 Hello everyone today. I am speaking with Adam twos the famous historian at Columbia University I have read all of Adam's books. I am a big fan He is well known for his treatments of German history the history of the financial crisis And right now he is covering the financial stresses in our system on Twitter I very much recommend that you follow him Adam twos welcome. Thank you for speaking with us. No, thank you for having me on the show Let's go back to the Spanish flu of 1918-1919 Do you think that Western economies were better equipped to deal with the pandemic in percentage terms at that time than they are today? Well, it's an interesting question. It's an interesting way of putting the question. I mean that The what's been striking about the 2020 pandemic is that we have chosen an extraordinarily high cost route I mean we have chosen a comprehensive Lockdown as the default strategy for dealing with this and as far as I'm aware No one attempted anything remotely like that in response to Spanish flu at the local level There were efforts city by city, but there was no comprehensive national lockdowns In fact, if you study the economic history record the archive of that period the Policy decision-making in say the Weimar Republic, which I've spent some time on all the minutes of the Versailles peace conference The the flu barely figures I mean it figures in the sense that occasionally a prominent person will get sick famously President Wilson But the idea I think of a kind of comprehensive lockdown as part of a public health response as far as I'm aware And of course this has taken us all the back and has caused us to reflect on what we might have missed in the historical record I don't I don't remember it arising anywhere as an option And we know that you know the consequences were of course dramatic in terms of the loss of life and particularly in the What was then the imperial world the colon is so-called in in Africa and India? So I mean we're much more affluent Then we were then by by an extraordinary. I mean it's very difficult to exaggerate I mean water of magnitude broadly speaking in terms of the capital income and We've chosen a very high cost route to dealing with the epidemic this time Now we had a v-shaped recovery back then and it doesn't seem that you're confident about a v-shaped recovery right now Which feature of the modern economies is the difference is a percentage of agriculture versus face-to-face services Differences in inventory differences in personal risk aversion Well, and also I mean it's very difficult to disentangle the different effects here because when you're talking about the era of the famous Spanish flu We're talking about the aftermath of World War one Which is a huge shock in both? Supply and demand side so there's huge pent-up inflation pressure on the demand side and massive disruption on the supply side from the demobilization It's also a period of revolution in much of Europe Which causes huge disruption as well So, you know if there was a v-shaped recovery day it was it was a v-shaped that was you know It's recovering from many different forces then of course as the savage deflation of 1920 21 Which also hits the global economy in the aftermath of the war and the flu This time round, you know, I'm definitely in the kind of swoosh camp modified swoosh I don't Frankly have a strong set of priors about water recovery from a collective simultaneous shutdown of this scale looks like and I am Quite suspicious of the comparisons which treat China as a national aggregate and then say well, that's our future because Even allowing for the exaggerations of the regime's propaganda there They do seem to have contained the cute virus the pandemic there in one particular province so we have to be quite careful about About making comparisons with the US or Europe where we've had multiple Wuhan style Outbreaks it's given the low rate of immunity in most parts of China Shouldn't we be fairly pessimistic about Chinese recovery right now? Exactly, and so that given that even in the Chinese case We're saying something closer to a swoosh than the V the prospects in the West. I think as you I think you were suggesting quite quite poor and It's just unclear to me how a As you were saying densely packed urban service sector face-to-face based economy of a city like New York How it comes back under a regime of periodic lockdowns and managed social distancing We do this is just a huge experiment that we're running if there were a Chinese financial crisis Coming out of coronavirus. What would that look like? What's the weakest stress point? well, I mean The real estate sector is one obvious one and some of the hugely Highly leveraged Chinese development companies ever grandiose I think most people's favorite as the weakest link in the Chinese real estate development sector. I think Abba Park a hundred billion dollars in foreign exchange Borrowing on its balance sheet so an extremely fragile actor Whether it's systemic in the Chinese context is a different question whether the collapse in that firm by itself would have a Large and up ripple effect is an open question the shadow banking system in general in China I think is a huge worry. So these are the banks which operate outside the mortgage lenders of various types, but also various types of lenders that support local government and then I think There is the rather horrifying experience of 2015 2016 which is easily underestimated in the West We were we were distracted by a variety of other issues at that point But China went through a really dangerous looking foreign exchange run in 1516 lost about a trillion dollars worth of reserves, which is large even for the Chinese to absorb and That's another model of what a what a shock might look like a financial shock Mercifully being spared that so far this time round. It would be very bad news for the emerging market economies, which are closely coupled to China For dealing with the current crisis financial crisis. What is the statistic you wish we had that we do not? I think I think the question that the It's probably on most people's minds is The weak hands, I'm not sure that I have it's a great very pointed question. Is there a single statistic? In 08 the the problem in the end was the what are called the weak hands So where the where the risks were concentrated where the losses were concentrated where the leverage was and where therefore a run would be very very damaging and I think that's really in terms of managing the financial crisis as opposed to the real economic Recession which is coming our way. That's probably the thing that Jay Powell and Central Bankers in Europe as well are most worried about are the actors out there that could be forced into various types of fire sale Which would then destabilize asset prices? And I think necessarily this there's one number this time round one of the things I think they're dealing with is that this isn't a bank-centered financial crisis This is is Robin Riegel was put it in the Financial Times And he was quoting some some somebody he'd interviewed that this was a financial market crisis So it's affecting lots of different markets for credit rather than the balance sheets of individual of individual banks I think in 08 we would have known like you know We're extremely concerned about city group that might have been you know the mantra by December this time round I think the risk is more diffuse Won't it quickly become a bank-centered crisis if say 20% of Americans are not paying their mortgages Which is an estimate I've heard it might be rough within a month or two That seems intolerable that even fed liquidity injections would not get the banks over that hurdle unless we fix it more directly somehow Exactly, and I mean Neil Kashkari came out in the FT I think yesterday calling for a big capital raise on the part of the banking system To provide them with more shock absorbing capacity Whether that hits the big banks this time or whether the neurologic issue will be the Mortgage lenders who are in the front line of that shock or the people who are exposed to various types of consumer credit I think that's that's a key issue It's not obvious to me right now that the balance sheets of the really the core group of systemically important largest US banks are Vulnerable to anywhere near the same extent as they were in 08 anyway, but absolutely, you're right if this turns into a protracted extended Really economic recession if this is a very slow recovery then feeding up from the bottom by way of households and companies Inabilities to service that you would expect that kind of shock to to develop What do you think of the liquidity of Treasury securities the bid ask spread on treasuries as a way of seeing how well Financial markets in general are working as a way of tracking the crisis That's that was I think very much on the minds of the central banks in the critical meet weeks in March various huge fluctuations in price and Then gaps in the market where you would normally expect Treasuries with different terms to you know have a smooth curve of pricing I know that the Bank of England around the 18th of March was extremely concerned about If you like just gaps in the market for UK gilts where you would expect a smooth yield curve and that was no longer That was no longer Something they were seeing they were they were seeing irregularity I Think that's a that's the guilt the government debt market is one of the is one of clearly one of the foundations of financial stability So far overall once we came out of those two really dangerous weeks in the second and third week of March Perhaps not surprisingly given the scale of asset purchases by the central banks the The normal set of relationships between equity markets and bond market seems to have been restored There seems to be a safety function being performed by government debt markets, which must be reassuring If that were to become destabilized it would indeed side, you know that would set off Warning lights flashing I think under what conditions does stagflation and just a higher rate of price inflation Become the most likely possibility What would predict that as the end state? I'm I'm It is amazing how much we're monetizing right Infinity and there's more to come Nations, yeah, and you would anticipate, you know if you were kind of if you had a sort of a shred of Monetaryist in your body you would expect at some point for there to be a price response I mean in the short run the sort of secular stagnation scenario seems a little more plausible because you know from a Canes in aggregate demand perspective You would expect Households to respond to this kind of shock with a higher savings rate and you would expect and we've seen quite substantial Deliveraging after 08 in the American household sector and you would expect, you know business confidence to be shot and lower levels of investment That wouldn't suggest the general macroeconomic Circumstance which would lead to inflation on the other hand the monetization is massive Frankly, I mean if we could have inflation of four or five percent in many ways that would solve a lot of our problems because it would act as a It was an act as a tax on nominal assets And it's one of the ways historically in which we have dealt with the sort of debt burden that we're running up right now You look at the history of the 50s and 60s Rapid nominal GDP growth of which has Attraction was inflation was a key element in the formula for managing post-world war two debt If inflation risk rises will we be able to target a rate of price inflation? So I too would be happy with four to five percent Yeah, but if it's either the status quo and what bond markets expect now or you leap to 15 or 20 percent Because the velocity of money you maybe cannot predict or control in traditional ways. How should we still be rooting for more inflation or not? Well, I mean these are these are these are very speculative scenarios that we're talking about we of course in the advanced Yeah, yeah, absolutely, but the advanced economies Have not experienced those kind of inflation rates for a long time And that's part of what defines them as advanced economies, right? There's a real circularity in the way in which we classify the economies of the world Eric Lothergan is a great piece where he says what defines an emerging market is that it has the kind of inflation dynamics You've just outlined in other words prices actually do respond to Monetary shocks and that has a social in the underpinning and I think for me one of the reasons I'm skeptical about a strong inflation scenario is it's not obvious to me that we have as it were the Sociological guts that would in I don't mean like bravery I mean in the sense the underpinnings of a wage price spiral Which I think would be crucial to drive the kind of inflation that you're you're talking about if we were to be in 15-20% it seems to me that you would need the mechanics of a Over-wage price spiral an indexation of various types to be actually operating and We stripped most of that out in a highly conflictual way really from the bulk of shock onwards if not before Two to the late 1980s and in the absence of that It's difficult for me to see the scenario in which we head towards, you know Spiraling inflation of the type you're talking about of course. It's an endogenous process It's much much more attractive to join a trade union when you actually need to defend your your wages against nominal price shots So that might be a mechanism that would work I find it difficult to imagine that being a something that happens in the you know, 2021 and 2022 What's the best way to think about which emerging economies are most vulnerable and you're free and nominate some Conceptually, how do you approach the question? Yeah? I mean, I think this is an absolutely crucial issue because I mean I've been having an absolutely fascinating conversation online with Brad set to the council of form relations I'm sure you must have interviewed and if you haven't you should and everyone who listens to this program should follow Brad and Follow the money his blog at the CFR and on Twitter and he he's you know He's coined this phrase saying, you know, there's not there's not one emerging market crisis There are several Because there's a range of different pressures which are acting on them I mean starting with their relative exposure to the medical crisis Which we mustn't forget is the fundamental driver here and oil prices and The degree of foreign ownership of their sovereign debt even if it's denominated in their local currency and the degree of their dependence on foreign borrowing in dollars and Potential macro prudential hazards the balance sheets of really big Quasi state-owned companies Pemex will be the absolutely classic one in Mexico, Petrovasse and Brazil Escom the electricity utility in South Africa where you could see a kind of doom loop spiral between the Credibility of sovereign debt and the imbalance in the private balance sheet If you if you use all of those different criteria, you can pick out a series of relatively vulnerable countries And you know, South Africa, I think is top of most people's lists Terrible health risks because of the large seven million plus people living with HIV who we imagine are probably extremely vulnerable to COVID-19 Long-standing huge unemployment problem growth below population growth for a long time Just being downrated to junk for its sovereign bonds ran to suffer the huge collapse which in due course might generate export growth But anyway, that's a candidate Algeria I worry about as a European 85% dependent on oil and gas exports very fragile socially and politically Turkey is high on most people's lists not because it's a desperately poor country But because of the political risk Edouard has made clear that he won't avail himself of IMF support Despite the fact that the credit default spots on Turkish debt and blown out to the same extent as South Africa's have That would be a portfolio of high-risk places and I think Americans should be North Americans should be profoundly concerned about the situation in Mexico Which has suffered a huge shock to the exchange rate Pemex is a is an accident waiting to happen It's hugely politically salient for the current administration because they have bold ambitions for national oil We've seen how hard the Mexicans negotiated over OPEC And it's our neighbor and and tens of millions of people living in the United States Obviously, they're directly their lives are directly entangled with with Mexico So I I think that would be very high on my list somebody in treasury is monitoring that situation very closely I'll just tell our listeners. We're having this chat on April 16th But let's go back in time was Keynes right about the Treaty of Versailles Was it as bad as Keynes said No, I think I mean I'm a I'm a I'm a I'm a confirmed liberal Keynesian in my broad politics and my understanding of politics and the way expertise ought to relate to it and the operations of modern democracy I think his his political writings in essays and persuasion are brilliant But I regard the economic consequences of the piece as a disastrous but Because it essentially It enhanced the and gave arguments to the German nationalists Who that doesn't mean Keynes was wrong, right? It may have had that effect But he's writing at a time where the wealth to income ratio is especially low So we'll give a measure of dead burden is much worse for an economy than what we might be used to Absolutely, but but the the evidence of the 1920s is that with the right framework The Weimar Republic was in fact perfectly capable of bearing a reasonable burden of reparations Two to three percent were were doable The fact of the matter is the German political class had no interest in in in accepting that responsibility And it was quite determined to do a variety of different things to escape that burden And there is no doubt at all that the front loading of the demands Which is very understandable from the point of view of the financial needs of the French in particular Caused the huge bottleneck if you like early on in the history of the Weimar Republic when it was most fragile And that's that's as it were the moment when I think the critique is most is most valid And that's why for me really the hidden agenda of the economic consequences of the piece is an appeal to the brits But a bubble to the americans For large-scale debt concessions on which one can only agree with Keynes that this was in fact Absolutely critical that market economies Have unspoken Fundamental political preconditions which in the aftermath of a massive war have been disrupted And what you do not want to do is to port if you like the bitterness And the antagonism of politicized intergovernmental debt into the post war period or if you're going to do that You need to build a very very solid framework around it But to imagine as the decision makers in the 20s did that you could combine a rapid return to essentially a sort of Edwardian free market model of capital flows And entangle that with politicized public debt that that was a tragic mistake What he's not saying in the economic consequences of the piece is what he said in many memos before he published that book Which is that america is key to the entire problem and he was rejected at Versailles And he knew that the basic anchor of the reasonableness of his position had been shot down and removed by the wilson administration And so the book itself is as it were the kind of the fragment that emerges that is He can place in the public realm But he you know despite the personal caricature of wilson that he delivers in the book, which is of course very damage damning He doesn't he doesn't in fact go very far in his criticism of the us administration at that moment Which is so it's he's playing political games in the Was there a better alternative to the managed dirty floating exchange rates of the 1920s Because at the time that was thought to have not been working well the british revaluation of 1926 was a deflationary disaster So what should we have done then with the international monetary order? I think um it's the the you cannot dissociate the the the The conditions of successful international order in the 1920s from from politics I mean the the the question can't be posed from the position advantage point of some sort of abstract Technocratic ideal it has to be posed from the quest ponecrables What's doable and who are the people with power who are likely to do the things that you're asking about? and that's in a sense for me the The problem Also with some of kansas critique of the gold standard restoration is that he's just refusing what is evidently the rationale behind The positions say of the british government which returns to gold at the pre-war parity and the purpose of doing that is clearly uh to secure The high rating at the high standing of british sovereign debt and that is the priority of the people making that decision Cain says it's not optimal for employment. He's right a lower exchange rate for the pound would have been better But if your aim of the game is basically to ensure that people who lent the british government money In 1914 don't do much worse than people who lent the american government money during world war one Then of course the parity with the dollar has you know that the aim of the game is to restore it to its pre-war level And that is judged by the political elite Of the 1920s in britain to be the key criterion canes is adducing as it were well Well, in fact if you should if you cared about unemployment, then of course you would have a lower exchange rate Which which everyone can agree with it just wasn't the priority Because the other domestic priority of the group that is governing britain in the 1920s Is to restore class balance and in the aftermath of world war one apart from the flu the thing that was going on That was really on everyone's mind is the most dramatic period of class struggle In european history in west european history. It's the last moment of genuine revolutionary possibility in most countries And britain in particular faced a huge upsurge of labor militancy um And the restoration of the gold standard is part of a strategy of deflation Which is about undercutting the bargaining power of the british trade union movement Which had coalesced in the triple alliance the fearsome alliance of railway workers miners and dockers which can paralyze an early 20th century economy um Breaking that alliance is is key to what they're doing and and so when canes makes his criticism It's not simply you know What will be optimal from the point of view of maximizing some sort of welfare function He's basically offering an alternative program for britain Which is the program that also in his view might stabilize the long run possibilities for a liberal party Somewhere between labor and the conservatives to actually have a voice in british politics And to do that you need class conflict not to escalate in the way that the tories were willing to allow it The conservatives were willing to see it escalate And you need labor not to be the only voice of the progressive politics in britain Which it threatens to become in this period and that's those are those are the stakes which are involved in canes's alternative program Which would have been basically for an adjustment of pegs Um, an adjust adjustment of exchange rates canes in the 20s. He's not advocating You know floating exchange rates. He's a just he's arguing for a better managed fixed exchange rate system Why exactly did the vi more republic fail? Simple question, right? That's a softball rapid fire series of of absolutely massive questions Just a bad system of proportional representation or cultural decay It's not I say if you want if you want a one line answer, it's it's the vi more republic's survival is dependent You know, certainly the argument I would make in In deluge this distinctive argument that I'm making is it is it does depend critically on the ability of the united states to hold the ring Um in european politics Because on the ability of the united states to hold the ring depends the viability of the sort of centrist moderate politics That anchored the vi more republic's survival in the 20s But also you could say uh, the best hopes of japanese moderates in the 1920s in the thai show democrat democracy period In each case what you see and indeed even the relatively moderate phase of musselini's regime in the 1920s When he was the darling of all street Um In the in each case what you see is people key actors saying, you know in this hierarchical global system that we're in what are the best options available to us And in so far as the united states is able to hold the ring That is to moderate the aggression of say france within europe and to provide a steady A reign of dollars uh down onto the economies of europe and japan Then locally if you like the optimal strategy is in fact to adopt a position of Cooperative subordination within that within that system. Um, and so you see quite remarkable things happen in like the japanese coming to terms on naval naval rearmament the british coming to terms on naval rearmament because america looks like a hegemon Um, and it's really when that breaks in the early 1930s that to my mind the survival of the vi more republic is you know, it becomes It's clear that something else is going to supersede the vi more republic. It's not obvious It'll be not the nazi regime, but some alternative Is likely to emerge and not just in germany, but we see in japan the same sort of shift We see a radicalization of the sudinian regime It is it is an actual democracy. So even if the united states has checked out Why don't german voters opt for something semi sane instead? You get a hyper inflation well past an optimal rate of senior age extraction, right? That just seems irrational by any standard So culturally what went wrong in weimar that so many people made what seemed to be non-optimizing non-rational decisions Well, that can't be the fault of the u.s Well, no, but in 1928 Um in 1928 in the last as it were pre great depression elections of the vi more republic hit this party gains are you know One and a half percent of the vote the communists are doing badly And the centrist parties the social democrats the christian democrats various shades of liberals have Solid vast majority of the german boat in a center left government is formed So After the vi more republic had survived that initial shock that you're talking about the hyper inflation of the early 1920s Exactly as you're suggesting Germans can quite reasonably see that there is the prospect if not for glory and national self assertion Then at least for prosperity and a functioning politics in the vi more republic of the late 1920s What we've got to explain is is is why that is broken apart And and I don't by any means want to say that this is all down to the united states Of course german political elites have choices to make and a large faction of them are obviously responsible for having made choices Which turned out to be absolutely disastrous for their own country and for the rest of the world But if you're asking me as it were to say What I would argue Personally what my own distinctive contribution to the debate has been is to is to show the way in which the collapse of the structures The financial structures of the 20s which did indeed pivot on the united states in the early 30s Shifted the terms of the debate within germany and several other potential Challenger if you like insurgent countries, so we don't just see this in germany So there is a factor which goes beyond the particularities of german politics or japanese politics or italian politics Or indeed even british politics or soviet politics, which is this broader Which is this broader question about the viability really of a liberal order and when that liberal order becomes less plausible It changes the parameters of everyone's decision making and then of course it's up to local local local forces And as you're stressing of course in germany, there is a powerful militarist group conservative group Which is willing to gamble on hitler to provide them with a democratic base and that turns out to be an epic historical miscalculation Speaking of hitler was hitler in fact a canesian Uh No, I mean hitler personally absolutely not hitler's personal monetary ideas are very very conservative He's an anti he's an anti inflation hawk um, it has to be persuaded to engage in large-scale monetary financing Somebody like shaft is a contemporary of canes and that's his Hitler's central banker and an adventurous monetary thinker And he'd learn to think outside the monetary box if you like in the efforts to stabilize the biomass currency in 1923 24 And he's certainly an expansionary He's not afraid of monetary finance and of using off balance sheet vehicles to provide liquidity and to provide credit for an Underemployed economy and quite reasonably no one's worried about inflation in 1933 because germany has massive unemployment So in that sense, they are adventurous macroeconomic monetary economists They're not canesians for the simple reasons that canesians canesianism Classically of course, um, is is is a liberal economic politics And so it believes in a multiplier and it and the multipliers that The be all and end all really of canesian economics because what it suggests is that small Intermittent discretionary interventions by the state relatively small will generate outside reactions From the economy which will enable the state to serve a very positive role in stabilizing the economy But doesn't require the state to permanently intrude and take over the economy. That's a post 1945 kind of vision of a mixed economy Canes himself That's why, you know, he wants the multiplier to be three because if the multipliers three then one dollar of spending generates By government spending generates three dollars of private economic activity and you can think of government intervention as sporadic It's emergency medicine. It's not chronic care Um, and that of course is the antithesis of what the Nazis are doing because they are ramping up government spending and not Across the board highly focused on rearmament because what they're doing is not just creating jobs So they do create jobs as a side effect. What they're doing is restructuring the economy Towards building the foundation for rearmament and the war economy And so what they're actually trying to do is systematically repress the multiplier Because they do not want people employed in armaments factories to go out and buy clothing and fancy food which requires imports They want the money to be circled straight back into the armaments efforts So forced saving various types of financial repression are the order of the day So for me that makes them they're macroeconomists the Nazis. They're adventurous macroeconomists. They're doing they're doing massive intervention, but they're not canesian Robert gordon in his review of your book wages of destruction argues that you've underestimated german prosperity in the 1930s, so he cites the denison uh table base Which suggests germany had maybe 70 of american per capita income And you seem to think german per capita income then is much lower Maybe as low as a quarter of u.s per capita income. What's your current I mean i'm using so so the the the um my interpretation of nazi germany really came out of uh confrontation or you know reading in the 1990s the work above all of angus madison and then steven brawberry um and what they point to is um a structural gap between the economy is not just of germany um but of continental european general and two points of comparison one the uk and the other the us and um and the gap is consists of two different elements relative to the united states the productivity and manufacturing per per hour per hour worked or per man uh for per person in agriculture and manufacturing and for all i know in services too There was a huge gap transatlantically between all of the european economies in the united states and there's a elaborate debate Going back really all the way to the 19th century, but in the form of chandler and so on about What constitutes the secret source that gives the united states this much higher per capita Productivity across all sectors and we can go into that. There's a whole variety of obvious factors that you might cite and then between germany and France and italy on the one hand and great britain on the other there is also a huge gap in terms of output per person But that isn't to do with productivity difference within sectors So german manufacturing and british manufacturing. You might not believe this but in the 1930s were very similar in terms of output per hour worked But the structure of british of the british economy was far more advanced by 1911 less than 10 percent of the british work force is in agriculture and in agriculture very little of it is in peasant farming And it's in big farms by 1930s. It's extremely rare for any women To work in farms in britain whereas in germany in the 1930s four five million women are registered as working full-time in farms So you have two different types of productivity difference One is across all sectors, which is a transatlantic difference and then a huge Sexual difference between the german economy and that the great britain and what wages of destruction was trying to do is to say Okay, let's write a history of the third Reich On against the backdrop of assuming that this makes a difference. What do we see if we assume that these structural differences Are large Let's not argue about the percentages of how large but they're large by any measure and furthermore They are something that contemporaries Know about and factor into their thinking and what kind of a take what kind of a read do we get on Nazi politics if we take these seriously and so and and and I as I hope I demonstrate in wages in fact It's profoundly illuminating to think about this double problem on the one hand the magic if you like of the united states Which is just more productive across the board and dramatically so and on the other hand the structural disadvantage You could add in of course the fact that the united kingdom commands a global empire Which germany never does to any substantial extent. So the the wager intellectually Of the wages of destruction is to see what happens when we revisit history On the basis of this very different understanding different I mean because if you grew up in 1970s britain or between britain and germany as I did Um, and you had the conventional industrial policy assumptions say of 1980s america You would assume that germany was an industrial powerhouse that dominated the world and the strode the world force published technique Audi Mercedes BMW of course they were you know an industrial pass of the 1930s. It just isn't substantively true That doesn't actually capture the the reality of the interwar economy So what what wages of destruction was doing was trying to unpick those anachronistic assumptions about the obvious dominance of the german economy and To on the basis of those that that double comparison with the u.s And great britain to to reread the history of the third direction So what you see is the significance of the agrarian sector the profound inferiority complex which strives nazi planning their relentless focus on agricultural expansion in the east um, the very severe problems of labor shortage in agriculture And the relatively modest scale of their industrial capacity compared to britain and the united states It's more or less level pegging with the brits and hugely inferior to the us Even that partial economic backwardness. Why then does germany beat france so soundly at the beginning of world war two france had a fair number of tanks, right? Yes, yeah, yeah So the so the other the other wager of the book is to say, okay, so What so as i was saying the aim of the game is to take those macroeconomic Stylized facts and to say what can we understand and what could we not understand? And having backed out what we can't understand. How do we explain the stuff we can't understand? And so wages of destruction is a sort of crash test of the ability of economics to explain history And then an effort to make sense of the moments where the economics fails. What do we need to add then? What does What what do we learn by virtue of our limited ability to explain? And there was a school of thought which said this all stacked up, right? It was a school of thought that said the blitzkrieg victory of the germans in 1940 was the result of their technological industrial superiority which expressed itself on the battlefield in stucas and tanks and You know, so the logic was quite simple But if you take this this alternative view then as you're saying in fact comparing Motorization france is more motorized in Germany by a very large degree rena is a far more substantial motor car manufacturer than any car Manufacturing Germany in fact the only substantial motor car manufacturer in Germany in the 1930s is opal Which is owned by gm and it's only substantial on the count of that and four could be the other contender so um What that means is exactly as you're suggesting that there are key moments in the history of the regime that can't be explained by Economic factors in any simple sense of the word and clearly the battlefield events of 1940 or one such moment Um, but in general the decision by hitler to go to war against the kind of backdrop that i'm offering Doesn't make sense from the point of view if you like of a correlation of forces A material balance type argument and so the question then is What sense do we make of the fact that the Germans are going to war with without an evident material superiority? And that is where then for me the power of ideology comes into the picture As an absolutely essential and irreducible element in any kind of meaningful history of the Third Reich Because we have to explain why they went to war even against odds, which really didn't look favorable at all Now i've lived in germany and it seemed to me then they have plenty of farmland And of course we're talking about a time when the country was much larger So why then is lebensraum portrayed as such a significant motive for germany wanting to expand they have plenty of farms Right more than great britain does Well, I know but but great britain in in the beginning of the 20th century is 50 dependent on imported food In germany it wasn't as extreme as that and I don't necessarily have the number My fingertips right now, but I think it's something like a quarter of germany's food suppliers is imported And by that you don't just think of what the people eat at the end of the food chain, but crucially animal feed Which is which is vital to maintaining, you know, high highly productive dairy herds um And what the germans the bitter lesson the germans learned in world war one is that that kind of a highly efficient international division of labor Which is one of the keys to the higher productivity per capita of the overall british economy relative to the german economy Is its dependence on imported food because better for somebody else to do the farming and you to do the services and manufacturing Um in the case of a war the total war, especially if you face an enemy like the british You deploy the economic weapon as one of their key strategic tools and have the navy to do it um That dependence is a key vulnerability and in hitler's paranoid worldview It's it's also of course where the world jewish conspiracy brings its influence and its power to bear On on modern germany and it's that dependence that has to be broken In practice what this means is that though you're right germany has plenty of land um It it is not able uh in the 1930s to feed itself up that at the kind of levels and the standard of living that it's become accustomed to on the terms of trade between industry and agriculture Culture which people have become accustomed to and that's the problem. What they want the land for is to is to improve if you like the trade off Between the relative standard of living in the city of the countryside on the one hand and the degree of self-sufficiency on the other Um, so the fantasy is really that you could have a you could have a you could have a midwest You could have a canada you could have an australian bolted on to germany And that that would augment and it would provide germany with the kind of balance that the united states the continental us has Which makes continental united states a largely self-sufficient economic entity Or that the british empire has with the Complementarity between the manufacturing and service hub in great britain and the And the agricultural and raw material providers of the empire Most of these dialogues there's a segment in the middle called overrated versus underrated I'll toss out an aimer an idea. You tell me if it's overrated or underrated. Okay I'll try Putting aside coronavirus issues The economic future of bulgaria overrated or underrated Overrated you're an expert on bulgaria. Yes, I I've written this several articles I wouldn't claim to be a I've had a great collaborator in barter. I've been of who's now the bulgarian ambassador to finland of all things Um, I wish bulgaria's economic future was brighter than it may be at this moment The german poet rilke I quite like rilke Right, you cite poetry a lot in your twitter feed. What's the best german language or other poetry from the world war one post World war one era. I mean, certainly he would be up there. Yeah got through ben. I quite like Despite his dubious politics Stanley Kubrick overrated or underrated Uh, I slightly overrated I would say not my favorite alter Paths of glory as a portrait of the World war one world an alternative to Renoir's grand illusion showing the elites were truly corrupt. Wasn't he completely on the mark there? Yeah, I I'm a I'm a revisionist on world war one as it's clear from deluge. I think so I understand the force of that argument and and But um, yeah, no Kubrick isn't like isn't my favorite director The brettan woods arrangements overrated or underrated very easily overrated. Yeah, why? Because we tend to think of them as it were as an order that you know Overrated when you think of the brettan woods arrangement as something that existed between 1944 and say 1971 um But that's just you know, that's that's one of the most common sort of Clichéed errors that you could make an international political economy. No such thing system ever existed Agreed attempted and then broken by the british panic in 47 not then reinstituted until convertibility in 58 Immediately now we know from all of the great recent work Supported by various types of swat line arrangement by 67 clearly almost dead in the water And then in 71 just tossed overboard by the next administration funny kind of regime that I would say um And all together that to me suggests the need to think of International economic history not in terms of big lumpy regimes which have a certain logic that governs them but more as a sort of continuous the improvised makeshift The league of nations overrated or underrated Uh, uh hugely overrated In the current scholarship highly rated. Yeah, and I would be surprised you'd be I sorry. I should I should say um Uh, yes, indeed it deserves it deserves its common reputation as being as being a dead letter How today how will italy get through the current economic crisis with no corona bonds? They've had no per capita income growth in 18 years. Lombardy's taken a huge hit Yeah, it's why are they even solvent? Is the ecb going to buy everything? I I do think to go back to an earlier conversation You know one of the outcomes of this is likely to be the warehousing of huge quantities of government debt on central bank balance sheets Where we just hope it gets forgotten about and that's not the worst of all possible worlds There are many alternatives which are worse than that and that does appear to be The solution that the eurozone is drifting towards and frankly if the north european states will accept that You know that would be again one of the more tolerable outcomes here But the tragedy of italy's economic development over the last as you say the last 18 years is is I you know Along with many others I have been campaigning and banging the drum for years to try and get the political elites in both brussels and and berlin to recognize That this they cannot expect, you know political legitimacy to be maintained in the face of that kind of economic track record and And you don't need to be a nationalist populist I think in italy to be resentful and furious at the The lack of hearing that they received for that position But isn't it better to bail italy out non transparently through ecb purchases Rather than through a common fiscal union where the german voters would resent it more italy probably would behave irresponsibly right There's been a fracturing of cooperation with all nations. So isn't it better. We haven't had a fiscal union um, I uh, I take the the the force of that point and it's a kind of classically canzian argument for burying a problem. You can't fix politically in some technocratic solution It would be truly compelling if The german political class had managed to close ranks and as say the french have and basically silence and kill the issue but they have failed to do that and far too often the bundesbank and quite mainstream conservatives in germany engage in a monetary populism essentially Which blames the ecb for low interest rates, which uh, which problematizes this de facto round the back sharing of risk by way of the ecb balance sheet hands for the zin the Notable munich economists can command the pages of serious german newspapers with his polemics against the so-called target two balances Which are really just a reflection and the balance sheet of the ecb of movements within the european financial system Um, and all of that makes for a very unstable brew. What I worry about is a spiral of delegitimation fundamentally in which An unspoken as you say convenient technocratic fix to the problem doesn't in fact remain unspoken Then you have us an insurgent economic nationalism against that which is where the afd the right wing party Which has haunted german politics in recent years comes from it's not an anti-immigrant party in the first instance It's an anti-druggy party in the first instance party directed against mario dragy and the alternativa for deutschland the alternative for germany they want Is an alternative to The sort of monetary fix that we're talking about to activism on the part of the ecb They then bring suits in front of the german constitutional court Which is an avenue favored by political activists and the german constitutional court is put in the embarrassing position of having basically to sign off on what everyone understands illegal fig leaves To avoid the embarrassment of blowing up angela merkel's europe policy or rather angela merkel's non-policy towards europe And that's if that channel was not there i would say i'd be totally with you bury this stuff very it deep and let's never talk About it again, but unfortunately that is not how the german political system works very striking contrast to france Which is in a sense, you know Essentially in exactly the same boat also a risk-sharer with italy and it's not even a subject of serious conversation I mean marine i mean it's never been a serious subject of conversation there and and That's that's the reason why i find i'm not sure that this status quo will hold though de facto i think that's where we're headed Will hungary simply persists as a truly autocratic regime within the european union Very difficult to tell i agree it's flying under the radar right now It's one of the it's one of the places where financial discipline might actually help I mean or barn has been incredibly fortunate In the macroeconomic conditions, which he's enjoyed for his experiment financial markets have not punished him for his economic nationalism and The current environment, which is much less friendly to emerging market borrowers May may be a lot tougher for him likewise the massive downturn in the auto industry I mean hungary is basically a Is an extension of the german car plant system And when global demand for german cars turns down hungary gets very badly hit So it's not obvious to me that hungary the old band's formula will in fact work in a less friendly economic environment The one he's enjoyed that's will that's kind of a wait and see kind of a response As of late as you know, there's been a deal where turkey essentially keeps many North african refugees bottled up so to speak and they're paid off by the european union There are signs that deal may be collapsing possibly on both sides If that deal collapses, how does the european union respond and what what does that world then look like? What stops the massive flow of refugees coming up through eastern europe? No, and especially because that then hits the you know, two of the very weak members of the eurozone greece and italy One of the major sources of resentment in italy is the sense that they were left on their own with the With the refugee problem with this extraordinary doubling agreement providing again the kind of Figgly for for various types of nationalist selfishness on the part of northern european states which We're in a position to absorb migrants much more easily than italy was the doubling rules are basically if they come to your country They stay there. You don't there's no there's no formula for redistribution Within the within the eu I I agree. I think that is kind of part of a poly crisis scenario Um in which um, and which is what we saw in 15 right in the 15 if you think back to 2015 It's this remarkable moment where we see the chinese economy under pressure We talked about that earlier the greek crisis blowing up ukraine crisis Still very hot in 15 and the refugee crisis and we know how explosive that combination was for european politics We could indeed be heading back to a scenario Which was every bit as bad as that and that's one of the reasons why I say worry about algeria Because that could produce a huge new flow of migrants from an economically distressed north african country Uh, which france would be would be illiquid to deal with Um, and it's not obvious that we did anything more than stick a sticking plaster on it And the europeans will defend themselves and I think quite reasonably and say you know They move from crisis to crisis and they do improvisations And they move incrementally and they move crab wise and you know, europe is forged in crisis All of those cliches of a kind of eu pragmatism And the question one has to ask of course is when do you reach the limit when when do you hit an obstacle? Which is too big which is too difficult and which exposes your fundamental failure to come to terms with the basic issues that need to be addressed and The legacy of bitterness which is built up in the series of make shifts that you've adopted And what I worry about many other people worry about is whether whether we're we're at that point now on several different traditions at one COVID-19 itself the long-standing and Immiseration of the italian economy and as you say a refugee crisis that might broke up and if turkey is one of the fragile ems Then of course, you know all bets are off if you like Though there are again always possibilities for negotiation Maybe a sweetheart deal for adouan is precisely the thing that will open the door to some sort of refugee fits Um, let's say five years from now when the immediacies of the coronavirus crisis probably have passed How much cross-border mobility do you think there will be within the european union? I think europe will move I I mean, I mean you should take everything i say about europe It has tensed with a pinch of salt because you know, it's it is my politics It is it is one of the things that i'm most committed to your personal biography all sorts of other reasons I mean, I imagine I imagine that the eu will restore mobility on a similar level to the united states of america I I I imagine europe will move quite quickly towards The sort of regional deal that seems to be emerging between new york, netica, you know, pennsylvania and new jersey Those are the kind of blocks which can move Which can move relatively smoothly Back towards a restoration of something like mobility. I would be very surprised if there wasn't Relatively free flowing mobility regime within the eu. It's one of the core values. It's what the eu is for Um, and I don't think this crisis is going to blow that off course Does that mean that there won't be various types of you know pandemic management structure in place? I that's a different issue will there be You know electronic passport and temperature monitoring devices at most european countries That I wouldn't be surprised by that nor would I think it terribly significant to be honest And we don't discuss like you know the airport security provisions of italy versus germany very much because they're not very interesting And they don't matter very much And I think that might be the sort of place that we're in the blanket bands on movement will not continue That I think that they're just impractical Both at a national or regional and an international level I have a series of questions about what I call the adam twos production function. That's how you get things done This is the final segment of our dialogue. Are you ready? I'll try your questions are great. You've written an enormous amount just this last week You had a major piece come out in the guardian one in london review of books Uh, your books are very long. What is your most unusual writing habit? I'm not sure it's unusual, but I think it's the writing habit that many people Have who do write a lot and regularly is I write every day basically, um I I I I didn't find I haven't always found writing Easy at all. I've been to a lot of therapy of various types to stabilize myself emotionally and psychologically. I still I still Do it's very important for me in handling the stresses that arise in writing Um, and one of the things I realized in the course of that is that actually rather than thinking it was something terrifying That I had to steal myself to do the best way to think about it was as something I do every day So it's like exercise if I have the chance I like to exercise Um, it's a puzzling activity I just treated as a kind of almost as a game rearranging the words trying to fix things and And then I say to all my grad students like you can do that for 10 minutes every single day Regardless of what else is going on in your life. You can always find that 10 minute slot so that is the thing that I I make sure I do and that means even big projects slowly move along because then when you get the The big slice of time the three or four hours at a weekend or something You're actually it's top of stack You know where to go because you've been puzzling away at it and chewing on it every day even if it's only for 10 minutes I give the exact same answer by the way. What is your most unusual habit for how you absorb and process information? Right, you're reading an enormous amount. Yeah, what's your trick? I actually I have to say I mean I mean you mentioned twitter early on that's been transformative for me Um, I've yet to figure out like whether it enters into like note taking in any kind of conventional form But that has been The odd effect of that is that when I'm for whatever reason deprived of twitter. I feel suddenly that I'm less motivated to read So sharing has become like a a key element in my reading and Trying to figure out what the interesting thing is that I want to share is a very good way of focusing your mind On what the core you read a piece You know, what are the three sentences here? I want to cut and paste which is the graph that is really telling And how do I nuggetize that into whatever it is 28 characters? That's been a very I found that at this stage in my life I I know, you know, this isn't necessarily the best way to read complicated philosophy of history Which I also spend a lot of time doing at various points in my career but from the point of view of You know passing the flow of macroeconomic news, which I know we're both kind of addicted to this is a This is a good way of doing it. It's a bit like Sharing slides back and forth amongst, you know, wonky friends look at this graph. This is a really good one And that's that has become for me that that that that metabolic system of reading and then reproducing and sharing has become a Key motivator of consumption It's not it's not just as it were production for its own sake. It's actually a way of structuring how you consume Here's a question from a reader. Feel free to pass on it if you wish and I quote Your grandparents were nutritionists on top of everything else Your grandmother wrote on the nutrition and health of the lives of coal miners How did that affect your upbringing and quote? Well, in fact, I was I was on is on the tip of my tongue So if you ask me like where my reading habits come from I would have said the The breakfast table of my grandparents who if you care to inquire into their history have have a colored Checkered past in a very complex political history But they they were people of the world and they subscribed to Le Mans the french newspaper They were multilingual And their breakfast table would consist of a series of oh if you've seen this article It was basically like kind of you know analog breakfast table twitter Have you god that you should really check this out like I'll save this for you They would cut things out and shove them across the breakfast table at you And that um that experience for me was absolutely formative and their engagement with the real world. I mean they They continued writing my grandfather basically died over his word processor in his early 90s And what they did a lot of was um digesting and synthesis So they would go to the welcome medical library in london And they would read all of the papers because they were multilingual lots and lots german french spanish russian Some scandinavian languages that they would they would try and synthesize the best and most recent work on um On key issues of concern for them and they were materialists that originally marxist They had become deeply concerned with issues of nutrition You are what you eat in the famous foyer of afghan phrase and they took that and turned it into a politics Which was around malnutrition ultimately and ensuring that the majority of mothers crucially were well enough nourished during pregnancy to ensure that the progeny and the future population of the country were Were not were not were not stunted. We didn't suffer from the damage of poverty Before they were even born It says in one of your biographies and i quote he has worked in executive development with several major corporations What kind of advice do you give them? I I had the privilege of working with bp During the john brown The earliest engagement of an oil major with the carbon problem in the late 90s bp was Chose to it. It was part of its strategy for entering the u.s. Market was to differentiate itself from exxon by embracing the climate problem and so John brown who was a highly unusual ceo Decided to set up a bunch of boot camps for the leading 300 people in bp, which I guess had about 100 000 employees So these were very senior brilliant people Who would spend a week in university campuses around the world and one of the weeks they would spend was in Cambridge, so we worked through the entire leadership team of this oil major And our job was to unsettle certainly the Cambridge camp. Our job was to unsettle their familiar frameworks. So Um, and this you know, the the questions were political ethical. How do you think about your license to operate? So I used to run just to give one example Uh a session which started with a series of slides which were american bombing aerial reconnaissance of a chemicals plant in um, Silesia And I would fly them in still by still until they suddenly realized that we were looking at Auschwitz And they were looking at a chemicals plant and they had recognized the chemicals plant first because they're chemical engineers And then they realized they were looking at Auschwitz And so the aim of the game was to confront them with the You know the way in which a company like i g farben, which was a world beating industrial firm The best by by a million miles, you know, hugely superior to dupont in its technology noble prize winners on the board right left and center However, how a totally cosmopolitan globalized company So not by any means an obvious supporter of german economic nationalism how it could end up building The largest chemicals plant in europe at the time at Auschwitz um And that was the sort of challenge that I wanted to confront them with because we have to take seriously that you know the historic responsibility Of giant capitalist corporations and most of the time, of course, their activities are quite innocuous But but not always and their impact and their footprint is huge And they can find themselves in situations which which burden them with vast historic responsibility as i g farben did And and we happen to know a lot about i g farben because of the nirnberg trials And so I wanted to I wanted to you know, it's kind of like a case study that would blow their minds permanently um And that it actually was hugely I don't mean this at all cynically It was an incredibly productive exercise to watch them struggle with this problem But then to scan their own activities and think about where they might be engaged in various sites of bargains Because we can get inside the heads all of the i g farms Corporates wrote rather introspective accounts afterwards when they were in jail waiting trial um So we can really quite we can get quite deep inside the psychology of the decision makers who who've made those disastrous decisions So that was one of the sort of thing that we were doing and it was it totally changed me I mean it turned me Turned me into a global historian because I was a rather parochial europeanist And and then I met these people who were operating this global company whose vision was far wider than mine not academic but like vastly wider And um that really shocked me um before covid hit. I was working on a book on climate and I will go back to that um, but um But in so doing I was really for me reconnecting with a set of questions that I first addressed 20 years ago under the impact of working with these with these people Let's say a good friend comes up to you and says I've never been to germany. I have two free weeks. I want to go again. This is without corona virus Where should I go? What do you tell them? You know the country? Well, yeah The first thing you'd say is it's an enormously varied place and it's very big And you really want to get a you want to get a range of experience And I grew up in in beautiful sunny provincial heidelberg and it's pretty difficult to recommend anywhere more highly than that for The tourism and to kind of get the dulcimita kind of sense of Of germany But it would also be of course crucial to visit a city like a hamburg or an essin or berlin Berlin would be the city where if the universities could offer, you know, the sorts of terms and conditions And and facilities that american universities do I would probably most like to live and work That is not the situation unfortunately of the german university system Um, but it's a extraordinary city. So it would be a varied tour My wife who works in the travel business and she has her own travel boutique travel company We were planning a trip that has just been cancelled unfortunately that goes from berlin to dresden To proud to Vienna. So a sort of a central european tour with a Historic theme and the best vineyards that we could find of central europe along the way. I would say travel get on the train Unless you're a car nut and you want to experience the freedom of driving a poor ship, you know 200 miles an hour, which you can do if you do it at 2 a.m The roads are clean enough and they're smooth enough. But other than that ride the train sit in a An ice going at absolutely no kidding 200 miles an hour powered by solar power And and watch your coffee not even vibrate. It's absolutely stunning They have to put speed amount speedometers into the trains to make people aware of how fast they're going You could you watch the cars on the interstate and these are unspeed limited interstate just you zoom past I mean you're going faster than a ferrari or a Porsche flat out And you can literally sit there and your coffee doesn't move and then compare that of course with the experience of your average and track ride It's it's the the way to do it travel that travel the country see the countryside Do the extraordinary variety of Landscape and culture because it is it's an incredibly heterogeneous place one of the bizarre projects of german nationalism was to weld it into a uniform Country which it just it just doggedly refuses to be it's catholic and Protestant It's both rural and intensely urban So experience that diversity it is one of the great underrated tourist destinations certainly of europe Very hospitable What's your favorite item in german food So there's a lot of familiar ones. I love sauerkraut But I grew up in in the south in the southwest and one of the specialties there is is a kind of ravioli called maltaschen So they're made with spinach meat filling and they look like giant overgrown somewhat in elegant elegant ravioli and you have them in a in a stock generally And that is that is wonderful comfort food Um The salads in the area where you grew up. I think are fantastic I don't know the flour-based salads the mushrooms. I mean, it's not much about them, but often better than french food I think oh well the rye valley. I mean it's in you know Alsace, you know, it's a merger if you go if you go to Alsace Lorraine, of course the The local culture is is actually I mean the french now call it alimatic But it's just german. I mean german with a strong dialect So that entire region of the upper Rhine Towards the spist boundary that corner between france, germany and switzerland the standard of living there is just I mean, it's delicious that entire zone Either side of the alps really northern Italy the same that the standard of living is is unbelievably unbelievably high Yes, and the food and wine are Wonderful and the final question. Let's say you meet someone who might be a future historian How do you spot excellence in that person? What do you look for? um two things The thing the thing that you're really looking for is that you're looking for somebody who loves to read And and then you really want to know how they read and you're looking for a combination of somebody who you know Has an awareness above all I think because after all history is I'm not I'm not going to say it's not a social science But it's more than a social science because it's also a literary discipline So you're looking for somebody who you can see um Frankly, you know our conversation has had the feel of a historian's conversations We started out with economics and we've ended up in a very different place But it's you're kind of looking for that combination of analysis on the one hand, but then also an awareness of the way in which arguments are made in language And how they're framed in writing and an ability to read through and around that so Interpret if you if another way of putting that same point would be an awareness of the function the active function of interpretation So I'm looking for a student who can say well x is view of problem y is z And that argument z they're making is different from a's view of problem y because a's view of problem y You know is whatever i'm losing by running out about w right so an ability to as it were triangulate between The subject the subject matter that's being discussed the point of view of the observer of that subject matter And then the type of argument they're offering that connects the two and that triangulation is Is crucial for sophisticated history writing and the more self-consciously one can position oneself in that triangle Who am I in relation to my object and what is the nature of the type of argument that i'm making? Which is of course, it's a you know one sense to say it's subjective But in fact it's a repertoire of arguments that are available to everyone thinking about that problem That's that's what you're really looking for in somebody who's interested and serious about history Adam twos. Thank you very much. Take the best of care up in new york, and I hope we're able to meet sometime Yes, so do I it would be great pleasure. Thank you very much for the conversation