The Most Important Economic Stories of 2013—in 44 Graphs

Evan Soltas, Washington Post, Bloomberg View: This map from Raj Chetty's recent work shows which regions have better and worse intergenerational mobility (lighter is better and darker is worse). As I've said before, I know intergenerational inequality is a very uncomfortable subject for Americans. But we need to talk about it more. Only when we recognize that the Dream is largely hollow can we begin to do something about it. Progressive taxation is no substitute for real policies to address it.

Dylan Matthews, Wonkblog: This is a very simple chart but I think it does a very good job of showing how much nationalistic blinders affect how we think and write about the distribution of income and wealth. Consciously or not, many of us are stuck in a vulgar Marxist mindset where decisions within countries about how much each group gets are of crucial importance. The Occupy movement's "99 percent and the 1 percent" frame gets at this explicitly, but there's a broader tendency, of which I'm as guilty as anyone, to focus obsessively on whether a given policy is "progressive" or "regressive" intra-nationally. But while that really was the most important cleavage in 1870, it just isn't anymore. Talking about a transnational proletariat made sense then; a working class person was a working class person, whether they were in Prussia or France or wherever. But someone in the bottom quintile of China's income distribution does not have much in common with someone in the same position in America.

We need to shift our thinking, in World Bank economic Branko Milanovic's words, "from proletarians to migrants." The key issue going forward isn't how the income will be divvied up within rich countries. It's whether rich countries are going to continue using men with guns to keep would-be migrants impoverished in their home countries

Annie Lowrey, New York Times: This shows that short-term unemployment has returned to its pre-recession levels, but the number of long-term unemployed remains twice as high. I think it's the most powerful depiction I've seen of how the recovery has helped to normalize much of the labor force—but has left the long-term unemployed behind.

Catherine Rampell, economics reporter, The New York Times: The chart above is an updated version of one that Joshua Lehner, an economist at the Oregon Office of Economic Analysis, posted last year. As you can see, job losses lasted much longer in the aftermath of the financial crises that hit, among others, Finland and Sweden in 1991 and Spain in 1977, as well as the United States during the Great Depression.

Michael Mandel, Progressive Policy Institute: The tech boom has opened up new opportunities for minorities. Over the past two year, the number of blacks working in computer and mathematical occupations has risen 28%, while the number of Hispanics working in computer and mathematical occupations has risen by 24%. That's more than double the 10% rise in overall tech employment.

Victoria McGrane, Wall Street Journal: We are in the fifth year of economic recovery since the Great Recession, yet Americans are still fleeing the labor force. That raises questions about just how healthy the labor market really is. The labor force participation rate—Americans who are working or actively looking for work—is 63%, near the lowest level in 35 years. November’s 7% unemployment rate was the lowest in five years, but the drop has been driven in part by the falling participation rate. Among other things, the labor-force-participation puzzle is complicating Fed officials’ efforts to judge the effectiveness of their stimulus programs as they eye the exit from their $85 billion-per-month bond-buying program. Remember when Ben Bernanke predicted in June that the jobless rate would be 7% when QE3 ended?

The Year in Banking: This Time Is Different. Really.

John Carney, CNBC: This chart really shows how the crisis transformed Wall Street. Investment banking and brokerage were brought down to what looks like permanently lower levels. Portfolio management, however, didn't crash as hard and is now the last growth business on Wall Street.

Iza Kaminska, FT Alphaville: This shows banks' price to book ratios, which, despite everything, have not recovered to pre-2008 levels. That chart is from the latest quarterly BIS review. I like it, because it shows "something" is happening in the US and the UK: banks' loan books are about to penetrate beyond the vital 1:1 ratio after a steady run up, meaning loan books are now expected to deliver performance by the market. Tangible equity in banks is being rebuilt. The last time these ratios traded near these levels was in the aftermath of the original QE programs, which had managed to move expectations notably. The question we must ask now, however, is will they continue trade above the 1:1 mark or are they just going to hover at 1:1 for the significant future. This is important because it has consequences for the distribution and fungibility of bank money as well as banks' ability to raise capital cheaply and to retain it.

Matt Zeitlin, Buzzfeed: This shows investment banks' return on equity. Now, complain all you want about the shortcomings of Dodd-Frank and Basel III, but one thing is clear: Investment banks haven't gotten close to generating the returns that their investors demanded before the crisis. While some banks are well above the 4% average return on equity (Goldman Sachs is at 10%), the industry really has gotten less profitable (driving down the numerator) and better capitalized (boosting the denominator). And if banks really can't generate that much on the capital they get from their investors and their earnings, they might even get smaller. Too bad for the bankers, though.

The Year in Investing: Bulls and Tapirs

Felix Salmon, Reuters: This chart suffices to explain why the markets care so much about the taper: central-bank buying accounts for $1.6 trillion—more than half—of the total demand for bonds in 2013. Meanwhile, private banks are taking the opposite side of the trade: while they were huge buyers of bonds in 2007 and 2008, they’re net sellers in 2013 and 2014, more or less completely negating the buying pressure from pension funds, insurance companies, bond funds, and retail investors. In 2014, it seems, substantially all the net demand for bonds is going to come from the official sector. So it matters a great deal when that demand is diminished.

What’s more, central-bank buying, overwhelmingly from the Fed and the Bank of Japan, accounts for the lion’s share of official-sector buying: Sovereign wealth funds and other foreign official institutions will buy just $364 billion of bonds this year, according to JP Morgan’s estimates, down from $678 billion last year. So the heavy lifting is very much going to be conducted by QE operations.

Joe Weisenthal, Business Insider: 2013 will do down as the year the financial crisis really came to an end. For the first time since 2008 there were very few moments when it felt as though things could unravel again. In markets, one of the characteristics of a crisis is extreme correlation between multiple asset classes: everything trades up or down together. Fund managers have lamented the "Risk On/Risk Off" environment that's dominated markets since 2008. With the crisis coming to an end in 2013, so too have these extreme correlations. This chart from Nomura measures the extent to which various asset classes move together. As you can see, in 2013, these correlations saw a dramatic fall.

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Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

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