- Derek Thompson is a senior editor at The Atlantic, where he oversees business coverage for the website.
The Most Important Graphs of 2011DEC 21 2011, 2:55 PM ET
What is it about graphs and economics? In a discipline where facts are murky and certainty is elusive, graphs offer a bright light of information and a small confidence that the world can be summed up between two axes. So when the BBC asked a group of economists to name their graph of the year, we decided to do the same (so did Wonkblog!). Here, from economists on left and right, and from economic journalists from around the beat, are the graphs of the year. Click through the gallery or scroll down to find the graphs organized under categories including Europe, spending & taxing, and energy.
Europe's GDP Falls, Can't Get Up
"People say Europe is hobbled by too much borrowing and irresponsible debt, but even the most prudent lender in the world is going to go bust if nominal incomes fall 15 percent below trend." -- Matthew Yglesias, Slate
"A phrase you sometimes hear in financial markets is 'punish the printer.' The idea is that countries that are printing a lot of money will see their currencies dive. But a defining characteristic of 2011 was that markets loved printers. Specifically, countries that were able to print their own money saw their borrowing costs plunge, while countries (even fiscally responsible ones) that didn't have this ability saw their borrowing costs jump.
"My favorite example of this is Sweden vs. Finland. The former is outside of the euro zone and can print its own money; the latter uses the Euro and can't. Historically, the two countries have borrowed money at roughly the same rate. Both are considered to be stable and fiscally disciplined.
"In this chart, the green line is the yield on the Finnish 10-year bond. The orange is the Swedish 10-year bond. Starting in the Spring, Finland began to pay a penalty, but still, the two roughly moved in the same direction. It was in late November, when the European crisis got to its hairiest point (even Germany had a failed auction) that you really saw the difference. Finnish yields spiked at the same time Swedish yields plunged. Investors flocked to the country that could print its own money. This defining idea of 2011 also resulted in ultra-cheap rates in the UK, Japan, and of course the U.S." -- Joseph Weisenthal, Deputy Editor, Business Insider
"Despite repeated European Summits over the past eighteen months that were supposed to provide definitive resolutions to the European debt crisis and despite enormous IMF-EU bailout packages, government borrowing costs for the European periphery rose to unsustainable levels. More disconcerting yet, by mid-2011, a crisis that had embroiled the smaller countries like Greece, Ireland and Portugal, started knocking on the door of Italy and Spain, which is now calling the very survival of the Euro into question" -- Desmond Lachman, AEI
The Investment Collapse
"These are modified and updated figures originally done by James Hamilton on his terrific Econbrowser blog. The first shows the percent change (logarithmically) in real GDP and in residential investment (both measured from the value of the business cycle peak) averaged over the last ten recessions, with the number of quarters since the start of the recession on the x-axis. The second figure shows the same things for the most recent recession. In the previous recessions, GDP typically reached a low point after two quarters (at a value of 1.6 percent below the peak) and took 5 quarters to return to the pre-recession value. Residential investment typically reached a low point after two quarters (dropping 8.6 percent), but then recovered quickly. Now note what has happened in the most recent recession. Real GDP was down more than 5 percent at the low point and took about 15 quarters after the peak to return to the pre-recession levels. Most strikingly, residential investment dropped nearly 50 percent and is still near its low 15 quarters after the recession started." -- Ted Gayer is Co-Director of the Economic Studies Program at Brookings and a Senior Fellow.
The Investment Collapse, Part II
"This chart shows that residential investment usually provides a strong and early contribution to growth post-recession but is not doing so in this recovery. This is in contrast to equipment and software, which is contributing to growth. The lack of robust recovery in the housing market continues to be a significant problem for the economy." -- Adam Ozimek, Modeled Behavior
"The economy suffered a severe shock during the recession, with the result that economic activity, represented by the blue line, contracted sharply. Since then, GDP has recovered at a steady pace and now stands above its pre-recession level. However, GDP growth has merely kept pace with its trend (or potential) rate, the red line, which is a function of population growth, changes in labor supply, and productivity growth. As a result, the gap between what our economy is producing and what it could produce if it were operating at the level implied by the trend has not closed much. The green bars show this unused capacity to have equaled 7.4% - or more than $1 trillion - of potential output in Q3 2011. This unused capacity represents workers who cannot find jobs, idle machinery, and foregone opportunities for growth; in this challenging economy, this chart underscores why we must continue to focus attention on investments in the economic recovery and long-run growth." -- Treasury Assistant Secretary for Economic Policy Dr. Jan Eberly
"The chart shows real GDP in the U.S. and the level of total civilian employment from 2002-2011. The total output of the U.S. economy in Q3 of this year finally increased to a level above the output in the fourth quarter of 2007, when the recession started (blue line). In other words, the U.S. economy has now made a complete recovery from the 2007-2009 recession. But the labor market is still struggling to recover. We have 6.6 million fewer jobs today in the U.S. than in December 2007 when the recession started (red line in chart), along with a 8.6% unemployment rate, and thus another "jobless recovery." On the other hand, it's remarkable that the U.S. economy is now able to produce more output than in 2007, but is doing so with 6.6 million fewer workers, as a result of significant gains in productivity brought about by the severe recession. Therefore, the chart helps to tell the story of two different sides of an economy in recovery: we've seen huge gains in productivity and a recovery in output, but at the same time we see a labor market struggling to recover, with the possibility that it will take many more years or even a decade to regain all of the millions of jobs lost during the recession." - Mark J. Perry, Ph.D., visiting fellow, American Enterprise Institute
"Greece, Italy, Spain and other countries are suffering from a financial and economic crisis - fueled by unmanageable debt and monetary policy failure - that will surely affect the U.S. economy. As this graph shows, debt held by the public in the U.S. totals about 70 percent of the economy. For the U.S. to avoid going down the same path as Europe, Washington must curb federal spending." -- Emily Goff, Research Assistant, Thomas A. Roe Institute for Economic Policy Studies, Heritage Foundation
"Since the adoption of President Johnson's Great Society programs, spending on entitlement programs has grown more than five times faster than annually appropriated discretionary spending. The entitlements run on autopilot, with rare congressional oversight. This unsustainable rate of spending threatens to overwhelm the budget and smother the economy." -- Patrick Louis Knudsen, Grover M. Hermann Senior Fellow in Federal Budgetary Affairs, Thomas A. Roe Institute for Economic Policy Studies
Average Tax Levels Won't Keep Up With Spending
"As this graph shows, under average historical levels of revenue, Medicare, Medicaid, and Social Security will consume all tax revenues by 2049. We must reform these entitlement programs now to make them fiscally sustainable and to ensure that seniors are protected from poverty, without burying younger generations under insurmountable levels of debt." -- Romina Boccia, Research Coordinator, Thomas A. Roe Institute for Economic Policy Studies
It's a Spending Problem, Not a Tax Problem...
"This graph refutes the claim that inadequate tax revenues are causing America's deficits. Revenues are low due to lingering effects of the recession, but they will surpass their historical average as the economy recovers. Meanwhile, spending is on a runaway train and will rise well above the historical average by the end of the decade. Washington's spending problem is clearly to blame." -- Alison Fraser, Director, Thomas A. Roe Institute for Economic Policy Studies
... Oh, It's a Taxing Problem Alright
"The federal budget deficit this year will approach 10 percent of GDP, an unsustainable level that will soon push our national debt past 100 percent of GDP. The deficit will shrink rapidly over the next few years, to a manageable 3 percent of GDP, but only if Congress allows the 2001-2010 tax cuts to expire in 2013 as scheduled. If Congress instead extends the tax cuts--and the traditional "extenders"--deficits will not drop below 7 percent of GDP and our debt will soar." -- Roberton Williams, Tax Policy Center
The U.S. Is a Low-Tax Country
"This chart is a stark illustration of how Washington's recent policies have favored the "1 percent." It shows that the tax rates paid by two cohorts of super-rich Americans (millionaires in red and the richest 400 households in the entire country in blue) have plunged in recent years to historic lows, even as their incomes have skyrocketed. The fact that the average tax rate of the richest 400 people in the country is just 16.6 percent shows that Warren Buffett is far from the only billionaire paying lower taxes than middle-class Americans." -- Seth Hanlon, director of fiscal policy, Center for American Progress
Low Marginal Tax Rates Don't Create Jobs
"All year long, the country has been engaged in a debate over the best way to spur job creation, especially in the context of widening budget deficits. The year began with a deal to preserve the Bush tax cuts, including those for the wealthiest 2 percent of Americans, and it concluded with a fight over whether millionaires should pay higher taxes to offset the cost of the payroll tax cut. This chart neatly puts the lie to the notion that lower marginal tax rates for the wealthy will produce enormous job growth by showing that, over the past sixty years, the economy has actually produced far more jobs when the top income tax rate was higher." -- Michael Linden, Director of Tax and Budget Policy, Center for American Progress
"On the two-year anniversary of the American Recovery and Reinvestment Act, we should look back with satisfaction that we have seen the American clean energy industry through a rough period in the global economy. However, the United States risks ceding its gains and falling dangerously behind its competitors without continuing investment. Many conservatives oppose such investments. Without it, the United States will see an exodus of firms and capital to countries that are growing their clean tech industries, particularly China and Germany. U.S. private-sector firms lament a lack of clear and consistent policy on clean energy. This stymies investment and slows job creation." -- Bracken Hendricks, Senior Fellow, Center for American Progress
The Rich Get Richer
"There was a moment of synchronicity between a report years in the making from the economic wonks at CBO and the activists planning on occupying a square near Wall Street. Both turned critical attention towards the idea of the 1%. As CBO found, even after taxes and transfers, the top 1% were taking a much bigger slice out of the America economy than 30 years ago. Meanwhile corporate and Wall Street profits are up, giving the 1% a nice boost, while 2011 was a lost year for the American worker - adding to the sense the something is broken with the American income distribution." -- Mike Konczal, Roosevelt Institute, Rortybomb Blog
"There has been much discussion this year about income inequality. Some like President Obama and the "Occupy" crowd want higher taxes on the rich to make them 'pay their fair share.' But this chart makes clear that the high earners already pay a vast majority of federal income taxes." -- Curtis Dubay, Senior Policy Analyst, Tax Policy, Thomas A. Roe Institute for Economic Policy Studies
The Very Picture of Pessimistic Families
"The Reuters/University of Michigan Survey of Consumers asks: "By about what percent do you expect your (family) income to increase during the next 12 months?" This figure shows the median response. More than two years after the official end of the recession, consumers remain incredibly gloomy. Given that people are expecting some inflation, this figure implies that the typical respondent expects a decline in his or her purchasing power over the coming year. It's no wonder that aggregate demand continues to be stuck in a rut." -- Karen Dynan is Vice President and Co-Director of Economic Studies at Brookings
As Union Membership Declines, Income Declines, Too
"2011 will be remembered as the year when social movements put income inequality and the perilous state of the middle class in the spotlight. Before the Occupy Wall Street and the 99 Percent Movement fought against extreme inequality, citizens in Wisconsin and Ohio defended institutions that help promote equality, fighting back against attempts to strip public sector employees of collective bargaining rights. As the chart below shows, the decline of the union movement is a prime reason why income has disproportionally gone to the 1 percent and not the broad middle class." -- David Madland, Director of the American Worker Project, Center for American Progress
The "Plank Curve": When Liquidity Walks the Plank
"This is my favorite graph of 2011--and of every year in which there is a financial crisis. It is the Plank Curve, which shows the amount of funding ("liquidity") available to any entity as its perceived risk increases past a panic threshold. The most recent company to experience this curve is, of course, MF Global. But it is only one of a long line of instances. I first drew this curve in 1985, to describe the fall of Continental Illinois Bank, and called it the "Plank Curve" because it is also the path of a man walking the plank." -- Alex J. Pollock, Resident Fellow, AEI
The World's Strongest Economies: 1870-2030
Notes: This index is weighted average of the share of a country in world GDP, trade, and in world net exports of capital. The index ranges from 0 to 100 percent (for creditors) but could assume negative values for net debtors. The weights for this figure are 0.6 for GDP (split equally between GDP measured at market and purchasing power parity exchange rates, respectively; 0.35 for trade; and 0.05 for net exports of capital.
"This chart from Arvind Subramanian's new book, 'Eclipse: Living in the Shadow of China's Economic Dominance,' is interesting in three respects. First, it tracks broadly the economic dominance of the previous two superpowers, the United States and Great Britain. Second, it suggests today that China has come close to matching the United States in terms of dominance. Third, it suggests that under conservative assumption about economic growth for China and the United States, by 2030 the world may well see a G-1, with China as the economic hegemon." -- Steven R. Weisman, editorial director, Peterson Institute for International Economics