Wednesday, August 18, 2010

Rock, Brock, and Isabel

Although Sheila Bair, as chair of the US FDIC, may have recently taken a Greenspan-like turn for the worse, like Greenspan she produced some good material prior to that turn.   Perhaps her best contributions to the world of economic understanding are contained in two children’s books: Rock, Brock, and the Savings Shock and Isabel’s Car Wa$h.
I like both of these books. Through simple story examples, they explain how interest is compounded and how capital investments work, respectively.

What it lacks in real interest rates, the Rock and Brock tale makes up for in describing the relative cost of short-term spending vs. savings behavior.  It’s quite similar to One Grain of Rice in illlustrating exponential growth in an understandable way.  

But it’s Isabel who is a miniature capitalist hero. She wants to make money to buy something for herself, thinks hard about a way to do it, persuades her friends to invest in her efforts, does all the work – and does good work – and is successful both for herself and her investors. It is notable that Isabel’s well-planned and industrious efforts are almost sunk by her failing to account for taxes near the very end of the story; but like magic, she digs deep into her pockets and manages to find the cash.
Bair may top these winning, colorfully illustrated 32-pagers with her next book, Causes and Current State of the Financial Crisis: Testimony before the Financial Crisis Inquiry Commission, but I won’t hold my breath.  My economic understanding might always remain with the principles presented by Rock, Brock, and plucky Isabel.

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