Explaining Wall Street, recessions and the economic crisis to kids
By — Neil Irwin,
People talk a lot about the economy, and lately they’re not saying very nice things. Things such as “the economy is terrible” or “the economy is awful” or “the economy smells worse than last week’s fish.” (Okay, maybe not the last one.) But what is the economy, and why are people so unhappy with it?
The economy isn’t a thing so much as an idea. It’s the system through which grown-ups work and earn money, and buy and sell things. When the economy is doing well, it means that almost everybody who wants a job is able to find one, people are earning enough money and they are able to use that money to buy the things they need.
When things are working right, the economy is a happy circle: When your parents have a job, they use the money they are paid to buy groceries. And the owner of the grocery store uses the money they pay him to pay his employees, who in turn are able to buy the things they need, and so on.
People aren’t happy with the economy because it isn’t working that way. A lot of adults who want a job aren’t able to get one right now — 14 million of them, in fact! And because they can’t get a job, they can’t afford to buy the things they need, which is hard on their families.
Unfortunately, when there are a lot of people who can’t get a job, our happy circle becomes a nasty circle. Having all those people not able to work means that they can’t buy as much food or clothing. That means that the store that would normally get business from their spending has fewer sales, and so it might have to fire one of its employees, which leaves that worker with less income and less ability to buy things. It’s a bit like tipping one domino and watching all the others fall.
When that happens on a wide scale, it is called a “recession,” and that’s what the United States — and much of the world — has experienced recently. The government has tried a lot of things to try to stop that cycle and help people get jobs, but they haven’t worked well enough to improve things much — even though the recession officially ended more than two years ago!
What is Wall Street?
You may have heard about Wall Street, which a lot of people are angry at right now. So what does that have to do with the economy? Wall Street is one small street in New York City, but it refers to the biggest banks and other financial firms. (In the old days, the financial firms were located in and around Wall Street, but now they’re all over the place.)
The United States went into a recession because Wall Street’s firms lent a lot of money several years ago and took other actions that were very risky. They did this because they wanted to make more money; some would say they were greedy. And then they lost so much money that some of the firms went out of business, and others stayed in business only because the government lent them lots of money.
But when financial companies go out of business, it’s hard for ordinary people and businesses to get loans, which is why the problems on Wall Street caused a recession all over the country. The people protesting against Wall Street are angry that financial people are now okay while the rest of the country is still suffering.
— Neil Irwin