Experts fail to spot economic oddities

Developments in the world economy in recent years are weirder than even the most bizarre episode of Doctor Who. Strange things are happening yet many experts seem unaware of their significance or prefer hiding behind the sofa to discussing them.

This reluctance to grapple with peculiar developments is particularly odd since most of them seem to be benign. There are no economic equivalents of the Daleks or the Cybermen waiting to exterminate those who investigate their presence.

Perhaps part of the explanation is that anyone who is less than middle-aged probably takes many of these trends for granted. They have become used to a world that, in historical terms, is highly unusual. Even those who are older have probably partly forgotten what a more “normal” world economy looks like.

To list some of the key recent developments:

The “great moderation” or “the great stability”. This topic is discussed in more detail in this week’s news analysis (see Great economic moderation invites broad consensus) and last week’s comment (see Global stability needs explaining). Whereas the world used to be subject to violent fluctuations every few years, the economic cycle has become far more muted since the 1980s.

Corporations have become large net savers (see IMF predicts excessive corporate savings to continue). Whereas in the past companies typically invested substantial amounts and often borrowed cash to do so, today they are saving huge amounts. The International Monetary Fund estimates companies in the developed world made $1.3trn (730bn) of net saving in 2003-4 alone.

The poorer world is subsidising the rich world, with massive capital flows from East Asia and the oil-producing countries into America. Normally it would be expected that capital would flow in the opposite direction.

The world is remaining stable despite huge global economic imbalances. Generally a sharp readjustment would be expected with the American current account deficit at such a high level.

On the whole, the developing world is growing rapidly. The term Brics has become widely used to refer to the rapidly growing large emerging markets. It is easy to forget that for many years the third world, as it used to be called, suffered from widespread economic stagnation.

The combination of these factors begs several questions. Perhaps the most obvious is whether the benign performance of the world economy is sustainable. The answer to that question depends in turn on what has brought the present positive circumstances about.

Answering such questions is a difficult intellectual challenge. The current features of the world economy are unprecedented. But the answers will never be found as long as those with an interest in such things keep on hiding behind the sofa.