The unheralded decline into economic recession, followed by equally unheralded signs of recovery, provides ample proof, writes Abdel-Moneim Said, that economists must re-master their trade In a few days we will be marking the first anniversary of the official declaration -- or at least the recognition -- of the global economic crisis. It was on 15 September last year that Wall Street crashed. Other American and international financial markets followed like dominoes. Since stock exchanges are only mirrors of the economy, it was not long before major firms toppled, the real estate and automobile markets collapsed, and oil prices plummeted from $147 to $34 a barrel, seemingly overnight. Governments around the world had to concede that their economies were in severe recession. Politicians hastened to add that the global economic downturn was the worst since the Great Depression of the 1930s, a reference that sent everyone searching through history books in order to follow up the comparison, identify causes and predict possible outcomes. Simultaneously the "role of the state" was shaken from long slumber, to the smug satisfaction of socialists and other advocates of economic interventionism who finally felt vindicated after the long gloom into which they had been plunged following the end of the Cold War and the collapse of the Soviet Union. Around that time I vented my anger against economists -- even against economics -- in Asharq Al-Awsat. Beneath the headline "The economists are lying" I lashed out against the practitioners of that discipline, not only because they (apart from a few Cassandras such as Krugman) failed to predict the crisis but also because they had shown themselves woefully incapable of understanding what was happening across international markets. One minute they were spouting explanations in eloquent "economese" to explain the soaring inflation and food crises of the first half of 2008, the next minute they had to backtrack and turn their jargon on its head in order to explain how the phenomenon had reversed itself. Even the Economist felt compelled to ask whether or not economics could still be considered a science. The venerable periodical concluded that it could, at least as far as macroeconomics was concerned. Where it fell short was in the realm of microeconomics. Yet to my mind the problem had less to do with economics than with the ability to come to terms with the sweeping global changes that have rewritten the rules of how the world and its economies work. In addition to the economic crisis, in addressing which economists and their science seemed so inept, we were also brought face to face with the changing ways of the world with growing evidence of global warming. For Egypt this raises the alarming prospect of the flooding of half the Nile Delta. As though this were not enough an impending swine flu pandemic was announced, sending health authorities around the world into a tailspin even before they had come to terms with avian flu. In short, a grim pessimism seems to have gripped the world. Governments find themselves unable to invent excuses for their failures: how, after all, can they be expected to withstand a global crisis of such magnitude? In the Arab world the sharp drop in oil prices had an immediate impact. Sparkling Dubai lost its lustre, literally when it had to dim its lights, less literally as a model of Arab development. Expatriate workers in Arab oil countries returned to their homelands bearing the gloomy news about the declining economies of the countries they had just left. As occurred elsewhere around the world Arab proponents of central planning rejoiced at the unexpected arrival of a new heyday, joining in the chorus of "Didn't I tell you so" that drowned out the fact that the state, here, has never relinquished its central economic role. Just as suddenly, it turns out that the crisis was not as bad as it had been depicted, although the US and the world are greatly indebted to it for ensuring the downfall of the Bush administration and ushering Obama into the White House. We can also be grateful that the downturn will not last as long as the Great Depression. In fact, by the end of the last financial year China and India were firmly back on track, with China recording an unprecedented 14.2 per cent growth rate in the last quarter of the financial year. Germany, France and a number of Asian countries have also begun to emerge from the crisis and show positive growth rates. As a result oil prices started to rally, reaching $76 a barrel in response to growing demand. Even the US, which still lies at the heart of the global economy, shows all the signs of immanent recovery. The stock market is back in swing, unemployment figures are heading back down, and companies that had filed for bankruptcy look capable of repaying their debts. The spectre of a second great depression has been laid to rest, which confirms -- happily this time -- the inability of economists and their science to predict, let alone decide the outcome of, the global economic crisis. This is largely a product of their failure to fathom the economic and technological changes that have swept the contemporary world, particularly those connected with the movement of the components of production. The world is no longer living in the 1930s. In today's world it is Beijing that has proved its ability to boost domestic development in a way that has expanded levels of production and consumption in the Chinese market, thereby pulling China out of the crisis. China is not alone in performing this feat. It has been joined by India and a number of other Asian countries. They instituted fiscal reforms shortly before the crisis struck and were therefore poised for a spurt of economic growth. As this was then impeded by the recession in the US and European markets, they had to search for new markets and new consumers, to which end they turned inward and came up with measures to stimulate the domestic economy. The various bundles of incentives that governments produced performed the required task of generating the necessary financial liquidity to stimulate the circulation of capital and investment. Occasionally, phenomena which at first glance seem ominous have unexpectedly positive results. The return of some Egyptians from Arab or other foreign countries where they had been living brought an injection of enough liquidity to invigorate the investment, tourism and housing markets, offsetting the losses that might have been incurred as a result of the global economic downturn. Whereas international financial institutions predicted that Egypt would achieve only a 3.2 per cent growth rate in 2008-2009, in fact it registered 4.7 per cent growth. Much of this was due to a boom in construction -- up 14 per cent -- with the largest proportion of new building focussed on family homes. The rest of the growth rate was triggered by government incentive packages and foreign investments to the tune of $8 billion. I am not suggesting that we should dump economists and consign economics to the rubbish bin. Economists clearly have the potential to perform the very useful task of discovering how the new mechanisms of the global economy work. As a starting point, they might investigate the reasons behind their own failure to produce accurate economic predictions. The eruption of the economic crisis last year, and its unexpected ebb, underline the urgent need for economists to overhaul their current models, refine concepts and broaden their awareness of all the variables involved.
