Sounds like we have more than one religion in our modern society with their distinct rituals and incantations.
“Have you ever SEEN google?”
“How do you know He is real?”
The modern atheist. (A joke)
Perhaps it would be fairer to say we have a pantheon and each of our Gods a different priesthood studying different scriptures, or different focuses of the same scriptures.
The Medicine Men, the Beancounters, the IT Department, the Lawmen, the Brokers and all the other professions which act as a transactional cost for doing business, who communicate primarily via standardized forms, and who try to keep evil specters from haunting you.
True: there is also the Insurance Man to keep happy, and the bankers that are looking to lend you money want statements that say lending money to you isn’t a financially ruinous proposition.
But really, mostly to make the Taxman go away. If Uncle Sam finishes his colonoscopy so thorough that you’re still getting the taste of rubber off the back of your tongue a few weeks later and only charges you a couple hundred dollars for his time, that’s about the most you can really hope for.
God is closer to being real now more than any other time. Certain forms of prayer work now! Pleas sent on social networks occasionally (and capriciously) effect dramatic changes in peoples lives.
Do you know why you can't beseech the oracle, "O wise Oracle, <insert query here>?"? Because it only responds to "Hey google..".
MMT advocates would oppose quantitative easing. If you buy into their fantasy-land worldview that the government isn't financially constrained, the central bank purchasing government bonds is an asset swap.
Yeah, both sides of the political aisle seem to have embraced MMT. Of course, when they're out of power the GOP is critical of deficit spending that they weren't critical of just a few months ago when they had the power.
GOP presidents have exclusively been deficit spenders starting with Reagan, who reversed the decades long trend of paying off WWII debt and handed off a massive expansion of the national debt to GDP ratio after his terms.
I believe Clinton is the only president in the past 50 years who has ever presided over a government surplus.
Wow, I didn't realize how rare it's been for the Senate and the House to both be Republican. Only 7 times since 1955: 104th-106th (1995-2001), 108th-109th (2003-2007), and 114th-115th (2015-2019).
(To be fair, during my lifetime, that's been about half the time.)
Yeah after FDR in the 40s, the Democrat party enjoyed a long regime of dominance. That trend didn't reverse until Reagan in 1980 and it would still take a decade or so more before that shift began to reflect in state and local elections as well.
What's funny about the internet is that all these heterodox theorists keep popping up in my news feed, but I almost never get to see an article about mainstream theory.
I don't even know what theories are mainstream today. All I get is goldbugs, Austrians, communists, anarchists, this MMT stuff, and all, other sorts of people who need to rant on the internet cause they cannot get a word in amongst their peers.
Unfortunately, that is the end game of our current trajectory whether it works or not, we will soon find out. U.S. government just distributed $2 trillion and there's already talks of printing and spending another $3 trillion.
I've listened to many arguments about MMT and everyone who supports it boils down to the theory that if governments can just tax enough to hold off inflation they can spend as much as they want, and deficits in your native currency don't matter as long as inflation is unaffected.
The definition of inflation has gotten conveniently flexible. We see stock, real estate, healthcare, and education prices rising while some goods and services have gone down.
I think some of the deflationary pressure is from technological innovation (for example, a mobile phone does everything that thousands of dollars worth of equipment would do 20 years ago). Some of it is due to the deflationary pressure of globalization and the exportation of goods production to less developed countries (namely China). That trend won't last much longer though as those countries become more affluent (if it hasn't already reversed).
At any rate it seems when inflation does occur, MMT seems to think that governments can and will levy higher taxes at will to stem it off. And will subsequently lower taxes when inflation subsides.
I've rarely seen the government willfully lower taxes if they have a surplus. And I've rarely seen a politician run on a platform of raising taxes at will. It seems like such an unworkable theory in practice that it should be dismissed outright. However, we've already spent ourselves into a corner and we have massive deficits that are going to drag on our economy for a long time. So the MMT theory is alluring, as it allows for a level of irresponsibility we have not previously seen before. I don't predict this ends well, but I still see it as the last hail Mary of the fiat dollar regime.
It will either lead to a golden era or cause a world of hurt and pain.
> The definition of inflation has gotten conveniently flexible. We see stock, real estate, healthcare, and education prices rising while some goods and services have gone down.
Stock and real estate prices are assets, so have always been excluded from definitions of inflation, they're essentially inversely proportional to the interest rate. Rent (or the owner's equivalent rent) is included in CPI.
I share your concern about rising healthcare and education costs though, but that is largely a political choice - other developed countries are able to provide them for substantially lower proportions of GDP. (Healthcare costs will inevitably increase over time as countries populations age, but other countries spend much less on healthcare and achieve better outcomes.)
So, i agree with some of the MMT observation, but not the main tenet (so i might have missed something tbh). To me, like for MMT, hyperinflation is not caused by money printing (this "theory" is really not supported by the facts), but against MMT, to me that does not mean that not printing money doesn't cause inflation. But money printing is not the main inflation lever.
Also, to me, taxes have nothing to do with inflation control. Or maybe it helps, but it is also not the main lever. From what i've tested anyway.
Production deficit is creating inflation. Every single country that went through hyperinflation saw a deficit in production the years prior and wasn't self-sufficient in food and/or basic amenities. And normal inflation is close to the same. Inflation comes when the production is strained: it was the case in the 30s, it was the case from the 50s until the 70s, it is still the case in China.
This can be caused by a positive effect (people are hopeful and want to consume more than what is actually produced and/or sold) or a negative one (drop in production, or in price of an asset/ressource that a country exploit heavily and use to buy food and amenities).
I don't think money supply have a huge impact on inflation, except maybe on asset inflation? Anyway this will be the MMT crash test.
> I think some of the deflationary pressure is from technological innovation (for example, a mobile phone does everything that thousands of dollars worth of equipment would do 20 years ago). Some of it is due to the deflationary pressure of globalization and the exportation of goods production to less developed countries (namely China). That trend won't last much longer though as those countries become more affluent (if it hasn't already reversed).
The three main drivers of deflation:
> But Inflation is not inevitable. There are numerous countervailing forces that have been at work for much of the past 50 years. The three big Deflation drivers: 1) Technology, which creates massive economies of scale, especially in digital products (e.g., Software); 2) Robotics/Automation, which efficiently create more physical goods at lower prices; and 3) Globalization and Labor Arbitrage, which sends work to lower cost regions, making goods and services less expensive.
"and everyone who supports it boils down to the theory that if governments can just tax enough to hold off inflation they can spend as much as they want"
It doesn't boil down to that. That's looking at it from the wrong angle.
The line is that to spend there has to be something to buy. If it is available to buy and nobody else wants it, then why not bring that item into use (largely the unemployed). Spending stops automatically when you run out of things to buy priced in your currency at a price worth paying.
If you see somebody talking about raising tax rates and lowering tax rates in relation to MMT on a counter stabilisation basis, then that person either doesn't understand MMT, or you've misunderstood what they are saying.
The primary stabilisation mechanism of MMT is the Job Guarantee and the secondary one is government demanding a lower price for goods and services it purchases, which it can force on people because otherwise the system will run short of spending.
Taxes are a very distant third or fourth in the control stakes. In MMT they are essentially a garbage collector. There to ensure we don't overcommit the system.
This. The article essentially says, "here are a bunch of place people expect sums to add up, what if they don't have to". Fails to propose its own falsifiable theory in exchange.
This is similar to folks who say "Western medicine makes mistakes, so you should try the healing powers of crystals." The point of science is that we know it is wrong, but try to make it less wrong all the time. Economic thought definitely isn't always scientific, but this essay doesn't help.
I know exactly what they are talking about. Accountants nudging their way into shit they aren't qualified to weigh in on. Because they see dollars signs attached and have somehow been allowed to take a seat at the helm of a company or sphere of influence they nag at engineers and insert themselves into product design. Their only contribution is to bitch about why this or that material costs so much.
Yeah, the accountants cracked the case...we can finally ignore the aviation engineers. Whoops...plane went down. Engineers fault.
He is right, sigh, in his meandering rant (as a CPA) that you could argue accounting has wandered a bit.
The SEC clamping down on "non-GAAP" KPIs (even though a Nobel was won for the concept) represents that tension. Further there's a professor at HBS and I believe he argues certain network effect heavy tech companies they have negative depreciation (book value incrases with scale and time, versus say anything else which almost universally declines or at best stays flat). Negative depreciation implies the current tech P/Es are more sensigle, which in and of itself is an interesting phenomenon that arises from the professors work.
So the author is dabbling near some interesting currents, but unfortunately missed the mark here.
Weird. I assumed he was just working at places with unusually thick-headed and over-respected accountants, but then I got to this part:
>The accountants, however, were more worried about the abstract and frankly imaginary concept of depreciation that would come from us technically now owning these assets and them losing 10% of their value per year on paper. This theoretical drawback was seen as more important than the real-life cost-effectiveness of being able to win revenue for the organisation with this logistical cost stripped out. Compared with €600 per month, 10% of the value being lost off each car each year would only have amounted to €300 anyway!
... and remembered all the people saying that the major "benefit" of AWS (and related services) was that they get to purchase all their computational resources as operational expenditures rather than face the downsides from a capital purchase and its depreciation accounting. And the "only pay for resources as needed" was just icing on the cake.
Obviously. But this comes up in conversations where the company is already okay with regular hardware overhead and where, by any reasonable accounting, it's cheaper to do it that way, but the capex premium is just so ridiculous that AWS still looks preferable.
Takes too long to get to their first point about accounting.
By the time I got to the first point about accounting, I was already bored. In reading the first point I realized it is too vague to be persuasive. Stopped there.
Decided to look for author to see if they even have a background in accounting.
... author not identified
The author uses a handle (linked under the header) which is the same as https://twitter.com/cian0o which links to this blog and provides a name.
The article also does include a note about their studies: "undergraduate in marketing and a postgraduate in finance." Though it seems more of a philosophical piece.
why do these comments pop up on HN all the time? why is it so critical that we get feedback from haughty readers? this is basically a tldr dismissal. how is that "curious" or "good faith" or whatever it is that HN bills itself as? if you think the article isn't high quality then just downvote. instead these comments become rallying points for people to have their biases reaffirmed.
note i didn't weigh in on the content anywhere. i'm simply sick of seeing people proudly proclaim their own impatience. we get it your time is too precious to read the entire thing (but not too precious that you can't drop a comment).
> At another employer, I managed teams of salespeople who generated subscription revenue for the organisation. My role was simple enough when you zoomed out: manage a budget that pays staff and logistics to bring in enough subscription income to cover the budget spent 3-5 times over. We hoped to bring in €3-5 for every €1 we spent. As a fleet of vehicles we used was approaching the end of a lease-hire agreement, we had the option of buying them out for a lump sum worth about 5 month’s worth of lease – let’s say €3k each or, getting a new fleet for another 3-year contract at €600/each per month. As someone whose responsibility it was to own a profit and loss account, I was happy to get maybe four or five years of use from the fleet at a vastly reduced cost as all we would have to do was fuel and maintain them. The accountants, however, were more worried about the abstract and frankly imaginary concept of depreciation that would come from us technically now owning these assets and them losing 10% of their value per year on paper. This theoretical drawback was seen as more important than the real-life cost-effectiveness of being able to win revenue for the organisation with this logistical cost stripped out. Compared with €600 per month, 10% of the value being lost off each car each year would only have amounted to €300 anyway! This means we paid 24x more just to be able to say we didn’t own the vehicles. An academic concept from the accountancy scriptures won the day against real-life cash flow. But accountancy always knows best when it comes to anything to do with money, right?
Depreciation for a car is obviously not imaginary. They have a specific resale value based on how much they've been used and they break down and need maintenance. Whether the old cars were purchased or the new cars were leased the business was presumably going to sell the same amount of product, so the only difference was whether or not the purchase or the lease made the company technically come out ahead... and when the accountants factored in the fact that the cars break down it allegedly wasn't a good deal. What am I missing here?
I'm trying to picture the car that is worth only 5 * monthly-lease-price when it is 3 years old, and the only way that makes sense is if the car is expected to require very significant maintenance costs beginning after year 3.
Monthly leases are usually a small percent of a car's new value (e.g., 3% over 36 months would exceed the cost of buying it new even ignoring lease downpayments, fees, etc).
Over 36 months the car should depreciate and the lease costs as percent of current value will naturally rise, but this scenario presumes monthly lease price reaches 20% of the car's value which is absurd.
There's legit reasons to prefer opex over capex, but this guy totally misses them. Were they selling the company? Trying to improve the cash position? Made too many capital expenditures this year? In the middle of a gnarly audit? Sales dropping? - all legit reasons.
A 10-year depreciation schedule is ... not one of those legit reasons. This guy has no ideal what finance does lmao
I was thinking about a comment I read here, that claimed that in China companies have to hire party members because is the politically correct thing to do.
And that got me thinking how in "the west" companies have to hire lawyers (and accountants) for legal compliance reasons.
I am guessing you are seeing the parallel because both sentences have the words "have to hire" in them?
Companies need to hire lawyers because we live in a society that places a high value on playing by the rules and regulations that come down (idealistically) from an elected body.
So if I am a company that "has to" hire lawyers and accountants, I only "have to" do so because there are rules in my country about how I (for example) represent my financial situation to unsophisticated investors so they don't lose their shirts.
You can see how that's a different form of "have to" from hiring someone's uncle so your business doesn't get closed by the corrupt government?
I was assuming that there would be law in China that clearly stated this as a legal requirement?
Also, I have this perspective in which, given the case that this is a corrupt practice, it ends up as a form of taxation (corrupt taxation, but same thing from an certain business perspective).
This is a big part of why I suggest not hiring MBAs in a startup. They have typically been indoctrinated into the shortsighted modes of thinking described in the article, yet because they are MBAs they consider themselves adept with the financial decision making aspects of business.
if you don't want shortsighted managers, then screen for that directly, rather than trying to rely on a wildly imperfect proxy like which degree they hold. that's a good way to get mostly false negatives and false positives, rather than true positives only.
Of course. I suppose the same caveat applies to hiring anyone who has significantly more education than experience, particularly when that person is hired into a management role, as new MBAs often are.
Also, very few have familiarity with management accounting or are versed in thinking about incentives, two traits that help prevent against the biases highlighted in the article.
Perhaps our current society is more complicated than a feudal medieval one.
I reckon in this article you could replace 'accountant' with any varied number of professions (lawyer, banker, science expert, IT expert etc. etc.) and the article would seem equally veracious.
Ugh finance sucks but dude this guy's examples don't check out.
> Our organisation’s accountants, in their infinite wisdom, had hardwired rules about maximum increases in pay for existing employees which blocked this engineer’s manager from being able to give them a raise in line with their market rate
Escalate the pay issue of that soon-to-be college grad up your chain. Why are you making this Finance's call? If there's no escalation path (or sympathietic exec), then it's a management problem, not a finance problem.
> As a fleet of vehicles we used was approaching the end of a lease-hire agreement, we had the option of buying them out for a lump sum worth about 5 month’s worth of lease – let’s say €3k each or, getting a new fleet for another 3-year contract at €600/each per month. ... The accountants, however, were more worried about the abstract and frankly imaginary concept of depreciation that would come from us technically now owning these assets and them losing 10% of their value per year on paper.
Those numbers do not pass the most cursory of accounting logic from a finance perspective. You'd reduce Opex 86% by buying & depreciating over 3 years. If you depreciate on a 10 year schedule you're looking at 95%+ opex reduction. There's legit reasons not to do that (is the company's cash position weird? What are this quarters #s looking like? What else is in capex this year? What costs might you be forgetting?), but this guy seems to wildly misunderstand those reasons.
As someone that has the utmost respect for his accountant i have serious issues with almost every point in this post. The logic is juvenile ultimately because the management team is responsible for the organisation and the accountant will balance the books and with the help of the CFO use and manage capital effectively.
The justification to purchase the cars was idiotic. The capex spent on leases is corporate tax deductible, not so much when you buy them and they become depreciating assets (yes the paltry depreciation is tax deductible but the capex used to buy the cars isn’t). Organisations also use leases so they don’t have to manage the wear and tear maintenance on vehicles. Even when an organisation has a fleet manager logistically picking up broken down cars and taking them to garages is very expensive. For you techies this is similar to tech debt, imagine you cut corners on a project you did and left the organisation the person picking up after you will have to redo quite a bit of the work to finish it.
I would argue an organisation should never be held ransom to a pay rise. You simply acknowledge they are valued and promise to address at the next review. It sets a bad precedent to manage these processes adhoc.
How powerful would the priests have been if God had spoken straight to the people? When accountants say, "This is what the rules of the government require; this is what the rules of our investors require; this is what the rules of the exchange where we hope to be listed require," they do so in a context where all of those parties speak for themselves.
64 comments
[ 3.2 ms ] story [ 134 ms ] threadThe Medicine Men, the Beancounters, the IT Department, the Lawmen, the Brokers and all the other professions which act as a transactional cost for doing business, who communicate primarily via standardized forms, and who try to keep evil specters from haunting you.
But really, mostly to make the Taxman go away. If Uncle Sam finishes his colonoscopy so thorough that you’re still getting the taste of rubber off the back of your tongue a few weeks later and only charges you a couple hundred dollars for his time, that’s about the most you can really hope for.
They pray that their message will be heard on the platform they use.
They pray that the gods won't smite their business from its platform.
They pray the algorithms will choose a match that will love them and see them for who they really are.
They pray that their resume is kept by the filters and shown to a human who might understand it.
God is dead and the platforms have killed him.
Caveat emptor.
I believe Clinton is the only president in the past 50 years who has ever presided over a government surplus.
GOP; gaslight, obstruct, project.
(To be fair, during my lifetime, that's been about half the time.)
George W. Bush, not Clinton, presided over most of FY2001; but he inherited the FY2001 budget from Clinton.
Source: https://www.govinfo.gov/content/pkg/BUDGET-2021-TAB/pdf/BUDG...
I've listened to many arguments about MMT and everyone who supports it boils down to the theory that if governments can just tax enough to hold off inflation they can spend as much as they want, and deficits in your native currency don't matter as long as inflation is unaffected.
The definition of inflation has gotten conveniently flexible. We see stock, real estate, healthcare, and education prices rising while some goods and services have gone down.
I think some of the deflationary pressure is from technological innovation (for example, a mobile phone does everything that thousands of dollars worth of equipment would do 20 years ago). Some of it is due to the deflationary pressure of globalization and the exportation of goods production to less developed countries (namely China). That trend won't last much longer though as those countries become more affluent (if it hasn't already reversed).
At any rate it seems when inflation does occur, MMT seems to think that governments can and will levy higher taxes at will to stem it off. And will subsequently lower taxes when inflation subsides.
I've rarely seen the government willfully lower taxes if they have a surplus. And I've rarely seen a politician run on a platform of raising taxes at will. It seems like such an unworkable theory in practice that it should be dismissed outright. However, we've already spent ourselves into a corner and we have massive deficits that are going to drag on our economy for a long time. So the MMT theory is alluring, as it allows for a level of irresponsibility we have not previously seen before. I don't predict this ends well, but I still see it as the last hail Mary of the fiat dollar regime.
It will either lead to a golden era or cause a world of hurt and pain.
Stock and real estate prices are assets, so have always been excluded from definitions of inflation, they're essentially inversely proportional to the interest rate. Rent (or the owner's equivalent rent) is included in CPI.
I share your concern about rising healthcare and education costs though, but that is largely a political choice - other developed countries are able to provide them for substantially lower proportions of GDP. (Healthcare costs will inevitably increase over time as countries populations age, but other countries spend much less on healthcare and achieve better outcomes.)
Good post from Noah Smith on inflation: https://noahpinion.substack.com/p/your-local-price-changes-a...
Also, to me, taxes have nothing to do with inflation control. Or maybe it helps, but it is also not the main lever. From what i've tested anyway.
Production deficit is creating inflation. Every single country that went through hyperinflation saw a deficit in production the years prior and wasn't self-sufficient in food and/or basic amenities. And normal inflation is close to the same. Inflation comes when the production is strained: it was the case in the 30s, it was the case from the 50s until the 70s, it is still the case in China.
This can be caused by a positive effect (people are hopeful and want to consume more than what is actually produced and/or sold) or a negative one (drop in production, or in price of an asset/ressource that a country exploit heavily and use to buy food and amenities).
I don't think money supply have a huge impact on inflation, except maybe on asset inflation? Anyway this will be the MMT crash test.
The three main drivers of deflation:
> But Inflation is not inevitable. There are numerous countervailing forces that have been at work for much of the past 50 years. The three big Deflation drivers: 1) Technology, which creates massive economies of scale, especially in digital products (e.g., Software); 2) Robotics/Automation, which efficiently create more physical goods at lower prices; and 3) Globalization and Labor Arbitrage, which sends work to lower cost regions, making goods and services less expensive.
* https://ritholtz.com/2021/02/stop-stressing-about-inflation/
For (3): the entire continent of Africa can be further developed.
Generally:
> Put into this context, Inflation is periodic, driven by specific events; Deflation is consistent, the background state of the modern economy.
It doesn't boil down to that. That's looking at it from the wrong angle.
The line is that to spend there has to be something to buy. If it is available to buy and nobody else wants it, then why not bring that item into use (largely the unemployed). Spending stops automatically when you run out of things to buy priced in your currency at a price worth paying.
If you see somebody talking about raising tax rates and lowering tax rates in relation to MMT on a counter stabilisation basis, then that person either doesn't understand MMT, or you've misunderstood what they are saying.
The primary stabilisation mechanism of MMT is the Job Guarantee and the secondary one is government demanding a lower price for goods and services it purchases, which it can force on people because otherwise the system will run short of spending.
Taxes are a very distant third or fourth in the control stakes. In MMT they are essentially a garbage collector. There to ensure we don't overcommit the system.
This is similar to folks who say "Western medicine makes mistakes, so you should try the healing powers of crystals." The point of science is that we know it is wrong, but try to make it less wrong all the time. Economic thought definitely isn't always scientific, but this essay doesn't help.
Yeah, the accountants cracked the case...we can finally ignore the aviation engineers. Whoops...plane went down. Engineers fault.
The SEC clamping down on "non-GAAP" KPIs (even though a Nobel was won for the concept) represents that tension. Further there's a professor at HBS and I believe he argues certain network effect heavy tech companies they have negative depreciation (book value incrases with scale and time, versus say anything else which almost universally declines or at best stays flat). Negative depreciation implies the current tech P/Es are more sensigle, which in and of itself is an interesting phenomenon that arises from the professors work.
So the author is dabbling near some interesting currents, but unfortunately missed the mark here.
>The accountants, however, were more worried about the abstract and frankly imaginary concept of depreciation that would come from us technically now owning these assets and them losing 10% of their value per year on paper. This theoretical drawback was seen as more important than the real-life cost-effectiveness of being able to win revenue for the organisation with this logistical cost stripped out. Compared with €600 per month, 10% of the value being lost off each car each year would only have amounted to €300 anyway!
... and remembered all the people saying that the major "benefit" of AWS (and related services) was that they get to purchase all their computational resources as operational expenditures rather than face the downsides from a capital purchase and its depreciation accounting. And the "only pay for resources as needed" was just icing on the cake.
By the time I got to the first point about accounting, I was already bored. In reading the first point I realized it is too vague to be persuasive. Stopped there.
Decided to look for author to see if they even have a background in accounting. ... author not identified
The article also does include a note about their studies: "undergraduate in marketing and a postgraduate in finance." Though it seems more of a philosophical piece.
why do these comments pop up on HN all the time? why is it so critical that we get feedback from haughty readers? this is basically a tldr dismissal. how is that "curious" or "good faith" or whatever it is that HN bills itself as? if you think the article isn't high quality then just downvote. instead these comments become rallying points for people to have their biases reaffirmed.
> At another employer, I managed teams of salespeople who generated subscription revenue for the organisation. My role was simple enough when you zoomed out: manage a budget that pays staff and logistics to bring in enough subscription income to cover the budget spent 3-5 times over. We hoped to bring in €3-5 for every €1 we spent. As a fleet of vehicles we used was approaching the end of a lease-hire agreement, we had the option of buying them out for a lump sum worth about 5 month’s worth of lease – let’s say €3k each or, getting a new fleet for another 3-year contract at €600/each per month. As someone whose responsibility it was to own a profit and loss account, I was happy to get maybe four or five years of use from the fleet at a vastly reduced cost as all we would have to do was fuel and maintain them. The accountants, however, were more worried about the abstract and frankly imaginary concept of depreciation that would come from us technically now owning these assets and them losing 10% of their value per year on paper. This theoretical drawback was seen as more important than the real-life cost-effectiveness of being able to win revenue for the organisation with this logistical cost stripped out. Compared with €600 per month, 10% of the value being lost off each car each year would only have amounted to €300 anyway! This means we paid 24x more just to be able to say we didn’t own the vehicles. An academic concept from the accountancy scriptures won the day against real-life cash flow. But accountancy always knows best when it comes to anything to do with money, right?
Depreciation for a car is obviously not imaginary. They have a specific resale value based on how much they've been used and they break down and need maintenance. Whether the old cars were purchased or the new cars were leased the business was presumably going to sell the same amount of product, so the only difference was whether or not the purchase or the lease made the company technically come out ahead... and when the accountants factored in the fact that the cars break down it allegedly wasn't a good deal. What am I missing here?
I'm trying to picture the car that is worth only 5 * monthly-lease-price when it is 3 years old, and the only way that makes sense is if the car is expected to require very significant maintenance costs beginning after year 3.
Monthly leases are usually a small percent of a car's new value (e.g., 3% over 36 months would exceed the cost of buying it new even ignoring lease downpayments, fees, etc).
Over 36 months the car should depreciate and the lease costs as percent of current value will naturally rise, but this scenario presumes monthly lease price reaches 20% of the car's value which is absurd.
A 10-year depreciation schedule is ... not one of those legit reasons. This guy has no ideal what finance does lmao
Cheers
And that got me thinking how in "the west" companies have to hire lawyers (and accountants) for legal compliance reasons.
I see a parallel there.
Companies need to hire lawyers because we live in a society that places a high value on playing by the rules and regulations that come down (idealistically) from an elected body.
So if I am a company that "has to" hire lawyers and accountants, I only "have to" do so because there are rules in my country about how I (for example) represent my financial situation to unsophisticated investors so they don't lose their shirts.
You can see how that's a different form of "have to" from hiring someone's uncle so your business doesn't get closed by the corrupt government?
Also, I have this perspective in which, given the case that this is a corrupt practice, it ends up as a form of taxation (corrupt taxation, but same thing from an certain business perspective).
Also, very few have familiarity with management accounting or are versed in thinking about incentives, two traits that help prevent against the biases highlighted in the article.
If you like N. Taleb's fooled by randomness the book "confronting managerialism" by Locke & Spencer is a great followup.
I've only ever heard this term used derogatorily (this millennium at least).
I reckon in this article you could replace 'accountant' with any varied number of professions (lawyer, banker, science expert, IT expert etc. etc.) and the article would seem equally veracious.
> Our organisation’s accountants, in their infinite wisdom, had hardwired rules about maximum increases in pay for existing employees which blocked this engineer’s manager from being able to give them a raise in line with their market rate
Escalate the pay issue of that soon-to-be college grad up your chain. Why are you making this Finance's call? If there's no escalation path (or sympathietic exec), then it's a management problem, not a finance problem.
> As a fleet of vehicles we used was approaching the end of a lease-hire agreement, we had the option of buying them out for a lump sum worth about 5 month’s worth of lease – let’s say €3k each or, getting a new fleet for another 3-year contract at €600/each per month. ... The accountants, however, were more worried about the abstract and frankly imaginary concept of depreciation that would come from us technically now owning these assets and them losing 10% of their value per year on paper.
Those numbers do not pass the most cursory of accounting logic from a finance perspective. You'd reduce Opex 86% by buying & depreciating over 3 years. If you depreciate on a 10 year schedule you're looking at 95%+ opex reduction. There's legit reasons not to do that (is the company's cash position weird? What are this quarters #s looking like? What else is in capex this year? What costs might you be forgetting?), but this guy seems to wildly misunderstand those reasons.
The justification to purchase the cars was idiotic. The capex spent on leases is corporate tax deductible, not so much when you buy them and they become depreciating assets (yes the paltry depreciation is tax deductible but the capex used to buy the cars isn’t). Organisations also use leases so they don’t have to manage the wear and tear maintenance on vehicles. Even when an organisation has a fleet manager logistically picking up broken down cars and taking them to garages is very expensive. For you techies this is similar to tech debt, imagine you cut corners on a project you did and left the organisation the person picking up after you will have to redo quite a bit of the work to finish it.
I would argue an organisation should never be held ransom to a pay rise. You simply acknowledge they are valued and promise to address at the next review. It sets a bad precedent to manage these processes adhoc.