Accounting VS Economic Framing

Have you ever heard of accounting numbers?  How about economic numbers?  There is a gigantic difference between the two and you can come to wildly different decisions by using one or the other.

In business if you use accounting numbers to forecast and plan strategy the odds are really good you will make bad decisions.  Accounting is a trail marker.  It’s the past.  It’s not unimportant but accounting is a poor way to view the future.

Economic numbers combine what you learned from the past and help you project into the future while incorporating other factors.  There is a bit of modeling that goes into economic numbers. If the future doesn’t pan out the way you thought many times it’s due to the assumptions you incorporated into your models to predict the future.

I was thinking of this while driving around Minneapolis today picking up stuff for up North  I drove past Mall of America   It was closed   But I realized since Minnesota doesn’t charge tax on a lot of clothing government budgets would be impacted less by the shutdown when it came to sales taxes

People screw this up constantly.  That’s why you hear statements like women are 50% of the population so they should be 50% of X.   The world doesn’t work in accounting numbers.  It works in economic numbers.

It might be the case that 50% is way too low.  Rememer that the next time you hear a mess of numbers designed to prove a point.