IT was nearly 10 years ago that I completely lost faith in what’s called neo-classical/neo-liberal economic thinking. That wasn’t easy as at university the neo-classical approach was presented as the only option. Everything else, we were told, was old fashioned: quaint ideas with no place in the new economic reality. Back then it seemed the human race had had an epiphany and the evolution of economics had ended. We had unlocked the secret to economic success. People really believed that and Gordon Brown even announced that he had delivered “an end to boom and bust”. The halcyon days of economics – or was it just a halcyon daze? Many bankers (of the casino banking mindset) even started referring to themselves as the masters of the universe, not realising the moniker was originally intended to be sarcastic.

Watching personal debt and house prices rise unchecked, I was worried the economy was becoming unbalanced. Growth was driven by consumer spending, credit cards, store cards and easy access finance at levels I just didn’t think were sustainable. At one meeting with a leading member of the Bank of England Monetary Policy Committee I pleaded for interest rates to be increased to curb consumer lending, for higher inflation and a weaker pound to curb imports and improve the balance of trade.

“People owe too much and the poor are borrowing at even higher rates of interest,” I said. “No,” I was told. “The retail figures were strong and steady and we have never had it so good”. Personal credit levels weren’t seen as a real economic measure as the market would self-regulate and lending would stop when people and banks realised the repayments were getting unaffordable. I had no idea at the time about the over-investment in the American sub-prime market and when the credit crunch came it papered over the cracks in personal debt exposure.

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The problem is the markets can’t self-regulate personal borrowing any more as we don’t live under capitalism now, we live under a system of global consumerism. They look similar but most of what we buy we don’t need – and most of the things we don’t need, we borrow to buy. As consumer spend drives some 75 per cent of our economy, if people ever realise they are slaves to debt for things they don’t need then the economy will stall in the short term and collapse in the medium term. Then we will know the meaning of crisis.

There are three key factors that could suddenly apply the brakes to consumer spending: 1. A global ecological shift in values away from consumerism and towards sustainability, upcycling and reusing – but that’s probably a medium-term shift. 2. An increase in interest rates that makes borrowing too expensive and forces creditors and home owners to reel in their spending. Highly unlikely now as interest rates are at an all-time low. 3. Unless sterling rallies soon (and with weak leadership, no planning, and uncertainty over Brexit that looks unlikely), the weaker pound will drive up the cost of imports and debt-ridden consumers may decide to hold on to their phones, computers and cars that little bit longer, thus slowing spending, lowering growth in the face of currency rate-led inflation, creating stagflation. Economists are arguing over whether the economy will enter recession (I think it will) but recessions come and go. Stagflation at a time of austerity wouldn’t be temporary, it would be the new normal.

Mark Carney, the governor of the Bank of England (BoE), signalled in early July that we have “entered a period of uncertainty and significant economic adjustment” and announced his intention to act to address economic instability post-Brexit. At the time I said that stimulating the economy through buying bonds and releasing £70 billon into the banking sector whilst reducing reserve requirements to stimulate lending “simply adds to the potential for more personal debt and business debt to be added to an already debt-laden system with a poor balance of payments, whilst reducing bank reserves”. We bailed out the banks already! We need to bail out the people or the whole engine of the economy will seize up.

Pension funds and insurers are struggling with funding shortfalls that are so bad we are way past the point that even panicking would do any good. They don’t want to sell Government bonds and look to the riskier stock market or make loans to a debt-fearing market. It wouldn’t surprise me if the market refuses to sell the Government anywhere near its target of £70bn of bonds unless it pays significantly over the odds.

Even then demand for loans will fall due to falling business confidence, so the stimulus package will fail as the money won’t reach the real economy. If it does work then returns on Government gilts will fall, deepening the already chronic pension-funding crisis. Put simply, neo-classical economics has failed. It has no more answers. Every medicine at its disposal has deadly side effects, so we need a new cure – a new approach to economics.

Try to see the economy as a bicycle with a worn-out chain. Every time you hit a hill it starts slipping off the big sprocket, you lose momentum and can’t go as fast as you need to. Imagine that’s been happening for months. What do you do? Do you spend loads on fancy new brakes, a new saddle, new tyres or mudguards? It’s obvious, right: you fix the bloody chain! Well the UK Government, the City of London and the BoE are philosophically, almost religiously opposed to fixing the chain as their dogmatic belief system says the chain will self-repair. They are in denial because their entire economic belief system has failed.

Fortunately, opposing voices are starting to come through loud and clear. Last week, 35 top economists (via the Positive Money campaign) wrote to Philip Hammond asking him to support a new form of monetary policy. They called for central bank money channelled directly into the real economy rather than through bonds, such as via a citizens’ dividend, housebuilding programme or investment in infrastructure. That’s what I would do with at least £40bn of the planned stimulus, and given the longer-term nature of housebuilding and capital investment versus the immediacy of the citizens’ dividend, the dividend would be the first medicine I would apply.

This week the Scottish Government announced plans to accelerate capital infrastructure spending to create additional support for job-creating projects. That’s a positive step but not enough in itself. It will only treat symptoms, not the disease. We need to discuss, on a global scale, the restructuring of the economy, a new Bretton Woods-style agreement. This is not another run-of-the-mill economic crisis – this is a crisis of economics and we need to redesign and reboot before the system crashes completely and irreversibly. The UK economy is sinking and Scotland needs to man the independence lifeboats and lead the new economic thinking. The best the BoE seems to be able to do is plan to rearrange the deckchairs.