I WAS told I was a bit of a geek by a journalist for an English newspaper this week. I accepted the accusation. It was, of course, why she was talking to me. Being a geek is no bad thing.

In this case the accusation arose because I was discussing the interaction between macroeconomics, microeconomics, and accountancy. Macroeconomics relates to the economy of a country as a whole. Microeconomics looks at the affairs of individuals and firms. And accounting is all about how we record what has actually happened in an economy.

Except, and I have to be candid about this, that is not really what accounting does these days.

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Only a week ago, I was talking to the finance director of a quoted company whose gripe was that the accounts their firm was required to present to financial markets gave a view of its affairs that was so different from its management accounts that they found it almost impossible to equate the two. Their concern was that so many of the numbers in the supposedly true and fair accounts that the auditors were willing to sign off were ‘made up’ on the basis of economic formulas and what they considered to be unreal assumptions. They were concerned that all sense of reality had been lost in what remained for the markets to use.

That matters. When finance directors don’t recognise their own companies within the accounts that they have no choice but sign then, unsurprisingly, the risk for investors grows considerably. No wonder we have had so many companies fail in recent years very soon after their auditors had signed their accounts off as true and fair.

But there is more to my concern about the relationship between economics and accounting than that, troubling as that aspect is. As a relatively rare geek who has some experience in all three disciplines I have referred to, I am also very worried that economics pays little or no attention to accounting.

Accounting is based on double entry. It appreciates that for every action there is a reaction. So, a sale eventually results in an increase in cash, for example. And taking a loan might increase cash balances, but accounting also records the fact that the loan must be repaid. By requiring this the books always balance in accountancy. More importantly, we see both sides of transactions.

Economics does not do that. Most especially, macroeconomics does not do so. It is riddled with completely bogus figures that are posted as single entries in reports issued by the government that are meant to be used as the basis for decision making and which are totally false.

Let me offer two examples.

One is that the UK’s national debt is overstated by more than £260 billion. This, it is claimed, is the Bank of England’s contribution to the national debt. But when you go to the Bank of England’s accounts there is no such figure on there. It arises solely because the UK Office for National Statistics, which makes up (I use the term advisedly) this figure refuses to recognise that the money in question is matched by money owing to or prepaid by the Bank of England (below).

The National: The Bank of England in London

Accounting recognises those prepayments and loans made by the Bank of England to be assets. That means that in net terms for national debt accounting purposes that there is no net liability owing, at all. However, the Office for National Statistics refuses to recognise those assets. The figure for the national debt is overstated by 12.7%, or one eighth as a result. That is a massive misstatement.

The Office for National Statistics does the same thing when it comes to gross domestic product, or GDP, which measures UK national income.

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This is, supposedly, £2.35 trillion right now, but it isn’t. That’s because what they never say out loud is that this figure includes about £231 billion that supposedly represents the rent UK’s owner-occupiers of houses pay to themselves to have the right to live in their own properties. The only trouble is, no such sum is ever paid. That number is completely made up.

It is a wholly bogus accounting entry to supposedly make our data more comparable to that of countries like Germany, where more people rent. But that does not avoid the fact that in the meantime we live with a wholly bogus, over-inflated figure for income that makes any data based on GDP almost meaningless when that figure for GDP is overstated by almost exactly 10%. That is another massive misstatement.

What’s the result? It seems that economics is corrupting accounting by requiring that bogus figures that finance directors do not recognise be included in the accounts of companies. And economics is ignoring accounting so that figures for national economic performance are as bogus as financial accounts are right now.

What are the lessons to be learned? First, accounting should stop trying to be so clever that no-one is capable of being sure what is true. And second, economics needs to be based on proper double entry accounting so that it does tell the truth. Then we might get some decent economic management, all round.

Until then, no wonder we’re in trouble. You cannot manage an economy or a company on the basis of bogus data, but that is what we are trying to do.

It takes a geek to point that out. And a geek to say Scotland will need to do better than this.