Saturday, April 12, 2008

Economists vs. Accountants: The Duel!

So I’m at this party, a cocktail one I suppose, since cocktails are being made by a couple of sultry Japanese hired help who giggle awkwardly upon mention of anything other than beer before rushing to the cocktail recipe book. I promptly decide to suppress my urge for a cucumber martini and opt for sparkling water instead.. no ice.

“Careful with that, I won’t take you home even if you begged,” says a voice behind me… male. I turn around. Not my type but hey! So we begin the usual party chitchat and within five minutes I know about his favorite martini, his 400 New York friends and his flashy BMW—“courtesy of my employer.” He? The sales rep for a major European cosmetics company. Me?

An economist, I say, expecting the typical bland look followed by a question on the stock market. Au contraire. What I get instead is a smartass laugh and… “a quote I just read, that an economist is someone who is good with numbers, yet lacks the personality to be an accountant!”

Ha ha.. NOT funny! I mean, don’t get me wrong, I would have laughed my head off had the “thesis” come from an economist. But anyone else??… It calls for a duel! Yet, stunned by the need to defend the… obvious (?), I stood there speechless. No… worse! “That’s right,” I said, “I spend my evenings playing with currency models while you’re trying night creams.”

Yes, that didn’t take me far. So that very night I decided to put aside my models for once and collect ammunition instead. Here it is:

1. The celebs: Let’s talk personality first. Think of Adam Smith, renowned political economist of “invisible hand” fame. David Ricardo, the precocious speculator, forerunner of “classical economics” and author of the theory of “comparative advantage.” John Stuart Mill, the influential liberal (and feminist!), free-marketeer and “utilitarianist,” advocating the maximization of (higher, intellectual forms of) happiness. Karl Marx, the father of communism; John Maynard Keynes, the prominent interventionist calling for an active government role as the solution to economic downturns. Joseph Schumpeter, the “creative destructionist.” Milton Friedman, the “freedom fighter.”

You’ve heard of these guys, right? Some of them? Scratching your head? Fine, just wait until you hear the accounting “superstars.” “Father of accounting” Luca Pacioli, a wandering Franciscan monk and author of the first written description of double entry bookkeeping (in 1494). Josiah Wedgwood, an 18th century potter(!), leading figure in the Industrial Revolution and “inventor” of modern cost accounting . The “legendary” Abe Briloff, “philosopher-king” of accounting today and ardent advocate of ethics, rectitude and high standards in the profession. Kenny G! (apparently an accountant before gaining global renown as the composer of ultimate cheese!). OK, I’m struggling here.. someone help?

2. The parties: Perhaps not the right benchmark for a good party, but economists’ gatherings are much (much) more exciting than those of accountants! Think Jackson Hole, the annual economic symposium and a prime occasion for spotters of policy wonks, academic nerds and Wall Street VIPs (paparazzi please attest!). The WTO Ministerials, where trade negotiations (purportedly) in the name of free trade have invariably raised the passions of thousands of hot-blooded protesters. Or Davos, the glitzy ski resort and seat of the World Economic Forum—an event so glamorous that even Angelina Jolie turned to an economics cause (the plight of refugees) to get an invitation. Now, just try to invite Brangelina to a conference of the American Institute of Certified Public Accountants! (A bit sneaky on my side perhaps, but this is a photo collection from what seems to be a typical accountants’ party!)

3. The scandals: One must admit, there have indeed been occasions when accountants have managed to steal the limelight: Accounting scandals! From Enron to Tyco to WorldCom to the many more instances of auditing negligence and/or abuses, accountants managed to grab their few “seconds” of front-page fame, together with the collective abhorrence of the victims, who saw their pension savings evaporate as the firms’ stock plummeted (and so did their 401k’s).

That said… economic “scandals” (we prefer to call them “crises”) have arguably been far more sensational! A fresh example is the subprime-mortgage crisis that has been unfolding in front of our eyes since last summer: The stock market losses that have accompanied it have been staggering: The market capitalization of the S&P500 Index has dropped by 1.7 trillion dollars—a rather hefty destruction of wealth, equivalent to 12 percent of America’s annual product (or GDP). Not to mention the wealth losses from the calamitous decline in home prices and the millions of those affected. Not really something to boast about, but, remember, the criterion here is headline-grabbing! Besides, as economists will tell you, “it’s not our fault!” Better yet.. What they’ll say is “I told you so!”.

4. Our “issues”: What would you rather daydream about… how to fill out your 1040 or how to spend that $600 tax rebate that the government might be mailing you, come May? Exactly! Unlike accountants, who will bore you with tax talk, economists prefer to banter about tax stimuli! A far more exciting topic, and it's not just semantics. Debates about the nature and magnitude of a tax stimulus package tend to be “electrifying,” as economic efficiency is traded off with political expediency: Temporary refundable tax credits or permanent tax cuts? Target everyone or just the lower-income groups? Aim at boosting consumption or investment? And, crucially, how big a package? Questions that, I’d say, dominate the details (however important!) of how to file short vs. long capital gains for tax purposes.

5. Our philosophy: The differences go beyond tax banter, however, to a more fundamental level. Think of the concept of “cost,” as simple as it sounds: Let’s say you go and buy an I-phone for 400 dollars. When I see you showing off your new gadget, I ask you “how much did it cost you?” and you say “400 bucks.” You know what I’ll say? I’ll say, “I’m sorry to tell you, but you were born to be an accountant!” You see, economists don’t think in terms of the “accounting cost” (those 400 bucks) but in terms of “opportunity cost,” i.e. the cost of missing out on (better) alternatives by spending your $400 on an I-phone—be it a fine dinner with a beautiful woman or a well-informed investment in the stock market. And when it comes to efficient allocation of our (scarce) resources, economists’ perspective wins this one big time!

6. Our profits: An extension of our differences over cost is our concept of “profit.” Accountants will measure profit as revenue minus cost, which, as I’ll show, is somewhat misplaced. Say I quit my job for a year and move down to Tulum to write a book about how thrilling the economics profession is. I live in a cheap beach hut, fish for my food and contain my entertainment to daily strolls through dilapidated Mayan temples, so that for $5,000 a year I can live like a (beach) queen. As “production” completes, an unlikely publisher emerges and the book gets published. You guys go out and buy three copies each (a fine investment!) and I end up making $50,000 out of the whole thing. Great job, you say, you made $45,000 of profit. No, my friend, I’ve just made an economic loss—for good or for worse, I could be earning a bit more spending my days (and nights) playing with currency models in New York.

7. The pick-up lines: Not convinced? Think dating! Once again, differences between accountants and economists are stark, with one fuzzy exception perhaps: Their respective pick-up lines, where I confess I’m having a hard time deciding the winner. I mean, would you rather go for “baby, let me withhold you!” or “I’ll be capital, you’ll be labor, you know the rest”? So I’ve decided to cheat.. only a little bit. Heard of John Nash? Famous mathematician and inventor of the Nash equilibrium, widely used in game theory? (You got it, the “Beautiful Mind!”). At the risk of receiving threat mail from mathematicians the world over for downgrading him to an economist (though he did share a Nobel prize in Economics!), I’ll borrow the line that he was made to say in the movie by screenwriter Akiva Goldsman to Alicia, his date and, eventually, wife (one of the funniest I’ve heard, but don’t get ideas, it only works for geniuses!):

“I find you very attractive. Your aggressive moves toward me indicate that you feel the same way. But still, ritual requires that we go through a number of platonic activities before we ….have sex. I'm simply proceeding with those activities. But in point of actual fact, all I really want to do is have intercourse with you as soon as possible.”

8. The dating: Despite their purported expertise in “dual dating,” accountants can be a pain to date. First of all, it’s darn hard to even find an accountant to date: Nobody admits to knowing an accountant, let alone being one (“no no, I’m a tax consultant”)! And in the rare cases when you do get hold of one, just try to set a date with him/her before April 16th. Taxes come first, it seems.

Economists, though.. oh no.. they won’t miss a single opportunity for a bit of making out (or, more accurately, the expectation thereof)! Whether in between meetings, in the taxi to the airport or pressed for time to deliver a critical presentation by 12 midnight, they will still make a move—“on demand” or not—even whilst you’re in the middle of discussing the impact of the Sarbanes-Oxley act on American competitiveness!

9. Après dating: So let’s say it all went well.. pick-up line worked, conversation rocked, move was accepted. What next? Given my limited experience in the field, I’ve decided to report the “gossip” as told by those at the frontier of the "professionals-in-grey-suits" dating scene. Accordingly, accountants do it “by the book,” though they often also do it “with double entry” and “without losing their balance!” Economists, on the other hand, do it “with interest,” will never miss “the bliss point” and, importantly, know how those “yield curves” respond! Your pick!

10. So… Economics or Accounting? You can tell, I’m running out of arguments! So in my quest for a proof as to which profession dominates, I decided to seek advice from, an online discussion group about college admissions and career choices and (according to itself) “the most prestigious college admission discussion board in the world.” Apparently, someone else had asked the question before me:

“Hi I'm trying to decide whether I want to continue pursuing my economics major or change my major into accounting. […] My main concern is the difficulty of getting a job as an economics degree after graduation , whereas with an accounting degree, it wouldn't seem too difficult. […] Can anybody help me with this decision? […] I’m very lost!”

I won’t “ruin” it by giving out the verdict. All I can say is keep on scrolling down, it gets better and better!

Glossary: accounting vs. opportunity cost, accounting vs. economic profit, invisible hand, comparative advantage, dual dating, beautiful minds.


Anonymous said...

This was a great post. Some fodder for the next one:

An accountant is someone who knows the cost of everything and the value of nothing.

An auditor is someone who arrives after the battle and bayonets all the wounded.

A banker is a fellow who lends you his umbrella when the sun is shining and wants it back the minute it begins to rain. (Mark Twain)

An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today.

A statistician is someone who is good with numbers but lacks the personality to be an accountant.

An actuary is someone who brings a fake bomb on a plane, because that decreases the chances that there will be another bomb on the plane. (Laurence J. Peter)

A programmer is someone who solves a problem you didn't know you had in a way you don't understand.

A mathematician is a blind man in a dark room looking for a black cat which isn't there. (Charles R. Darwin)

A topologist is a man who doesn't know the difference between a coffee cup and a doughnut.

A lawyer is a person who writes a 10,000 word document and calls it a "brief." (Franz Kafka)

A psychologist is a man who watches everyone else when a beautiful girl enters the room.

A professor is one who talks in someone else's sleep.

A schoolteacher is a disillusioned woman who used to think she liked children.

A consultant is someone who takes the watch off your wrist and tells you the time.

A diplomat is someone who can tell you to go to hell in such a way that you will look forward to the trip.

alex i said...

obviously you were a economics major in college so you are incredibly biased. jesus christ ive never seen a more biased post in my life. theres not one fucking thing that you said about accounting that is good. are u serious kid? accounting is fundemental in business, how can u not no accounting and be a economists? dont be stupid sir, is that why every business major requires you to take a minimum of 2 acct. courses. how do you exepect to interpret financial statements. kid..... u shouldve opened your post stating that you were a econ grad because you obviously are. and dont be so quick to think that econs pull more bitches that accountants because thats false. more than 85 percent of every econ major i know is wither a proffesor or working for the government and that fucking sucks bruh bruh. and secondly and lastly an accountant can fuck with economics or any field in business but it doesnt work the same haahaha.

Anonymous said...

It seems many economists can not account.

Accounting is very valuable and used every where. I don't know how one can know any thing about the economy with out knowing a little double entry bookkeeping.

I looked up the number of accounting jobs to economics jobs. If I remember correctly there were about 100 times more accounting jobs.

My degree is in some thing other than accounting or economics. I found that after I took a few economics courses that it explained very little about what was going on and often times seemed to contrary to reality. Also, its predictive powers were useless. Much of basic economics assumes away reality leaving some thing worthless. Can you really assume equilibrium and then predict a change using that model?

So, facing facts that I had taken 3 economics courses and the info becoming more useless in practice I wondered how I could understand better. So, I decided to learn double entry bookkeeping or accounting.

So, what about double entry bookkeeping? It is called the language of business. Some economists say it is worthless.

In learning double entry bookkeeping one learns about almost all types of business transactions, besides learning to properly count.

Case in point; take the broken window fallacy. The broken window is obviously a depreciation loss of physical fixed capital (or fixed asset). It is an expense and loss of net worth before the window is fixed. When the argument about the increase in trade is made the previous loss is not mentioned.

You might say, "Ah, hah! Your only counting the baker's economy, not the whole system!" If you want you could do double entry accounting for every entity involved, the baker, the repair man, the window breaker, the tax man, and the by stander. Then you would need to know double entry. Hence, you would know a lot more about economics. But, the baker's depreciation is sufficient.

By the way the bystander's explanation is that a cash flows are good for every one no matter what for. The account would instantly see that net worth has decreased.

Since you mentioned 401-Ks. How will you make any good decisions or avoid buying worthless turkey stocks if you don't understand double entry bookkeeping?

accountants in atlanta said...

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drupal developer said...

You have some points there,i also get where you're coming from these two are really a different profession they have their strengths and weaknesses too so there's no need really for comparison..But it was an enjoyable post to read though..