagnation. If the public response to the debts accumulated by the crisis is austerity, that will make matters worse. It makes sense to call instead for a more active, more visionary government to lead the way out of the crisis. But the question, of course, is what form that will take and which political forces will control it.

Adam Tooze is a history professor and director of the European Institute at Columbia University. His latest book is Crashed: How a Decade of Financial Crises Changed the World, and he is currently working on a history of the climate crisis. Twitter: @adam_tooze