Comments on: CPA Debate http://chicagoboyz.net/archives/5781.html Some Chicago Boyz know each other from student days at the University of Chicago. Others are Chicago boys in spirit. The blog name is also intended as a good-humored gesture of admiration for distinguished Chicago boys including those pictured above. Fri, 25 May 2012 05:38:28 +0000 hourly 1 http://wordpress.org/?v=3.0.4 By: Shannon Love http://chicagoboyz.net/archives/5781.html/comment-page-1#comment-227968 Shannon Love Thu, 15 May 2008 18:22:57 +0000 http://chicagoboyz.net/?p=5781#comment-227968 This post highlights the kind of issues that make me think that economics, sociology and similar "soft" sciences are so much baseless conjecture. The concept of "value" is central to economics yet no one can concrete measure the "value" of anything at anytime other the <b><i>the moment a specific discrete exchange occurs.</i></b> The value of that exchange instantly alters the value of any subsequent exchanges making them unknowable. We tax people on the "value" of their houses based on nothing but opinion. Likewise, we valuate corporations based on similar guesses. The entirety of economics rest on such intellectual quicksand. That is why only schools of economic thought based on understanding the lack of knowledge in human affairs have survived the test of time. People still read Adam Smith for insight but his contemporaries are studied only for their errors. I This post highlights the kind of issues that make me think that economics, sociology and similar “soft” sciences are so much baseless conjecture.

The concept of “value” is central to economics yet no one can concrete measure the “value” of anything at anytime other the the moment a specific discrete exchange occurs. The value of that exchange instantly alters the value of any subsequent exchanges making them unknowable. We tax people on the “value” of their houses based on nothing but opinion. Likewise, we valuate corporations based on similar guesses.

The entirety of economics rest on such intellectual quicksand. That is why only schools of economic thought based on understanding the lack of knowledge in human affairs have survived the test of time. People still read Adam Smith for insight but his contemporaries are studied only for their errors.
I

]]> By: david foster http://chicagoboyz.net/archives/5781.html/comment-page-1#comment-227935 david foster Thu, 15 May 2008 16:16:13 +0000 http://chicagoboyz.net/?p=5781#comment-227935 Fair value can apparently lead to some rather strange phenomena when it comes to liabilities. If a company sells bonds for $100 million...and the market value of the bonds goes down to $70 million (perhaps because of interest rates, perhaps because the company is now considered less creditworthy) then fair value would suggest that the company should book a $30 million gain, on the theory that it could, if it wanted to, now buy back its bonds for only the $70 million. But this is in most cases unrealistic--if the value went down because the company is less creditworthy, then it probably *can't afford* to buy back the bonds, and if it went down because interest rates are up, it probably *doesn't want* to buy them back. Fair value can apparently lead to some rather strange phenomena when it comes to liabilities. If a company sells bonds for $100 million…and the market value of the bonds goes down to $70 million (perhaps because of interest rates, perhaps because the company is now considered less creditworthy) then fair value would suggest that the company should book a $30 million gain, on the theory that it could, if it wanted to, now buy back its bonds for only the $70 million. But this is in most cases unrealistic–if the value went down because the company is less creditworthy, then it probably *can’t afford* to buy back the bonds, and if it went down because interest rates are up, it probably *doesn’t want* to buy them back.

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