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.