Prof. David Albrecht has an extended post on The Summa arguing for the politicization of accounting standards:

It is the responsibility of a country’s government to adjudicate between competing economic interests in the selection of accounting standards. This is what government does.  For example, governments are good at levying and collecting taxes, which has been going on since the beginning of human history.  And what is tax but one group being forced to transfer it’s money to another group.  In the U.S., the federal government is the ultimate economic arbiter.  Serving presidential administrations appoint cabinet secretaries and agency heads (for example President Obama appointed Geithner, Romer and Schapiro, and reappointed Bernanke), and together they determine the policy that guides economic and regulatory policies that remain in effect until changed (either because an administration changes its own policies, or a new administration is elected).

How does a government decide between competing interests?  By politics:  negotiation and compromise, posturing and popularity.

I  respectfully disagree, and support my position with a few quick observations.

  • The Congressional Budget Office has scored every health care bill to assess its impact on federal finances.  I absolutely agree that voting on a health care bill should be a political process.  But if Congress made the CBO an explicitly political body, its scoring would be meaningless.  The CBO is accused of politicization as it is, and fights a constant battle to shed that impression. I don’t know why David’s argument to politicize the FASB differs from an argument to politicize the CBO.
  • David bases his argument heavily on the economic consequences of accounting.  But the economic consequences of accounting are only indirect — politicization typically results in concealing or distorting information.  People are always free to reinterpret accounting numbers (e.g., they can capitalize operating leases), whereas they can’t reinterpret an excise tax or a drug law.
  • Moreover, the economic consequences change over time in unpredictable ways. If a certain accounting approach helps the majority of businesses in one year, but harm them in another year, politicization would result in changing standards, which can’t possibly be what David wants

Yesterday’s political blogosphere even provides some relevant empirical evidence.  Ezra Klein reports on a paper showing that appointed treasurers do a better job than elected (and therefore more politicized) ones:

This paper investigates whether methods of public official selection affect policymaking in cities. I draw on the unique characteristics of California’s city referendum process to identify the causal effect of city treasurers’ method of selection on their cities’ debt management policies. I utilize a regression discontinuity strategy based on the effect of narrowly-passing appointive city treasurer referendums on city borrowing costs. The results indicate that appointive treasurers reduce a city’s cost of borrowing by 13% to 23%. The results imply that if all cities in California with elected treasurers were to appoint them, total borrowing expenditures would be reduced by more than $20 million per year. Appointive city treasurers appear to reduce borrowing costs primarily through the refinancing of expensive debt at lower interest rates.

I know, I know — treasurers aren’t accounting standard setters.  But I suspect the basic dynamics are similar.