I do sometimes wonder if conventional economists inhabit the same world as the rest of us. Robert Skidelsky's article in the Financial Times on 14 October is typical. It summarises a debate between economists who favour cutting fiscal deficits against those who want to keep borrowing at record highs.
Rather surprisingly, it favours the latter. Not a whisper on what that borrowed cash might actually be spent on, or indeed how value for money for any investment, public or private, can be assessed. It's like being a football manager and being told how many players you're going to have – but nothing about their skills and ability.
The entire lexicon of economics is based on the ludicrous mechanistic metaphor that an economy is just gigantic plumbing, with money like flowing water: aggregate demand, crowding out, fiscal stimulus, etc.
For example, the 'crowding out' agenda is based on the assumption that public spending is often wasted. Now, it probably is - but so is much private investment. Examples are the dotcom boom, massive property bubbles in numerous countries, and mergers, most of which fail. All this activity is encouraged by perverse incentives in investment banking.
The most useful contribution to economics this year came not from the economics profession but from Rolls Royce, which produced an audit showing an analysis of the wider impact of a high-skills export industry. Politicians, investors and economists need to embark on this type of analysis, and support this type of specialist business cluster.
There is now a body of knowledge indicating how to reduce waste in public and private sector investments, and generate sustainable economic growth, but economists prefers to remain aloof from this necessary discussion.
Formal economics has failed an entire generation. It is little more than macro scale bean-counting.
Read more from Phil Whiteley at http://felipewh.wordpress.com
