Taking the credit crisis, federal bailout plans to middle school

Last week, I spoke to a group of 30 middle school students about what’s been going on with the U.S. economy, the credit crisis and the massive federal efforts to address both.

The seminar teachers at Haverford Middle School wanted to bring home the historic events of the last few weeks to their students.

The textbooks on this financial disaster haven’t been written yet. As an observer of the swirl of government rescues, market swings and bank takeovers, I can’t think of a better time to have a discussion about our economy and economics in general.

But I viewed this talk as a challenge because I’ve found it hard to explain to adults what’s been going on and why. Economics really doesn’t get taught until high school. How would younger students digest it?

Their teachers, Kristin Luther and Mona Ezra, wondered about it, too. They’d planned to present some basic economic concepts, such as what’s a recession, and discuss why the price of a gallon of gas rises and falls.

Never in a million years did they expect their students to be asking about foreign investment in the United States or how mortgage-backed securities work.

(But then few of us ever expected that the man running the Federal Reserve, whose academic specialty was the Great Depression, would wind up needing to apply what he’d learned.)

Let’s face it. Economics can be really dull. Analyzing trade patterns and concentrations of economic activity may win you a Nobel Prize, but most people would rather hear about why companies shrink a product’s packaging instead of raise the price.

That is, they do until you have a frightening phase like we’re going through right now. Then, none of us can read enough about how the experts think the economy works. And we realize that, just like any other profession, economists don’t agree on a lot of things, including how to fix the mess we’ve gotten ourselves into.

As I prepared for my talk, I stumbled on a publication on the U.S. Department of State’s Web site called “An Outline of the U.S. Economy.” I think it should be mandatory reading right now.

The most recent edition was assembled by two former Wall Street Journal reporters and posted in 2001. So it’s not exactly ripped from today’s headlines. Still, it presents a concise history of the U.S. economy and describes many of its component parts. Read this and you’ll understand better the role government has played in the economy over the years.

The outline also asks provocative questions: “Is there a limit to how much growth can - and should - be sustained?” and “How ‘free’ is business in America’s free enterprise system?”

The Haverford Middle schoolers had their own questions. Why do stock prices go up and down? Why should teenagers should care about the economy? But their most telling question was:

Why were all of the companies involved in the subprime mess allowed to do what they did?

Telling these children that “it was largely legal” isn’t a very good answer. Never mind legality, these students wanted to know why it was ethically appropriate.

Such a simple question. But so many possible reasons: Public policy to encourage everyone to own a home. Cheap credit. Financially engineered securities that were misunderstood by those who created them, bought and sold them, and rated them. Inadequate oversight.

And let’s not forget the simplest answer of all: greed.

It’s hard to resist the lure of “more and better now” in a credit-card society. And investors, seduced by ever-higher returns, check reason at the door when an investment class is in full bubble.

These are hard lessons and I hope we’re learning from what has become a global crisis because our children have lots of questions.