Accounting for a Detoured Economist

Well after almost two week off for Christmas/New Year I am taking another week+ of time off to go to Walt Disney World in Florida. Although the slow season sucks when you are trying to achieve billable hours goals….the huge benefit is the amout of time that can be taken off to make up for all of the long hours during the busy season. Have fun…I know I will.

Just got back from North Carolina where I had a number of job interviews, my wife and I have made an offer on a house, and we spent some time on the coast. At work we are also at the height of interim work and I have a final in cost accounting on Thursday, so its easy to see why production at Accounting for a Detoured Economist has been low lately. Talk at ya soon.

Regular blogging will begin soon. Tax season is ending in a little over a week and I will only have a 9 month old toddler, a wife, one accounting class, a full-time auditing job, sleep, the gym, and the TV show Lost to take up my time. Should be plenty of time for blogging. Talk to ya on the 18th.

I have an entire batch of workpapers that have sign-off dates of January 2006. The problem is that I audited the 12/31/2006 financial statements…damn.

From Desktop

Note to self…look at the past three weeks of audit workpapers to see if there is a single workpaper dated correctly. If there is….congratulations, you are not a complete idiot…just a 99% one. Argggghhhhh.

I had an honorable mention in the twelve blogs of Christmas over at Tickmarks. Cool. Thanks.

I have updated my links on the sidebar. Take a click.

Dan Meyer over at Tickmarks wrote a post about the recent Forbes article listing the top cities that save their money in the US. Dan notes…

Reading between the lines: education appears to be directly related to good Nest Egg performance while raising children appears to have at least a slight negative relation (my guess is that most of the cities listed above are cities where comparatively low proportions of adults are raising children). I would have liked more detail on how the criteria were applied.

The top cities are places like San Jose, San Francisco, Los Alamos (NM), and Fairfield County (CT). Dan is quite right to think that education level has something to do with who is on this list, but I believe he is skipping an important link. During the acquisition of my degree in statistic I was exposed to the idea of interactions. Interactions are defined (non-technically)…

An effect of interaction occurs when a relation between (at least) two variables is modified by (at least one) other variable. In other words, the strength or the sign (direction) of a relation between (at least) two variables is different depending on the value (level) of some other variable(s). (The term interaction was first used by Fisher, 1926). Note that the term “modified” in this context does not imply causality but represents a simple fact that depending on what subset of observations (regarding the “modifier” variable(s)) you are looking at, the relation between the other variables will be different.

[ Yes I stole that definition…who memorizes statistics definitions ]

In this case the two variables Dan identifies are education and propensity to save, a positive correlation (the more educated you are…the more money you tend to save). I submit that this explanation does not explain the results robustly. Think of all of the social work, english, and (insert your own random major) that are highly educated and utterly broke. A high education level with a low pay scale will never result in a large savings rate. In this case the more obvious reason for the higher savings rate is a higher income. Think about it. All of the areas listed have highly educated, highly compensated, people with large amounts of discretionary income to sock away from their tech, engineering, and government jobs. In this case you could say that education and income are correlated, education and savings rate are correlated, and income and savings rate are correlated. But it seems pretty obvious that income would be more strongly correlated to savings rate then education level (on average).

Malcolm over at McLelland-On the interdisciplinary science of accounting wrote an interesting follow-up to my Why Auditing = Appalling Hours and Tremendous Turnover post last week.

In his response, Why Do Accountants Have To Work Longer Hours, Dr. McLelland wonders…

…for the past several years whether the inability of accountants to make (what they consider) a decent living working 40 hours per week doesn’t have more to do with accountants’ inability to optimally self-regulate from the public’s perspective.

he continues… 

In the end, I think it would be relatively straightforward to put together an equilibrium model explaining why accountants (1) are working longer and harder (… albeit for more money), and (2) not really using the breadth and depth of knowledge and skills they have (or should have).  More on this later …

I have trouble arguing his logic.  From my limited knowledge of the profession I have come to similar conclusions.  I often wondered if this was just a function of the firm I work for, or a more general industry problem.  I think the answer is the latter.

I almost concluded my last post with a hypothesis that the accountants don’t seem to be efficiently earning higher salaries…they are just earning more through overtime.  I believe that the marginal dollar earned per hour is actually staying stagnant while the hours work are increasing…which leads to the appearance of a larger paycheck…but in real terms this is not an increase in earning power…just an increase in work.

Justin McHenry at Personal Finance Weblog has started a series of 29 posts called How to Think like Warren Buffett. Justin analyzes all of Warren Buffett’s annual Letters to Shareholders of Berkshire Hathaway to find nuggets of wisdom from the Oracle of Omaha in an attempt to gain knowledge from the experience of a truly successful man leading a well-lived life. I have listed the first three links to the series below…

Part 1 - (1977 Letter)
Part 2 - (1978 Letter)
Part 3 - (1979 Letter)
Part 4 - (1980 Letter)
Part 5 - (1981 Letter)
Part 6 - (1982 Letter)
Part 7 - (1983 Letter)
Part 8 - (1984 Letter)

Good idea Justin!

I indirectly worked for Warren Buffett while going to college in San Diego. As an employee for Geico Insurance (I was a licensed insurance agent in 20+ States) I found he treated his employees fairly and have held a genuine affinity for the man ever since. On a recent episode of The Charlie Rose Show (Three Part Series of videos can be found for free on Google Video: The Man, The Business, The Gift) I was amazed to see just how many people admire him from such diverse walks of life. Warren Buffett is proof that you can be an honest gentleman in your dealings with others while still being a ruthless businessman with a singular focus on shareholder equity.