First, financial accounting is designed for lenders dealing with the short and medium term. It is reasonably fit for purpose. It is of only limited use for equity investors, and of no use for managers. But top management these days seems more concerned with managing investors than their business. There is a reason the CFO is the #2 glamour job in a big corporation. It is not a good reason.
Second, the Ricardian fallacy is a form of physics envy, not shared so much by physicists. Eugene Wigner once wrote an article: "The Unreasonable Effectiveness of Mathematics in the Natural Sciences". Or there is the line attributed to Ludwig Boltzmann: "Elegance is for shoemakers and tailors."
“understanding the numbers has to come from understanding the business. People go badly wrong when they try to do it the other way round”
I'm a working commercial real estate appraiser. The above sentences nicely summarize the difference between intelligent commercial real estate appraisers who are good at the job, and intelligent commercial real estate appraisers who are bad at the job. (Dumb appraisers are a dime a dozen and they understand neither the business nor the numbers.) There are some smart appraisers out there who have mastered all the mathematical tricks to generate opinions of value ... but sometimes following the numbers leads you to very strange places, and if you don't know the business, you won't know you went astray. Sometimes the smart appraisers trust the math so foolishly that they mess up worse than any dumb appraiser ever could!
I have never heard of the Ricardian fallacy before and it definitely resonates--it is also the curse of consultants. (I've created those toy models before that didn't really capture a business but captured what was easy to measure.) And I didn't know about your Brompton book--the transition from piece work to line work is painful.
Always a good idea to pay attention to the flow of causation when choosing a variable to control. You should do a post on perceptual control theory.
I have two points to make.
First, financial accounting is designed for lenders dealing with the short and medium term. It is reasonably fit for purpose. It is of only limited use for equity investors, and of no use for managers. But top management these days seems more concerned with managing investors than their business. There is a reason the CFO is the #2 glamour job in a big corporation. It is not a good reason.
Second, the Ricardian fallacy is a form of physics envy, not shared so much by physicists. Eugene Wigner once wrote an article: "The Unreasonable Effectiveness of Mathematics in the Natural Sciences". Or there is the line attributed to Ludwig Boltzmann: "Elegance is for shoemakers and tailors."
“understanding the numbers has to come from understanding the business. People go badly wrong when they try to do it the other way round”
I'm a working commercial real estate appraiser. The above sentences nicely summarize the difference between intelligent commercial real estate appraisers who are good at the job, and intelligent commercial real estate appraisers who are bad at the job. (Dumb appraisers are a dime a dozen and they understand neither the business nor the numbers.) There are some smart appraisers out there who have mastered all the mathematical tricks to generate opinions of value ... but sometimes following the numbers leads you to very strange places, and if you don't know the business, you won't know you went astray. Sometimes the smart appraisers trust the math so foolishly that they mess up worse than any dumb appraiser ever could!
I have never heard of the Ricardian fallacy before and it definitely resonates--it is also the curse of consultants. (I've created those toy models before that didn't really capture a business but captured what was easy to measure.) And I didn't know about your Brompton book--the transition from piece work to line work is painful.
Is this an example of Donald MacKenzie's models are engines not cameras idea? (or maybe he is referencing someone else's idea...)