Wednesday, April 21, 2010

Why Filipinos Are Not Rich (January 2007)

 Why Filipinos Are Not Rich
The Street Strategist has arrived at the conclusion that the poor Filipinos are not rich because they do not have money.
This is a very simple concept but it takes a genius to appreciate its simplicity. You may notice that I am trying to explain “why Filipinos are not
rich” in contrast to “why Filipinos are poor.”
Is there a difference? Yes, there is.
In asking “Why Filipinos are not rich,” the implication is that the normal state of events should be that Filipinos are rich and we have to explain if ever they are not in the normal state, that is, we have to explain why Filipinos are not rich when supposedly they should be rich.
Diminishing circle
Anyway, let us proceed.
The Street Strategist has arrived at the conclusion that the poor Filipinos are not rich because they do not have money.
The Filipinos have no money because the country’s wealth is inequitably distributed in favor of a few rich.
Wealth is inequitably distributed because the labor sector does not have a bigger share of the wealth.
Labor does not have a bigger share because they are mispriced and undervalued.
Labor is undervalued because they do not have an equal footing to enter into a fair contract with the rich employers. 
A hungry stomach does not last one day of bargaining.
To gain a stronger footing, the government should step in and prescribe a higher minimum wage.
But the government does not want a higher wage because they are afraid the businesses would have lower revenues as a result of higher labor wages.
The businesses cannot maintain their revenues in the faces of higher costs because the demand for their goods and services do not increase.
The demand for goods and services do not increase because the labor class are not rich, therefore they have lesser disposable money.
The people have no money because the wealth is inequitably in the hands of a few rich.
Thus, we are locked in an ever diminishing circle.
Community of inequality
Let’s view this from another perspective. 
According to a World Bank study, 1/3 of the wealth of the Philippines is owned by only 5% of the Filipinos. 
This is a huge disparity.
This is an egregious distribution of wealth.
In economics, the Gini coefficient is the measure the gap between the rich and the poor.
What does this statistic mean?
Try to visualize a community of 100 of your friends.
For every PhP100 spent within this community, after all is said and done, these expenditures and incomes will eventually settle as asset or wealth distributions. 
Of every PhP100 in asset, PhP33.3 goes to only 5 of your friends (PhP6.70 per pax).
The balance of P66.6 is distributed among the reminding 95 friends (PhP0.70 per pax).
Can you imagine how inequitable that is? That’s a ratio of 9.5 to 1, or 950%.
And did you forget something? 
Those 5 friends of yours were actually not doing any work at all. They were playing golf all day, while your other 95 friends were the ones toiling under the hot sun, fighting against each other, backstabbing each other, and knocking on doors at night to sell products.
Is that fair?
What is really callous is that your rich 5 friends have billions of money that they could not possibly consume in ten lifetimes.
Single solution
And yet you ridicule me for proposing a single solitary action, that is, a legislated minimum wage of  P20,000 ($400 at $1=PhP50)?
Please remember, I am not advocating communism, socialism, or confiscation of property.
I am only advocating the correct valuation of labor, the world market price for labor.
Why can’t our teachers be paid like the teachers in Singapore? And Singapore has zero natural resources to rely on unlike the Philippines?
Myth: The Filipinos are poor because they squander money.
I heard so many upper class people say this. I even heard on radio somebody who cited their rich neighbor whose children squandered their inheritance.
But many Filipinos are fortunate enough to inherit wealth? A few thousands? We have about 35 million workers, and that’s the majority. They have nothing to squander.
Job search
Myth: The Filipinos don’t look for jobs.
I find this too simplistic. Filipinos are looking for jobs so much so that millions of Filipinos in search of work worldwide.
Maybe there are too few jobs here in the country. I have repeated many times why is there only a few jobs around. 
That is why I wrote several chapters on the topic of job creation as a result of the Hyperwage Theory.
Maybe the jobs are not paying well enough. 
If the actually wages are lower than the threshold reservation wage (the point at which the worker is indifferent if he has a job or not), then maybe that’s the reason they do not apply for jobs. 
Remember if you work in the US for one year that is equivalent to 10 years in the Philippines. 
Myth: The Filipinos are lazy.
You must be kidding me. Give each one a minimum wage of PhP20,000 and you’ll see. Currently, among the best workers abroad are Filipinos. And you and I both know that.
Myth: The Filipinos don’t save.
Of course, the savings rate in this country is low. 
Of course, the Filipinos don’t save. We have half of the country living below the poverty line and you expect savings?
But the top 5%, yes, they do save. Save for what? 
Should that money be shaved off a little bit and shared back to the workers in form of higher wages that will be used to buy the goods and services owned the same top 5%? 
It will all go back to the businessmen anyway.
Naturally rich
The Filipinos are naturally rich. 
If we monetize the value of our entire natural resources nationwide we would have a higher per capita wealth than Hong Kong, Taiwan, or Singapore. 
But why is it that these city-states have a higher per capita income than the Philippines given that fact that they have no natural resources?
Simple. They put a value to their intellectual capital and human capital.
In Hong Kong, if you can’t afford to pay about PhP25,000 for a domestic helper, then don’t have one. 
If you can’t afford to pay PhP30,000 for a sales clerk, then don’t be in business.  
But do you know that happened? 
Businesses flourished. 
And they have domestic helpers who are nurses or principal teachers from the Philippines.  
Hong Kong is the 4th or 5th largest financial center in the world and it is only about 1/5 the size of Cebu province and it have zero natural resources. It imports water from China, can you imagine that?
Singapore imports vegetables from Indonesia or Malaysia.
Why aren’t the Filipinos rich when in fact they should be? 
It is because the minimum wage workers are paid slavery wages, very far from the world market price for labor with is the US price.
Since they have slavery wages, they have little purchasing power. With little purchasing power, there is little domestic market. 
When there is little domestic market there are few businesses. When there are few businesses, then there are fewer employees, and since there are fewer employees, there is little purchasing power.
And if there is little purchasing power there is little domestic market and so on and so forth.
Few rich, thin middle class
The Philippines has a very thin middle class, as with any other Third World country.
It is the middle class who provide entrepreneurship, the small businesses that is 95% of the number of establishments.
Again, this thin middle class is due to the egregious concentration of wealth in the top 5% of the population.
How do we then solve the inequitable distribution of wealth? 
With only one stroke. 
A legislated minimum wage of about P20,000 ($400) probably staggered over five years.
I am tempted but would not discuss here all the economic benefits and non-economic benefits of Hyperwage Theory because I had done that in my 33-chapter book.
Before anyone criticizes Hyperwage Theory, it would do justice if you read it first.
In the same manner that I read as much economic textbooks and journals before I finally set into writing my idea of Hyperwage.
What I am saying is this: The Filipinos are not rich but that is not what is supposed to be. 
We have the natural resources that should have given us the power of the purse, the power of wealth.
The Filipinos are supposed to be rich. And there is one solution to correct this anomaly. Give labor its true value.
Suppose the businesses give back PhP100 billion in wages back to the people.
Assuming a propensity to consume of 80%, the economic multiplier is theoretically 5 times, and the entire nationwide economy will be richer by PhP500 billion. 
This is the beauty of Hyperwage Theory. Instead of business annihilation, there would be economic redemption. Again, I have discussed this fully in my book on Hyperwage.
I hope I can meet my Henry Dennison, the multi-millionaire that Harvard economist John Kenneth Galbraith called crazy but who eventually caused the latter to reverse his economic thought. 
If you recall in my Hyperwage book, Dennison argued that the rich few like himself have a bigger share of the income stream which sucks the economic wealth away from the economic system.
Dennison argued that the income stream to the poor should be increased.
Who will be my Dennison who would believe the Street Strategist’s Hyperwage Theory and become its advocate?
And who will be my Galbraith? 
As I narrated previously, the famous Galbraith was once a Harvard professor who flipped his economic thought and reversed his ideas and finally adopted the very radical, ridiculed, and controversial ideas of John Maynard Keynes.
Asymptotic hyperinflation
Will there be hyperinflation under Hyperwage Theory? 
I have discussed this fully and the answer is that there will asymptotic hyperinflation, that is a hyperinflation with a ceiling, and that ceiling is the world market price.
Let’s take a look at this illustration. This is a simple one but if we analyze common products (vegetables, cooking oil, paper, newspapers, etc.) in this manner, we will have a clear idea of what asymptotic hyperinflation is.
Assume a person eats half a kilo of rice a day. With a domestic helper’s wages of P2,000 per month, then a person earns PhP76.90 daily.
Assuming the current price of rice is PhP30/kg then he will consume PhP15 of rice daily. He will have a net on only PhP61.90 per day.
On the other hand, under Hyperwage, is monthly rate is PhP20,000 and his daily rate is PhP769.
What will be the price of rice under Hyperwage? About PhP50/kg? Where did we get this price?
We assume a comparable quality of rice in the expensive city of Hong Kong which is priced about PhP50/kg. 
Surely, we could not be above Hong Kong’ price under our Hyperwage Theory. 
Thus, after spending for a half kilo of rice, the helper obtains a net of PhP744.
Net disposable income
So which is better, a net of PhP46.90 under our current low wage regime or a net of PhP744 under Hyperwage Theory? What if rice surges up to PhP100/kg? This means our rice will be higher than that in the US or Singapore or Hong Kong?  That’s seems impossible. We could not be above these expensive cities, could we?
Even assuming it is PhP100/kg, but how much rice can one eat? Still half a kilo so that will cost him PhP50 daily, and his net is PhP719 daily.
Now, apply the same to a can of Coke, a kilo of cabbage, an IBM Laptop, an Ericsson cellphone or a Sony TV. 
How do we know what will be the prices when we adopt Hyperwage? Simple, call the US or Singapore prices, and you can use these prices as your reference prices.
IBM pricing policy
Do you really think the price of an IBM laptop will rise 100% once minimum wages are raised 1,000%? 
No way.
It may rise by 5% to 15% but never by 100% because the world market price for an IBM laptop is our reference point. 
If laptops are being sold in this country at P100,000 each, do you really think it would be sold at P200,000 because the minimum wage is now P20,000? 
Why should we pay double than US prices?
See my point?
At any rate, I have discussed all these issues in my 33-week discourse on Hyperwage Theory in 2005. 
Human capital
There are several factors of production in an economic system. Our economic theories emphasize the benefits of using the market price of each of these factors. 
Our theories frown upon subsidies because they distort the allocation and efficiency of capital.
Yet, there is one factor that is not merely an inanimate factor of production, a factor that cannot be made to wait for market forces to determine its price. 
This is human capital.
In the Third World countries, if we wait for market forces to determine the market price for labor, such time may never come in our lifetimes.
Why? Because a hungry stomach cannot wait for market forces. If First World countries value labor at $7.50 per hour, without government intervention, do you think human capital in Third World countries will stop working unless paid the market price of labor?
They cannot survive half a day without food. They will accept anything to survive.
Why aren’t Filipinos rich?
What makes a country or its people rich?
Education? We have a literacy rate that is one of the highest in the world at 95% or more, yet we are belong to the poorest of nations. Can we econometrically say that education is what makes a country rich? Statistics says no.
Natural resources? We have one of the richest natural resources in the world, yet we belong to the Third World. Surely, natural resources is not what makes a nation rich, is it? Statistics says no.
English? We are the third largest English speaking country in the world, but we wallow in poverty not wealth. Is English what makes a country rich? Japan, Korea, Taiwan, and Hong Kong don’t have half of our English skills, yet why are we mere domestic helpers to them, rather than being their rich employers? Or is there a possibility that English is not such a relevant factor we think it is? I admit the BPO industry has employed hundreds of thousands but do you really expect us to become a First World country with this? This is Third World mentality. To attract call centers to the Philippines, we need to slave our college graduates as phone operators? Isn’t it possible that we will perpetuate our status as Third World workers for First World businesses?
Low wages?  For the last hundred years our strategy has always been low wages but why are we poor? Maintaining low wages means that you want the people to earn less than their US counterparts and therefore keep the people in check under the strategy of poverty. Yet, how come low cost of labor did not help our businesses become world-class players like Nokia or Intel or Samsung? Isn’t it obvious that maintaining low wages has kept us in Third World status? Can you economically argue that low wages are what makes a country rich? Statistics says no.
Low purchasing power? Low wages means low purchasing power. Answer me this: Does SM or Ayala go to Maasin Leyte because of low wages? No. The big businesses go to places where the people have purchasing power. 
Purchasing power is due to high wages of the people.
Isn’t it obvious that Jollibee goes to the US because of the high purchasing power despite the high labor cost? 
Why is SMC in Australia? Why is ABS-CBN in Saudi Arabia? 
Economically, what makes a country richer, low purchasing power or high purchasing power?
Yes, indeed, why aren’t Filipinos rich? Why is there a huge gap between the rich and the poor? Why is management paid 100 times higher than the lowest employee in this country while in some countries it is only 10 times?
What is your solution to correct this situation?
As I have pointed out, it is not high education, it is not natural resources, it is not command of English, and it is not low salary that makes a country rich. It is how you value the poorest of the poor. It is how you value least of the least. It is how you value human capital. It is giving labor its true world-market value. It is Hyperwage.
( * * * * * Thads Bentulan   January 18,25, 2007 * * * * *) [D1] 

This article summarizes some ideas contained in the book "Hyperwage Theory," which discusses a new theory of improving the wealth of individuals and nations.

To obtain a free copy of the e-book "Hyperwage Theory" send an email to ""

To view a list of books (with sample chapters and table of contents) visit

Monday, April 19, 2010

How I Invented the World's Fastest Method to Learn Debit and Credit

Note: The method was invented in 1990 and published in Manila newspaper BusinessWorld in 1999. The Street Strategist's Financial Literacy Program, an accounting and finance crash course for non-accountants,  is based on this method.

In which the Street Strategist offers the simplest formulation of the fundamental equation of accounting
How I Invented The World's Fastest Method to Learn Debit and Credit
t is probably ironic that one of the most popular articles I've written that unburdened the loads of many non-accountants was borne out of my incompetence that burdened me for years.
I'm the most unlikely person to challenge the accounting world but I rebelled: “I am not psychotic. It's the entire accounting world that's psychotic. I'm not dumb. It's the entire accounting world that doesn't know how to teach.”
Who in his right mind would challenge 500 years of accounting dogma, especially on the very basic concepts of debit and credit? I hate accounting. Why bother? If millions of accountants don't find anything wrong with it, what professional competence do I have to reinvent the wheel?
My classmates were drowning in case studies, while I browsed every book trying to deconstruct accounting. What was my sense of priority? I developed the Accounting Wizard at the expense of my other personal pursuits.
Deconstructing accounting
The Accounting Wizard was published in 1999 but I invented the accounting codes in 1990.
These were my objectives: First, to derive the accounting equation. Second, to understand the role of debits and credits. Third, to formulate the simplest and the most unambiguous method of using debits and credits that cannot be further simplified. Fourth, to deliver in a short article an overview of accounting in the most intuitive manner possible that would serve as the mental map for the student.
That was very ambitious. The Accounting Wizard may not have the same impact on you as it had on me because we solved different problems. You just wanted to learn accounting; I wanted to learn why I couldn't understand accounting.
But I had one thing going for me. I had a framework – the fundamental theorems of mathematics. Is it possible to reduce basic accounting into the simplest and most fundamental concepts or definitions similar to what's done in mathematics?
Sources of confusion
I evaluated what I could understand and what I could not. Note that I did not use the word “know” because it is possible that I don't know about a topic yet I could understand it, once I set my mind to it. The difference is huge.
I finally identified what I didn't understand. There were two: First, I couldn't understand how the accounting equation was derived, if ever there was a derivation in the first place.
Second, I didn't know how to perform debit and credit operations, I didn't understand the purpose of their queer relationships with the accounts and, finally, I didn't understand why Pacioli and friends invented these twin ideas in the first place.
Fundamental theorems
We all studied algebra, but can you state the fundamental theorem of algebra, that is, the theory upon which all of algebra is built? Too hard? Can you state the fundamental theorem of arithmetic? Don't tell me, you don't know that either.
The fundamental theorem of arithmetic states that every positive integer can be factored in one and only one way into a product of primes.
The fundamental theorem of algebra (FTA) states that every polynomial of degree “n” with complex coefficients has “n” roots in the complex numbers.
In mathematics, there's a common phrase: “necessary and sufficient condition.”
To the mathematician this is an extremely powerful statement. This is a ruthless mandate to eliminate any unnecessary condition, or any unnecessary step, coupled with an equally ruthless mandate that those conditions that remain must be sufficient to prove a theorem or to prove the existence of a fact.
One example of this “necessary and sufficient” mentality is Euclid's approach to geometry. Euclid developed geometry based on five postulates. He established that the fifth postulate is necessary. For 2,000 years, mathematicians tried to reduce the minimum postulates to four but they failed to eliminate the fifth postulate. In other words, nobody could further simplify Euclid.
The deeper the mathematicians analyzed Euclid, the more they appreciated his genius in formulating and choosing the five postulates that are necessary and sufficient to derive the entire branch of geometry.
War of reasons
My first problem was how to introduce the accounting equation. After so many courses and so many years, I still didn't understand how the equation was derived.
They couldn't understand why I cannot understand the accounting equation; on the other hand, I couldn't understand how they could possibly understand the accounting equation.
Reduced to simple terms, for them the equation was obvious; for me the equation was not obvious.
This was a fundamental philosophical conflict of religious proportions. And I was at the losing end of the unilaterally declared war of reason because my role was limited to pointing out the lack of rigor (or even the lack of derivation) of the equation but nobody seemed to realize the lack of rigor except myself.
Going back, my first accounting professor probably had 20 years of accounting experience. He was a good accountant but not a good teacher for new students. Forgetting what it was like to be a new student is the teacher's cardinal sin and the student's worst nightmare.
On the first day, he wrote the accounting equation: Assets = Liabilities + Capital.
Spinning my head instantly, it was.
Reason: For the life of me, I couldn't understand why liabilities and capital added up together must be equal to assets. The logic of the equation might be obvious to you but not to me.
I know that millions of accountants out there can justify that the logic of the equation is so obvious. But please allow me to explain why it is not obvious to me.
Whenever I see an equation, I always attempt to understand it. If it is a mathematical equation, I study its derivation. But A = L + C? I couldn't derive it. All those teachers did not attempt to derive it, neither did they find any need to. In whatever manner they explained it, it was not rigorous, and not intuitive enough for me.
But it seemed nobody in class was bothered by the lack of rigor of how the accounting equation was derived. So I figured I just wasn't perspicacious enough. It was another case of knowing without understanding.
As recently as a few days ago, I received this: “I don't recall any origin of the equation, but it must have been invented, to establish accountability and to safeguard its integrity.”
Correct, but not rigorous enough for me.
In fairness though, the teachers tried to rearrange the equation into A-L=C, which was understandable but still not intuitive enough for me, especially since the balance sheet was formatted in terms of A= L+C.
I thought there was something wrong in the way it was taught. But I was too embarrassed to admit I had absolutely no clue regarding the accounting equation. Probably, only a mathematician could empathize with me.
I envied those students who breezed through this simple equation. As for me, I regarded the equation as some magic rammed down my throat. It was my first taste of accounting magic.
Now, don't get me wrong. I don't know everything about accounting, yet I can accept that. It's called ignorance.
But if I cannot understand something that I know, that is called incompetence. And that is unacceptable.
However, the accounting world goes on, despite one confused individual. My only consolation is that it took hundreds of years to prove the fundamental theorems of arithmetic, algebra and calculus.
Mathematicians had been using, without understanding, these theorems. But they were not too proud to admit they didn't understand the theorems enough to prove them. The FTA proofs failed because they assumed – not questioned – the existence of the roots.
In the same manner, I assured myself that, perhaps, accountants made the same mistake, that is, they assumed the existence of the accounting equation even without a rigorous derivation or proof.
This was a more reassuring thought than admitting I was too incompetent to understand an equation that was obvious to everybody else.
Not having luck in finding a way to introduce the accounting equation in a rigorous or intuitive manner that satisfied me, I skipped the topic altogether and moved to the financial statements.
I decided to introduce the financial statements with the barest minimum definitions that would stick to a beginner's mind. But the definitions given in textbooks were too complicated for a 30-minute overview. Plus, they introduced concepts in the definitions that were unnecessary in violation of my guideline to use only “necessary and sufficient” concepts or conditions.
So then I started to define the balance sheet. After several months of figuring the simplest but most sufficient definition, I finally came out with one: It is simply a listing of all the company's assets. But I added this phrase that looked very intuitive to me: “showing the proportion of how they were acquired, either through borrowing or using its own capital.”
For you, that is nothing. For me, that was the most powerful accounting concept that knocked on my confused head. In providing some sort of a “geometric interpretation” of the balance sheet as a proportional combination of how the asset was acquired, I had in effect, “discovered,” the fundamental accounting equation assets=liabilities + capital.
When I use the term “discover,” I refer to my own personal revelations which, as I have pointed out earlier, were so obvious to you in the first place.
That's when the flash of understanding hit me. Given this definition of the balance sheet, the accounting equation comes out as a natural consequence of the definition. There was no longer any mystery or magic as to how A=L+C.
That, for me, was a bolt of lightning. I had finally found the most intuitive derivation of the accounting equation, not as a magical relationship rammed down my throat.
The traditional way is simply stating without deriving that the sum of liabilities and capital must be equal to assets. I proposed that the concept should be intuitively stated as “assets are always acquired by a combination of liability and capital, therefore automatically A=L+C.”
What was to me unnatural, illogical, and counter-intuitive many years ago, was now the most natural, logical, and intuitive equation of all.
And I discovered the accounting equation by accident – in attempting to formulate the simplest possible definition of a balance sheet using only the necessary and sufficient conditions.
Inventing the six codes
Then I decided to discuss the basic three financial statements first to give the beginner an idea of what to expect from accounting.
There were nothing conceptually great about the income statement and the statement of cash flows.
I decided to postpone any attempt at discussing debit and credit in order to show that understanding accounting is possible without the use of DR and CR.
The conceptual problems I faced with debit and credit were enormous. Were these two concepts necessary? Since I couldn't understand the debit/credit concepts, I skipped it temporarily and I tried to understand the rules first.
Most of the debit rules I came across were redundant. I couldn't believe the accountants were wallowing in all these redundancies. How could a normal mind absorb all these redundancies? I came to the conclusion that these accountants were brainwashed, not taught. They were fed with the rules, not taught to derive them.
In contrast, in math and physics, the students compete by providing different derivations of the same rules or equations. Plus the “necessary and sufficient” mentality, plus the “fundamental theorem,” mentality.
So I painstakingly studied all debit/credit rules. I grouped them into derived, and fundamental rules. Then I removed the rules that were not “necessary,” and maintained only the rules which were “sufficient.”
Voila, the entire bookkeeping imbroglio was down to only six rules which are necessary, sufficient and fundamental. All the other rules can be derived from the six rules.
Thus the Street Strategist's Accounting Codes were born.
The secret
After inventing the codes, I was now ready to attack the concept itself of debit and credit. It took me months to figure out that the intuitive way to learn debit and credit was to unlearn them.
Eventually, in my mind, the greatest mystery of accounting crumbled, and I came up with a snappy guideline: The secret to understanding debit and credit is not to understand them at all.
Even after reading the Accounting Wizard, many CPAs come back to me with their own shortcuts using tables or matrix. I must say I have been there, done that. Before Wizard was published I have had ten years of studying if there were any simpler, easier, faster way than the SS codes.
Charts and matrices are not that effective and the memory part is hard as you have to memorize them in your head. Also, how do you expect a computer programmer to encode a chart in his software?
To dramatize which method is better, think of a quiz game where 10-year-old kids answer either “debit,” or “credit.” The catch is that each kid will be coached by his parent who will have only 10 minutes to teach the child the rules of debit and credit.
An inventor who finished only first year high school reacts: “So that's why credit and debit never made sense! Nice to know I'm normal.”
From an investment house CEO with an MBA:
“Funny, I at first, had a hard time understanding it and I believe it is because we have been “brainwashed” in school about what debit and credit are. I now think my professor was just as confused!
However, after freeing myself from the concepts already ingrained in our brain, the light bulbs in my head started to light up. Hopefully, they don't blow up!
I'd like to present your concept to my 9-year-old. This way, he will understand the whole accounting concept before it is corrupted by the traditional way of teaching.”
Audit Executive
From the highest ranking auditing executive of one of the largest banks in the country: “Fantastic! Your six codes are concise and clear and your style is the simplest way of explaining debit and credit to non-accountants.
By the way, I was entertained by the manner by which you presented your thesis. Am sure there's a big market out there waiting and very much receptive to your expression style.”
Wharton MBA
From a Wharton MBA who's currently a consultant with the country's largest accounting firm: “A great article, indeed. Your reducing accounting to a few codes is good for us non-accountants. For me, the basic lesson in accounting is to determine from whose point of view are the terms being read; this is something that you clearly set up.”
From a college comptroller: “I find your example on how the bank statement terminologies can be confusing for non-accountants, very amusing.”
Intuitive focus
Here's another reaction from a banker: “Your theory that the left of T account is always DEBIT and the right of T is always CREDIT regardless of the nature of the accounts, is something that hit me, an accountant by education and a banker by profession. Probably because having been bombarded by debits and credits all the time I never realized or visualized what was happening every time entries in the book are being made.
“Your six codes which focus only on INCREASES of the Balance Sheet, Income Statement and Cashflow Statement accounts are, I believe, the best shortcuts for the debits/credits principle.”
Saudi Arabia
From a CPA in Saudi Arabia, in one of the largest oil companies in the world: “You said your paper was never intended to be useful, but indeed it is very useful to just about everyone who is concerned with finances. It is also useful to students of MBA but only at the time they would be reading and analyzing or interpreting financial statements.”
VP Human Resources
From a VP in Human Resources of an engineering firm: “I didn't realize it was that simple. You were right, I agonized trying to understand debit and credit in my MBA course to the delight of my professor. What you presented is a simple process any average man on the street could learn. Was that why you called yourself Street Strategist?”
US Asset manager
From a US asset manager: “I found it to be a wonderfully written piece, which is absolutely perfect for beginning non-accountants who wish to get to the root of financial accounting and sweep away the haze.  In my opinion, you have succeeded in providing the accounting-challenged, in an enlightening and comprehensive fashion, with the welcome relief they need from their financial ignorance in 30 minutes or less, indeed.”
From an engineering PhD: “I was wondering why debit and credit never showed up in the financial exams I took; and your Accounting Wizard reinforces my belief about their relative irrelevance despite their ubiquity. Your six codes will surely help me keep bookkeeping, debit and credit, at bay.”
The greatest irony
Now go to your resident mathematical genius and ask him to state the fundamental theorems of arithmetic, algebra, and calculus. He will not be able to state all three. Trust me, the most fundamental things are the easiest to know but the hardest to understand.
One last thing before I go. Just to give you an idea of how difficult it is to prove the fundamental ideas, the fundamental theorem of algebra was first proved with some gaps by Gauss, the prince of mathematics at age 21, a feat that eluded the greatest mathematical minds of all time including Euler and Leibniz.
Little is known, however, of a Swiss named Argand who beat Gauss by formulating the simplest of all proofs to the algebra theorem.
This was no ordinary feat, although his proof was not rigorous enough because it contained some gaps. The novelty of this proof was in presenting a geometric interpretation of imaginary numbers as 90-degree rotations.
Overall, it may sound ironic that it took a non-accountant like the Street Strategist to advocate the intuitive self-evident nature of the accounting equation, and to invent the six fundamental codes that facilitated the simplest approach the most fundamental operations of accounting.
However, this may be the most ironic twist of all: the genius who outsmarted Gauss who was considered the prince of mathematics at his own game, the algebraic genius who formulated the simplest proof to the single most difficult fundamental theorem of mathematics, the person who revolutionized algebra with his intuitive geometric interpretation of complex numbers, was Jean Robert Argand, who was widely known as –surprise, surprise – a professional bookkeeper and accountant. But of course!
Thus it came to pass that Jean Robert Argand, a professional accountant, crossed over to offer the simplest proof to the fundamental theorem of algebra.
On the other hand, the Street Strategist, a student of algebra, crossed over to offer the simplest formulation of the most fundamental equation  and operations  of accounting.
This is probably one of the greatest ironies of our history.
(Thads Bentulan, April 18, 2002)
* * * * * t * * * * *

Quantum Mechanics and Stupidity

What is the difference between  Quantum Mechanics and Stupidity? I said this almost a decade ago, and I'm writing this down for your convenience.
 "Doing the same thing over and over again and expecting a different result is stupidity defined."
- Conventional Wisdom

on the other hand

"Doing the same thing over and over again and expecting a different result is quantum mechanics defined." 
- Thads Bentulan aka Street Strategist

Tuesday, April 13, 2010

JFK, Khalil Gibran, and Manny Pangilinan

Manny Pangilinan's Ateneo speech stirred a controversy because of the lines his speechwriters borrowed from the famous people.

What about JFK? His famous quote was not really his. There are at least five people who have said the same words (almost exactly) many years before him, including one as early as 1920. Did he plagiarize?

Derivation of "Ask not what your country can do for you--ask what you can do for your country."

In A Thousand Days (Houghton Mifflin, 1965) Arthur Schlesinger, Jr. relates in a footnote on page 4, that John Kennedy kept a looseleaf notebook of quotations, and that as early as 1945 he had entered a quotation ascribed to the 18th century French philosopher Jean Jacques Rousseau: "As soon as any man says of the affairs of state, What does it matter to me?, the state may be given up as lost." (no source cited).

Van Wyck Brooks' New England: Indian Summer (1940) contains remarks made by the Mayor of Haverhill, Massachusetts at the funeral of John Greenleaf Whittier in which is the following: "Here may we be reminded that man is most honored, not by that which a city may do for him, but by that which he has done for the city." 

And, Supreme Court Justice Oliver Wendell Holmes, in a Memorial Day address is 1884 stated: "It is now the moment when by common consent we pause to become conscious of our national life and to rejoice in it, to recall what our country has done for each of us, and to ask ourselves what we can do for our country in return."

Guy Emerson in The New Frontier: A Study of the American Liberal Spirit... (Henry Holt and Co., 1920) placed special emphasis on this thought on the last page of the text, in italics: " and women are born to put more into their country than they take out of it." (The copy of the book in the Kennedy Library was a gift to the President received at the White House in April, 1961).

President Kennedy may have encountered all these sources in his education. He expressed similar ideas on at least two occasions prior to the inauguration. On July 15, 1960 in his address to the Democratic National Convention accepting the Party's nomination for President he defined his "New Frontier" saying: "It sums up not what I intend to offer the American People, but what I intend to ask of them." 

On September 5, 1960, in Detroit, he said: "The new frontier is not what I promise I am going to do for you. The new frontier is what I ask you to do for your country." Incidentally, in a earlier draft of the Inaugural Address the line had been: "Ask not what your country is going to do for you... (etc.)"

To summarize, the idea had certainly been around for some time, but the sentiment and the particular phrasing in the Inaugural Address were President Kennedy's.

But the nearest wordings are those from Lebanese-American writer Khalil Gibran:
“Are you a politician asking what your country can do for you, or a zealous one asking what you can do for your country?”
- Khalil Gibran