How the past can help us to understand the economic future after corona

Which financial relief program will work?

Hi, this is Mirko, co-founder and chairman of Datawrapper. The challenge after the current health crisis (which, let’s hope, we will overcome soon) will be to get the economies going again. This week’s topic presents ways how to track economic development over time, with examples and suggestions. They’ll show that given the many complexities, ongoing data-collection and reporting about economic aid programs will be as important as proper execution.

This has never happened before: Almost all countries in the world will have to find ways to re-start their economies after the coronavirus crisis is over. As journalists, statisticians, analysts or commentators, how can we judge whether the programs are working and have the desired outcomes?

A sample long-term view on economic development: the pivotal year 1979

This week I’d like to show that multiple charts are needed to investigate economic development. We will look at a major shift in the US economy around 1979, and what happened before and after.

In the post-war period from 1947 to 1979, life improved for many Americans. Production and consumption grew year by year. Economic growth translated into prosperity for almost everyone.

But that didn’t last. The economic boom started to stutter. The oil crisis came as a shock, people realized there were limits to growth. Some traditional industries started to decline.

The government reacted. Deregulation was considered superior to state-control, so governments got rid of state-owned companies. One key change: Taxes for higher incomes were lowered, based on a belief that this money would be re-invested and then “trickle down” to benefit everyone.

These politics had unintended consequences which were hard to correct later, as our first chart shows: The connection between productivity and compensation broke up. Even in a growing economy, incomes stagnated for the traditional worker, a sizable segment of the population. There were other factors, too: Rising automation, less dependency on manual work, the dawn of information technology.

One school of economists sees this period as the starting point for rising inequality, where a small group of society is getting much, much richer while many others see their incomes stagnate or decrease – as rising costs for goods and services as well as inflation reduce their purchasing power:

The snapshot above looks deeper at different income groups. The -4% for the bottom fifth are alarming. Such outliers should always be kicking off deeper investigations.

But there is more. When wages started to stagnate, more women started to enter the workforce. This had many causes, one being the very positive goal of equality and independence. But note that the data is data for women with children under 18 years of age. We should start asking questions, at best to the people in this particular group:

Now, on to another long term development: Private households went into debt more and more over decades – until it reached unsustainable levels and caused the economic crisis of 2008. Strangely though, in the years before, banks would still lend more money.

In summary: Since 1979, the economic situation of many US-Americans has changed drastically. Some, but by far not all, still experience prosperity. But large groups are struggling and see their income shrink with few options out of the situation.

All charts above are snapshots. But they tell a story worth further investigation.

I believe that a similar investigation must happen to track and evaluate the economic relief programs currently rolled out – for each country, with many comparisons and by focusing on best practices and successful strategies.

Data-driven reporting should keep track of the main outcomes:

  • How well are the intended steps executed?
  • How fast is money paid out to those who need it?
  • Who benefits?
  • Is there a group being left behind (poor, middle-class, shop owners, small businesses)

Historically, countries that consider these questions and aim for higher income equality are doing better than systems in which extreme wealth and poverty exist side by side.

If you’d like a thought-provoking read about this topic, I can recommend the book “Why Nations fail. The Origins of Power, Prosperity and Poverty”. Also have a look at this printed graphic by The New York Times that inspired this Weekly Chart got inspired. Let me know what you think in the comments below! And we’ll see you next week.