Tuesday, September 9, 2008

Fundamentals of Banking

There are times when, while trying to do one thing, something else gets accomplished. This is akin to serendipity where you find one thing while looking for something else. In economics we would call it a positive externality - a benefit for parties outside the original transaction.

In the recent issue of The New Republic Robert Solow reviews Kevin Phillips' new book, Bad Money. It is serendipity for the economic educator.

I suspect that Solow's review was read by many people, looking to his suggestion about the book. But the rest of us benefit from an excellent explanation of the role of banking in the economy. Having read Solow's review, I'm not sure I would read Phillips' book, but for an introduction to the role of banks as intermediaries and transformers of risk, you'd be hard pressed to find something better than Solow's discussion. Furthermore, he gives good explanations of other issues like oil and the value of the dollar. For those of us looking for short, clear explanations of topics that our students often find confusing, consider this serendipity... or if you insist on using economic terms, consider it a positive externality.

I look forward to your comments.

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