Give and Take Cartoon

This picture shows how incentives works in the government system. Basically the picture is trying to explain how they give the rich incentives such as tax breaks, bonuses, stock options, and privileges in exchange for their cooperation. Cooperation meaning contributions. On the other hand they show on the left side them the government taking away food stamps from those in need. 

My Observation

For the past year and a half I have been working for a small construction company helping out in the administrative department. With the responsibilities that I was given I was also able to learn and contribute to the accounting department as well. Being involved in the financial side of the company has made me see that incentives are highly involved in the revenue of the company. The way the company makes profit is based on the amount of jobs they can get. Therefore getting jobs is a betting system, almost like gambling. Whoever has the best price and resources win the job.

               The process of bidding a job is exciting and stressful. It’s all about getting the best companies to support you in this bid. Getting these companies to be on your side is the best part. You have to persuade these companies with incentives to work with you. Seeing the way the company depends on other small companies and job bidding's made me realize that their revenue is based on what they have to offer. The moment of truth, the moment you sit down and declare the prices your company can offer is exciting and scary.

               My first bid is what caused me to love construction accounting. It can be very stressful at times, but exciting. Sitting down with the estimator of the company and delegating the numbers with that person is what caught my attention. I’ve always liked the feeling of being in charge. Seeing the controller tell him his budget and how the company’s revenue could increase if we got this job was nice. I was able to go to one of the bid meetings; it’s a huge room full of several general contractors. Every one of these general contractors is also bidding for this job. They all present this envelope that contains their proposal to the person in charge. Basically the lowest bidder wins, there are always other specifics involved with the decision making but for the most part that is the main one. The moment they told us that we were the lowest bidder was exciting. Walking back to the office and celebrating a win is what started my curiosity in construction accounting. 

The Uselessness of Economic Development Incentives

http://www.citylab.com/work/2012/12/uselessness-economic-development-incentives/4081/

The author argues in this article that the incentives that these states, cities, and counties are giving to these companies are a waste of money because it isn't an effective mechanism to lure these companies into choosing them. This comes into the perceptive of the previous article, sometimes incentives can pause the economic development and improvement of a company. In other words these incentives weren’t benefiting anyone at the end. The only correlation that they were able to find is that the communities that provided these incentives to companies were the ones that were economically in need. While incentives in the business world can work, it can also backfire. The incentives have to be hand in hand. In the end if these communities do not have the qualities or resources that these companies need in order to succeed their contributions go to waste.

            Incentives are almost always involved when making business decisions. In the case stated in this article I believe that the states, cities, and counties funds are being depleted if they do not have the resources these companies need. In order for one to offer incentives one has to be sure that they have other qualities to offer that can help the other party in the long run. In the case of these communities it is hard to say whether their incentives were going to waste or not because of the lack of information on their economic state and resource’s available. In their case they are giving incentives at their own risk. On the other hand for the company it can be just like the article stated above. The more revenue these companies see coming in the less work they put into improving themselves economically. This in turn causes no employment growth in the long run. Incentives are to be used wisely. 

Money Over Matter: Can Cash Incentives Keep People Healthy?

http://www.scientificamerican.com/article/can-cash-incentives-keep-people-healthy/

The article explains how giving people money incentives can improve their decisions in certain areas in life. They tested a few different areas in life such as losing weight, quitting smoking, and exercising more. While these are areas that can definitely change people’s lives in a positive way and also areas that people struggle with I am not sure that giving them incentives such as money is the best way to encourage them. Although psychologist argue that after a certain amount of time these people take their life changes semi- permanent, the end result would go back to the way they were because the incentive isn’t there anymore.

            Incentives can be a good thing depending on how they are being used. The way this article uses money as an incentive to make people change bad habits in life can turn into a bad habit. For example if one gave student’s money to do well in school the results would only be short-term. What happens after the incentive is gone? The student never learns to discipline themselves into doing well in schools. Same goes for losing weight, exercising, and quitting smoking; the result will be long term once the person finds self-motivation. Using money as an incentive should be limited to those who are at a high health risk. 

Reflection 1

Economics is something involved in our daily lives. An incentive is something that is involved in our daily lives, but I didn't know that it also tied into economics. I learned that incentives can be a good thing and a bad thing. In the business world incentives are natural to use. In one’s personal life it can get a bit tricky. Using money as a motivation to do something can be deceiving. Once the money is gone one is more likely to go back to their old habits.

            Some of the difficulties I faced was choosing my topic. Accounting is my major and although I like to practice it, it is hard for me to describe it. I wanted a topic that interested me but that was still within my major. It took me some reading and researching before I was able to find these articles that linked incentives together in with Economics. In reality I took very long to get this paper together. I went through many different topics and failed to find articles that sparked interest or inspiration for a paper. After reading the book ‘ Freakonomics’ my eyes completely opened to other topics that didn’t cross my mind before. That is when I discovered how heavily ‘Incentives’ is involved in economics.

            The next time I approach a paper like I this I will be more patient with myself. I got very frustrated and discouraged with the topics in my career. This has definitely taught me to think deeper than just the surface area. I wasn't thinking out of the box, I was only thinking of the logical topics accounting had to offer. I then realized that I had more options than just that. Next time I will research areas not only within the topic I want but also outside. Just broaden my resources and mind. 

Book Review

In the book Freakonomics, two economists come together to explain the way our society’s decisions are linked together with economics. They explain how real life situations such as violence or criminal acts might have had a clear solution to them, but that in reality there was a completely different solution. They make you think deeper into the decisions society makes to solve problems we deal with in our everyday lives. They explain how morals are involved in economics; how every decision that is made in our daily lives is based on incentives. These incentives always lead up to economics. They make you think deeply as to how true and genuine the decisions are that everyone in life makes.

In Chapter 1 they explain the similarities that sumo wrestlers and school teachers have in the decisions they make every day. Cheating was one of the decisions they focused on. They asked throughout the book which one of the two was more likely to cheat? They explained that every one of their decisions was based on incentives. The incentive that teachers have for their students to do well in class is that they have a chance of promotion or recognition. This can be a result of teachers having a higher chance in cheating. Sumo Wrestlers on the other hand has different incentives. Although by doing well they can receive recognition's, their option of cheating can be a bit more complicated. They are tested in their physical capabilities, cheating would only cause them to fail when tested. In the end both of their incentives is money.

In Chapter two compare the incentives that Stetson Kennedy and Real Estates have. They first explain how Stetson Kennedy infiltrated the Klu Klux Klan.  After he gathered all the information he needed he later went and distributed the information to famous journalist’s and radio stations. This did cause awareness around the country and it did fix the problem, but that’s not what the book was looking into. They later explained how his incentives weren't only to fix the problem, but also to put himself out there. This caused him a lot of recognition which also meant he was recompensed economically well.  Real Estates also have the same economic incentives when they do their work. They explain that when one is attempting to sell a house, they are looking for the best deal out there. For example if a house is being sold for $400,000 and one knows that it is possible to get an extra $15,000 out of the buyer with a little extra work and advertisements, one would want that. The book explains how a real estate putting those extra hours of work for the $15,000 isnt worth their time and money. The real estate only receives about $500 after all is said and done. In reality they are looking out for their best interest not yours. Their incentive is once again money also.

In Chapter 3 they make the reader think more deeply about an issue that was going on in the 70’s -80’s. Violence of all kinds was a problem at this time in the United States. They explain that the government as worried for the safety of citizens because of how the criminal rates were rising instead of getting better. There were several changes that were made; first the economy began to get better at the time. Also because of the economy progressing they began to add more policeman in the areas needed. The violence and criminal rates went down almost 50% over some years. People and the news quickly jumped to conclusions saying that the economy helped the situation and that so did the reinforcement of security. What they didn't know was that back in 1973 legalization of abortion was being taken into play; we didn't see the results till the 90’s. They correlated this with the violence problem. They realized that it wasn't the new policies and security that helped the violence go down, It was the fact that unwanted babies were being aborted. This meant that children that before were being born into unwanted, struggling families were now not being born.

The book goes deeply into analyzing how different situations and solutions have economic incentives. How the study of economics is all based on incentives. Most of the evidence that they present in the book is historical and available for everyone to research. For example the Stetson Kennedy infiltrated the Klux Klu Klan and used the information to spread awareness is very true. They use history, but they go deeper into analyzing their motives. In the end of each of their examples it all comes down to the economic motive that they all have.

This book helped me learn why it is that I am pursuing accounting as a profession. I learned that everyone in life has to make a decision based on their economic state. We choose where we want to go eat based on how much we want to spend. We choose where we shop based on what we can afford. This book relived my passion for accounting. It made me realize that I want to help people organize those decisions. Accounting goes beyond just analyzing and organizing numbers. It’s also about budgeting and directing people’s expenses in their daily lives. This book definitely made me think deeper as to how involved economics is in everyone’s lives. I recommend this book to anyone that is interested in learning how economics and incentives are involved in daily decision making.