Refutation of a children's book


I admire Sheila C. Bair, the chairman of the Federal Deposit Insurance Corporation, more than any other official in government. Ms. Bair's actions during the financial meltdown in 2008 and in intervening years has shown a steady hand, remarkably free of partisan favor, that likely prevented a much worse banking and mortgage catastrophe.

Thus it is with a heavy heart I must reveal a book she's written that hasn't gained much notice, which is full of the bad ideas that led to low consumer savings, inflated investor expectations, and financial innumeracy.

In this book, Ms. Bair advocates:

• Immediate gratification of consumer desire.

• Disregarding employment opportunities that aren't a perfect fit when a job is needed.

• Undercutting a market with unfair competition through low-cost labor.

• Zoning violations.

• Tax avoidance on earnings.

• Avoidance of rent.

• Lack of collateral against risky investment.

• Use of shared resources for private gain.

• Disdain for state taxes.

• The use of monetary symbols to substitute for Roman characters.

The book also tells investors to expect a 100-percent return on capital in a single day, along with the dissolution of a 24-hour partnership. And, she claims that newspapers continue to print stock charts every day.

On the plus side, she encourages entrepreneurship, word-of-mouth marketing, and the value of hard labor.

Now, you might argue, "This is a children's illustrated book, you moron, and uses simple lessons to tell a complicated story!" And then you might grab me by the shoulders and shake me, and possibly slap me a few times across the face.

When I'd recovered, I'd argue in response, "True. But Ms. Bair muddles some of the fundamental aspects of economics and the market in this lesson in a way that may leave questions." I'd say that while running away from you, fast, and holding my hands in front of my head.

I hear in the distance, "Aren't you like that ranting Sun-Times columnist, Terry Savage, who, along with her brother, yelled at kids running a lemonade stand for giving away lemonade and Cory Doctorow blogged about here before and stop running away!"

Well, no. I'm not ranting. I'm dispassionate. And my concern about this book arises from the real world, not a fever dream of Ayn Randism dreamt by Ms. Savage.

My children have read this book several times, and request it all the time. This leads to awkward questions, like, "Daddy, is negative amortization a function of deflation, or does the basis of a loan remain the same regardless of CPI?" I find those questions hard to answer, or even understand.

In the book, Isabel's Car Wa$h (see what she did there with the "s"?), Ms. Bair tells the story of a little girl who wants a $10.00 doll, but only has 50¢.

Rather than recommending the age-old solution of begging her parents for money until their ears are bleeding, Isabel comes up with the idea of suckering her friends. After discarding dog walking and babysitting, Isabel spots a car wash. She fails to examine the price the car wash charges, but sees plenty of vehicles entering.

She decides to go into business washing cars without any additional market research, training, or a business plan. She finds herself $4.50 short of the funds for the supplies she needs to bootstrap the business.

Isabel remembers that friends once loaned her money for lunch, and her mother repaid them with a 40-percent premium for assuming the risk. Using that as the basis, she prepares a road show to sell her initial public offering, selling 50 percent of her shares split evenly among five friends.

Ms. Bair now takes a huge leap into socialism. Isabel sets up shop, without any permits, in her parents' front driveway in likely contravention to neighborhood convenants about operating businesses. She uses her parents' water and facilities, but pays them no dividend or rent. Shameful.

Her first customer isn't concerned about quality, but price. She spreads the word that a child laborer is offering what is likely an 80-percent discount off the going rate for an automatic car wash. (Remember that Isabel didn't find the going price, so she has imperfect knowledge and underprices her labor. She realizes this when called upon to wash a dog.)

After a hard day's work in which Isabel generates about $2.50 per hour, she repays her investors a 100-percent dividend and cashes them out, dissolving her company. For a total of $25 raised, Isabel keeps $10, or about $1.25 per hour. She pays no taxes and provides no 1099 forms to her shareholders. (Once again, socialism: her mother provides free cookies and lemonade, and provides a meeting space for the corporation at no cost.)

Isabel is set to purchase her doll (street price, $10), but on arrival at the store is visited by the dread spector of state sales tax: a 5-percent fee is levied on the doll. (Dolls have a 5-percent tariff in Isabel's state, along with shelled split peas, dog collars, and used DVDs.)

Curses, she thinks (I'm assuming that), as Ms. Bair veers into libertarianism. Unjust state, taking my earnings! Nonetheless, Ms. Bair has Isabel deplete her savings, taking her last 50¢ to pay the full $10.50 for the price. This leaves her with nothing, and the doll is only worth $4 when she leaves the store with it. Consumer impulses--gratified!

In a dense two-page addendum, Ms. Bair explains what happened, but likely leaves children more afraid of bears than they were when she started.

This short book contains the entire spectrum of economic philosophy and speculation, leading children into a trap: kids who read these book are likely to become economists and derivative traders, and create new, worse financial vehicles and theories that will eventually take us down.

Ms. Bair is the worst form of super-villain. A patient one.


  1. Minor point: It was Terry who did the yelling at the lemonade stand kids. Her brother (not in-law) only asked the kids how much the lemonade cost.

  2. Unless the water running off of those cars is draining into the sanitary, or combined sanitary, system she is likely in violation of local bylaws and environmental regulations. She probably balked at filling out a chemical release form too!

  3. In the sequel, Isabel starts a lemonade stand with lemons from the lemon tree in her yard, and then her family is sued by Tropicana and found guilty for not providing proper USFDA paperwork. Her mother goes broke in legal fees, and Isabel’s family is reduced to destitution. It ends with Isabel walking to a nearby gas station (since they had to sell the car) to buy Tropicana lemonade with her family’s food stamps. She walks past the toy store, and sees all the dolls that her family, and she, and her children, will never, ever, ever be able to afford, especially since her father left the family. At the convenience store, she meets a man selling drugs, who offers to buy her a doll. She is so happy and thankful that she reciprocates when he asks for sex in exchange, and doesn’t even leave him when he begins to become abusive, because then who would buy her things, and who would pay for her own baby to have things? She eventually dies at the hands of her abusive babydaddy, after asking him for some money to buy their baby clothes.


    1. That’s hardly free market. In a free market, there wouldn’t be a USFDA to have caused the entire downfall.

      Next time you want to criticize capitalism, don’t base it on it’s bastard child that America likes to pretend isn’t any different.

      1. Perhaps I should have made it more clear that Tropicana was manipulating USFDA policy specifically to limit its possible competition, but I did figure that was pretty obvious.

  4. This post explains the book along with some mistakes Isabel makes. It then makes a leap to say that “kids who read these book are likely to become economists and derivative traders, and create new, worse financial vehicles and theories that will eventually take us down.” but it gives us no reason why and explain no mechanism that would turn the child readers of this book into derivative traders.

    Just like high school word problems. Please show your steps and explain your work.

      1. Isabel’s friends could have taken their shares in Isabel’s company and purchased insurance against Isabel’s being unable to pay dividends. Then the people who sold Isabel’s friends’ dividend insurance could also have a large number of insurance policies for which they were collecting premiums against driveway car-wash dividend default.

        They would then sell the rights to the premiums cashflow for those policies divided into several portfolios, each of which was a mix of high, medium, and low risk car washes.

        Each portfolio would be sold in quintiles based on risk. Other investors would buy, say, premium car-wash dividend default insurance premium cashflows and repackage those into new vehicles, against which futures contracts would be sold.

  5. Isabel’s friends are the DERIVATIVES.

    Isabel has bundled their economic futures and offered the collective fund for investment in the market. All those so-called “friends” will grovel in indigent circumstances throughout their 20s and 30s, thanks to Isabel’s thoughtful financial handiwork, while Isabel enjoys life on a private Caribbean island.

  6. I have not read the book, but… several things come to mind.

    1) Not all areas have zoning restrictions.
    2) Not all areas have property associations or CCNRs.
    3) Some car wash supplies, when used properly, do not generate an environmental hazard.
    4) The gratification was not immediate. She had to work for it.
    5) Immediate gratification gets a bad rap sometimes. Remember, your time alive is finite, and the money value of time must be balanced against the time value of money.
    6) Not all labor is equivalent. I’m quite sure that the car washes that she performs are inferior to those provided by a high-quality professional detailing firm.
    7) Sometimes you get what you pay for. The aforementioned professional detailing firm charges a lot more than she does.
    8) Not having assets in liquid form is OK if you have no risks and no debts. Spending her last $0.50 on something that she really wanted, given her situation, is perfectly rational.
    9) What is right for one situation is not right for another. If she was in Africa and dying of malaria, and could spend that $10.50 on medication, spending it on a doll is a bad idea. However, the protagonist in this story is not in Africa, nor is she an adult, nor is she in any other situation. Thus, what is right for her is not necessarily right for anybody else.
    10) She is a fictional character in a book intended for children. Her actions should not be over-analysed.
    11) I am amazed that I managed to draw that out for 10 good points!

    Capcha: “outvoting effected”… LOL.

  7. Spector is a record producer. Spectre(or specter) is a shade, a shadow, a malign spirit, a badass C-130 and a foe organization for James Bond.

  8. Your analysis is good, but doesn’t quite fly,
    Re: Socialism. Wherein does it lie?
    Free things were given, or so it was said,
    But Isabel held no gun to her mother’s head.

    And now that you know what socialism is,
    They’ll be no more mistakes, right? Gee whiz!
    Capitali$m is a system with voluntary exchange.
    Our economy is mixed, that’s what makes it seem strange.

  9. One copy in the entire LAPL system, and it’s on its way to me. I gotta see what this is about. By borrowing this book instead of buying I make my own statement; namely, “I am borrowing this book instead of buying it.”

  10. Bit late, but I’ve just remembered where that allegory seems a bit familiar from:

    In 2006 – a year after coming second in an election – New Zealand election the National Party mailed out a card with two kids selling lemonade on it and the tagline ‘How Much Will You Let Them Keep?’, the idea being that taxes were hampering “initiative”.

    I had a similar reaction to the applicability of the idea and took the mickey here, though it may be a bit opaque to international readers.

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