Category: Conservatism

What is meant by the term “Nixonomics,” including wage and price controls? What was the overall effect of Nixon’s economic policies on the United States? Explain

The Vietnam War and Johnson’s fiscal policy has led instability in the American economic system when Nixon became President, with significant price hikes and inflation. Nixonomics refers to general economic policy which Nixon applied during his presidency, that included a number of different approaches that he attempted to reverse the economic situation. At first, he attempted to use the Friedman monetary theory which suggested that prices could be lowered by cutting the money supply. This was unsuccessful and led to an even greater recession. Afterward, Nixon attempted to use jawboning, which sought to pressure businesses and trade unions to maintain low prices and wages but resulted in continuous stagflation (Moss and Thomas 2012, 163).

With a lack of success, Nixon applied Keynesian economics to unbalance the budget with the purpose to stimulate demand and employment. However, the inflation and unemployment remained at high levels. In 1971, Nixon froze wages, prices, and rents, enabled tax cuts and introduced a 10 percent tariff (Moss and Thomas 2012, 164).

Eventually, the freeze was removed, but guidelines were still in place. Such strict measures had a profound effect on ending the recession and rise of GDP, but eventually, the controls were undermined by businesses and inflation rose again. Unfortunately, Nixon’s erratic economic policies were shortcoming and led to more instability. His approach almost destroyed the US economy and believed to be the cause of a deep recession in 1973. Furthermore, it led to a discussion of how far the government should ultimately intervene in the American free market economy.

What was “Watergate” and how did it affect U.S. politics? Explain

After Nixon’s reelection in 1972, he felt empowered to drive the country into a conservative direction, both politically and economically. He reorganized the government to be more influential towards his authority and greatly conflicted with the Democratic Congress. Watergate refers to a political scandal which emerged that revealed Nixon, his administration, and campaign using immoral and dirty methods to maintain control and prevent leaks.

From the start of his presidency, Nixon abused his power and engaged in illegal activities such as placing wiretaps and using the IRS to blackmail opponents and raise illicit campaign funds. The scandal is most known for the Watergate break-in to the Democratic National Committee. Afterward, Nixon engaged in direct cover-up efforts that led to a constitutional crisis (Moss and Thomas 2012, 171).

Watergate led to a profound and deep impact on U.S. politics and society. First, it led to a significant mistrust of the American public in the honesty and campaign tactic of elected officials as well as the general involvement of the government in the election process. U.S. politics saw a tremendous reverberation by introducing numerous laws and guidelines on election finances and management. For a time, U.S. politics was characterized by a weakened presidency as Congress sought to aggressively face any executive challenges. Furthermore, candidates were expected to maintain an unblemished moral record. In general, Watergate led to a symbolical and literal cleansing of U.S. politics.

Describe Nixon’s China Policy. What was its significance to the Cold War?

Nixon’s policy on China was a very reasonable and diplomatic approach. As China was experiencing conflicts with the Soviet Union, its leader Mao reached out to the United States after years of political and economic isolation. Nixon accepted this and with the help of Henry Kissinger, began rebuilding diplomatic relations with China. Nixon was under some political pressure as well since most European allies already had normalized their relations with China, and there was pressure to unseat Taiwan from the UN and establish China in its place.

Many American politicians and businesses were encouraging for the bilateral relationship to prosper despite China’s Communist government. Meanwhile, Nixon hoped that a good standing with China will lead to a positive agreement to withdraw the US from Vietnam (Moss and Thomas 2012, 182).

The relaxation of tension with China was beneficial to Cold War rhetoric in the Southeast Asia region. Nixon viewed that this move of establishing diplomatic relations was not in support of Communism but rather helping an exchange of ideologies and knowledge. Nixon believed that China has numerous internal problems and was not focused on exporting the Communist revolution like the Soviet Union. China was recognized as a key player in the region and could help the United States to achieve necessary outcomes (Nixon 1969). Eventually, this relationship led to the US withdrawal from Vietnam as part of the treaty negotiated at the Paris Peace Accords in December of 1972 (Nixon 1973).

What was the energy crisis? How did it come about and what was the U.S. response to it? Discuss

The energy crisis of the 1970s represented a perpetual petroleum shortage for businesses and consumers as well as rapidly increasing prices on gasoline. The energy crisis began when OPEC countries led by Saudi Arabia chose to boycott oil shipments to the US as part of a geopolitical protest that the US was actively supporting Israel in its military conflicts against Arab states. Despite OPEC removing the embargo months later, the cost for a barrel of crude oil and subsequent price for a gallon of gasoline rose exponentially between 1970 and 1980. This strongly affected many American industries and regions dependent on their prosperity as oil prices and lack of government economic incentives led to their decline (Moss and Thomas 2012, 196).

However, the US began to slowly adapt. In the last days of his presidency, Nixon created the Federal Energy Office which focused on energy policy and conservation. He began an initiative to establish American energy independence by increasing domestic oil production through oil fields in Alaska and offshore drilling. This led to the production of not only more oil but coal and natural gas as well while increasing investment into nuclear and non-renewable energy. However, this was met with public protest and plans were halted as American imported up to 40 percent of its oil usage (Moss and Thomas 2012, 197).

What was the Iranian Hostage crisis? How did this crisis reveal the foreign policy weakness of the Carter administration? Describe the circumstances surrounding the release of the hostages. What are some possible lessons that the United States could learn from this experience? Explain

For years Iran served as a strategic ally to the US in the region and against the Soviet Union. The Carter administration was close with the Iranian Shah and despite some public disdain, the CIA noted that there were no revolutionary tendencies. This was inherently the policy weakness of the Carter administration, reliance on Iran and assuming that there will be no anti-American tendencies or change of government.

In 1979, clergy led by Ayatollah Ruhollah Khomeini seeking to establish an Islamic republic began an assault on the shah. Eventually, the government was overthrown, and a new Islamic government came into power. Khomeini immediately denounced both, the US and the Soviet Union which threw US leaders into confusion. Despite Carter attempting to normalize relations with the new government, he was rejected and anti-American radical groups began to emerge (Moss and Thomas 2012, 207).

The Iranian Hostage crisis began when a well-organized group of radicals and Iranian university students attached the US embassy and took hostage a number of diplomats, CIA officers, and military liaisons. The crisis dominated US foreign policy as diplomatic relations were severed. A secret military operation was planned but miserably failed which symbolized the inability of Americans to protect its citizens.

Eventually, the previous Shah died, and Iran was deeply distracted by a war with Iraq. An agreement was made which guaranteed the release of the hostages in return for $8 billion of Iranian assets being released (Moss and Thomas 2012, 207). This crisis indicates that the US leadership could do better in practicing diplomacy and understanding nationalist movement. Instead of using invasive and solely beneficial politics, it is vital to understand domestic sentiments in foreign countries.

References

Nixon, Richard. 1969. “Informal Remarks in Guam With Newsmen.” The American Presidency Project. Web.

Nixon, Richard. 1973. “Address to the Nation Announcing Conclusion of an Agreement on Ending the War and Restoring Peace in Vietnam.” The American Presidency Project. Web.

Moss, George D., and Evan A. Thomas. 2012. Moving on: The American People Since 1945, 5th ed. London: Pearson.

Introduction

Success and productivity often depend on how furniture is located in a personal workspace. On the one hand, the remote location of important equipment, such as a phone or a printer, can significantly affect the time spent on work. On the other hand, a designer approach to arranging furniture will make work a pleasant pastime. In general terms, the conservatism in the design choice is the best suitable option for the workplace because the best practices must be tested by years of experience from past generations.

Main body

Initially, there is a need to determine whether offices should be open-plan and shared or individual. By the conventional logic, open-plan offices encourage more communication and team-member relationships. In a such setting, employees have more opportunities to find friends and build a friendly working atmosphere. However, modern research provides controversial information about the usefulness of open-plan offices. Richardson et al. admit that some studies show a statistically significant decline in communication between colleagues in shared offices (46). In addition, even if shared office brings some benefits, Richardson et al. indicate that “any benefits of increased interaction were outweighed by the penalties of increased noise levels and lack of privacy” (46). Therefore, the ideal working environment is associated with the separation of coworkers between individual offices.

As for the workplace itself, the overall design of it should be serious and conservative. In my case, I take inspiration from Tudor style houses. Although this type of design is sometimes considered outdated, Tudor Revival architecture seems to gain popularity. In this respect, the ideal office design incorporates wooden elements, as well as calmer colours around the workplace. Wooden bookshelves may be located behind the table, containing the materials needed for work. Since the crucial factor is that offices should be individual for coworkers, the private space creates an intimate connection with the workplace.

Communication with employees will be frequent and productive, as any business cannot do without the exchange of opinions and ideas. Since everyone in this “ideal” workplace has their own separate offices, meetings will take place in a common hall, specially equipped for this purpose. This “dosed” time for communication helps employees maintain warm connection with each other. A coffee maker and various snacks are to be in this common hall to avoid employees eating in their offices.

Finally, the clothes should lean towards a more official style, although there is always a space for compromises. As for me personally, I would wear a formal suit, as it helps me focus on the work process. As for my colleagues, they would be required to follow a certain dress code. At the same time, the dress code should allow for a wide range of creativity in choosing an outfit. This approach is used in almost all companies, and my “ideal” company would meet such criteria.

Summary

To sum up, the question how an ideal working environment should look like is an important aspect of success. Every individual sees some peculiar features when they imagine the design and arrangement of the “dream” workplace. In my case, it should be an office in classical tones with the use of wooden elements. The reason is that the old-fashioned designs are appealing to me. As for the dress code, it should not limit the imagination of coworkers about their outfits. However, some rules and office traditions are essential for well-structured internal communication.

Works Cited

Richardson, Ann, et al. “Office Design and Health: A Systematic Review.” New Zealand Medical Journal, vol. 130, no. 1467, 2017, pp. 39-49.

Definition

Accounting conservatism implies that all revenue cash flow should have asymmetrical verification requirements for profit gains and losses. The greater the degree of separation in verification, the stronger the conservatism (known as differential verification). This approach results in a repetitive understatement of net asset values. This influences the financial period reports, but conservatism tends to take a broader approach to cumulative firm income.

Conservative accounting is beneficial when a firm chooses to use contracting. The limited information and liability of external firms are offset by conservatism and helps to contain managers in reporting account measures. Moral and hazard problems continue to exist in financial reporting, and the constraints applied by conservatism offset bias and opportunistic managerial practice. It helps to raise the firm value limiting payouts to executives and shareholders, deferring tax payments, and reducing political costs of regulators.

In addition, understating net assets protects from litigation and negative public opinion. Overall, the benefits to conservatism are united by the principle of limiting payouts and meticulous verifiability of profits, which aid in providing accurate information to all involved parties.

Contracting Explanations

Contracting implies debt and management compensation contracts, the company’s organization arrangement, managerial control systems, and even tax payments. Unlike other explanations, contracting has been used for corporate and management purposes for centuries, which influenced modern accounting. Timeliness is necessary to efficiently reflect the actions of managers and shareholders on the firm’s value as well as avoid dysfunctional outcomes. Verification is critical for contract enforcement and legal liability through control of cash flows. It reduces the possibility of payouts that violate contractual obligations. Overall, the firm value increases as conservatism eliminate manager bias and the possibility of negative net present value projects.

Conservative accounting acts as a method of providing information to investors as it acts to verify the estimates of future cash flows. This increases the quality of the information in all accounting reports. The firm value is maximized through downward-biased estimates as any gains are deferred until there is verification that they exist. Asymmetric verifiability reduces positive earnings bias. However, the information perspective, based on regulation objectives, supports further downward-bias on net assets.

Other Explanations

Conservatism protects from litigation under the Securities Acts, which is more likely if net assets are overstated. Tax law encourages conservatism as the deferment of income helps to reduce the value of taxes based on accounting reports. Conservatism is supported by the regulation perspective since losses from overvalued assets are more prominent in a political process. A shift away from conservatism causes goodwill impairment, which requires an evaluation of unverifiable and non-contractible future cash flows. Unlike the FASB, the SEC enforces a high level of conservatism due to the political repercussions caused by overvaluation.

Implications for Regulators and Standard Setters

The FASB should be more inclined towards conservatism as a standard since it is an efficient measure of performance and net assets even without contracting. Their current neutral approach does not ensure the verifiability of market estimates or manager bias. The FASB standards encourage managers to create valuations of future cash flows. They are incompetent in determining firm valuations as the market has many informed participants. The FASB should focus on the core of accounting, which is to provide verifiable information that can be used by the market to gather information and produce a firm valuation. Neither the FASB of the SEC are consistent in their policy, which may lead to fraud and overvaluations that conservatism seeks to address.

Summary of Zhang’s Article

The article in question explores the effects of accounting conservatism on the debt contracting process. It is stressed that conservatism is associated with certain benefits to lenders, which makes this approach seem less attractive for borrowers. Hence, the focus on fair value is quite common. The author states that the role of conservatism has been well-researched, but the field lacks empirical evidence of its impact on both lenders and borrowers. This study addresses the mentioned gap. The researcher comes up with the following hypothesis:

• Hypothesis 1a: The more conservative borrowers tend to violate debt covenants more often as compared to the less conservative borrowers.
• Hypothesis 1b: The more conservative borrowers tend to violate debt covenants sooner as compared to the less conservative borrowers.
• Hypothesis 2: More conservative borrowers tend to have lower interest rates.

The author evaluates accounting conservatism with the help of several measures. These aspects include earnings’ sensitivity to negative changes as compared to sensitivity to positive changes, nonoperating accruals, and the explanatory power of positive and negative changes, earnings’ skewness. These measures are also used to check the hypothesis developed.

To check the three hypotheses mentioned above, the author uses a sample of 327 companies that experienced one or more adverse negative price shock between 1999 and 2000. The eligible companies’ debt contracting documentation was available. The companies had to be characterized by a certain degree of conservatism. The major contributions of the research, as stated by the author, include the provision of empirical data concerning the benefits of debt contracts to both lenders and borrowers. Furthermore, the article can be helpful for standard establishers who try to choose between the fair value approach and conservatism.

It is found that the more conservative borrowers tend to violate debt contracts when some adverse price shocks occur. At the same time, conservative borrowers have lower interest rates. These findings are regarded as evidence of the benefits of accounting conservatism for both borrowers and lenders. It is emphasized that the majority of works on the matter focus on the benefits of accounting conservatism for lenders. However, this research also unveils some positive outcomes for borrowers. In simple terms, conservatism is beneficial as lenders manage to mitigate their downside risks while borrowers get lower interest rates. Conservatism is also seen as a factor contributing to the efficiency of the debt contracting process.

The researcher mentions certain limitations to the study in question. The major limitation is associated with the sample size. It is noted that due to the limited number of companies participating in the research, the findings can hardly be generalized. Besides, bank loans became the focus of the paper while private placements and public debt were not analyzed. Therefore, there are chances that the outcomes can be somewhat different.

At that, the author stresses that the findings are still relevant as bank loans can be regarded as an appropriate illustration of the benefits of conservatism. Finally, the researcher mentions some areas for further consideration. For instance, it is beneficial to focus on the role of conservatism in the development of accounting policies. Future research can address the limitations mentioned above.

Summary of Nikolaev’s Article

The article under analysis dwells upon the relevance of accounting conservatism to debt covenants development. The major focus is on the timely recognition of losses and their correlation with the use of covenants. The author states that covenants are aimed at minimizing the opportunism of managers and mitigating the risks of bondholders. However, even debt contracts do not ensure that this major goal will be met as loss recognition can still be untimely.

The major finding reported is that the use of covenants in the process of public debt contracts development positively correlates with timely recognition of losses. The researcher emphasizes that public debt contracts are associated with limited demand for timely recognition of economic losses.

At the same time, the author notes that managers still tend to report losses promptly due to several reasons. These factors include the need to maintain the company’s reputation and litigation risks. The author hypothesizes that timely loss recognition grows if debt covenants are used in the process of public debt contract development. The second hypothesis is as follows: firms relying on the extensive use of covenants tend to focus on timely loss recognition after the debt issue.

The third hypothesis is as follows: if a firm relies on private debt, the association between timely recognition of losses and the use of covenants in public debt contracts decreases. Finally, the researcher hypothesizes that the association between timely recognition of losses and covenants used in public debt contracts becomes more apparent if the number of covenants in private credit contracts is significant. The sample size is significant as the author analyzes 5,420 company-year observations during the period between 1980 and 2006. The corresponding accounting documents from 2,466 firms were analyzed.

The major findings of this study are consistent with the existing research but add valuable insights into the matter. For instance, the author reports that companies using covenants extensively in public debt contracts tend to exhibit high timely loss recognition. Moreover, the growth of timely loss recognition often takes place a year after some debt issues. The author concludes that the use of covenants in public debt contracts promotes timely recognition of losses. At that, the occurrence of private date negatively affects timely loss recognition. The researcher stresses that the use of covenants in public debt contracts cannot be regarded as a replacement for timely recognition of losses.

The researcher identifies two major limitations to the present study. First, there are chances that timely loss recognition and the use of covenants in public debt contracts are complementary to each other. It is also vital to remember numerous factors affecting the development of companies and managerial decisions. Second, it is noted that the tightness of covenants is difficult to estimate due to limited resources although this factor can play an important role in the process of contract development and managerial opportunism.

Nevertheless, the implications of the study in question are apparent. Standard setters can benefit from the research as they will understand that covenants do not ensure timely loss recognition. On the contrary, the use of covenants is associated with a strong demand for timely loss recognition. Finally, it is essential to remember that public debt contracts are often associated with timely recognition of losses especially if some debt issues persist while the existence of some private debt issues tends to hurt timely loss recognition.