Visualizing the economic crisis

As part of a data visualization course we were asked to create a visualization of any topic, as long as it shows some results. This is geared towards getting to know certain tools used often in the data visualization world. Together with fellow student Hans Janmaat I took a look into the economic crisis. We gather some data and played around with certain visualizations.

the Crisis

Nowadays there is no misunderstanding that we’re in a crisis. It’s all over the news, everywhere you hear horrible numbers about economies and you might even get the idea that our whole society is going down. And the crazy thing is, in every day life, one can hardly notice the mayhem we’re in. So what is this crisis all about, and when can we actually speak of a crisis? As the answers to these questions do not even exist by definition. We will try to find our own and describe the result in this page so also other could ease their mind.

Causes

Apparently a crisis has multiple causes, so we will go through some parameters and will evaluate them from the most simplistic point of view. This is because we’re not an economist ourselves and hate it when people  trow around numbers that are used so often that they assume that it is obvious what they mean. For us (and we think most others are with us on this) they’re not so obvious and that is exactly the reason why we’re going to dive in just yet. We have to mention that this search will be bounded to Europe as the situation right here is already quite interesting on its own, so let’s start with that.

Finding the key parameter

The first parameter we’d like to examine is debt. ‘Debt’ often goes easily with the word ‘crisis’, so there must be some relation. As we look at the debt of Europe of the past 15 years (click play in the upper left corner on the linked page), we can conclude that debt itself is not a thing that defines a crisis as there is always debt also when we don’t speak of a crisis. So let’s take a closer look upon this debt thing.

Debt

First a few basic words about debt to show that it isn’t that complex after all. Debt is money you still have to pay to someone. This means that somebody that lends you money believes that you will pay that money back and there must be some reason for one to lend you that money. Now lets discuss the reason to lend money later and lets first look at why someone might assume that he will get his money back.

Income

Just like most people, governments also have an income (for example out of taxes or oil sales) and as this income is known beforehand, one can calculate whether a government can repay its debt. Like in everyday life, one with a big salary can take a bigger mortgage than one with a small salary. A widely accepted parameter to indirectly express the income of a country is the Gross Domestic Product, later GDP. That is the reason why debt (and other parameters) are often expressed as part of the GDP.

Debt expressed in GDP

Now lets look again at the debt of European governments but now debt as a percentage of GDP. This is already a much more saying graph which, if you play the animation, is a quite impressive visualization on its own. But we are on a quest to specific answers so we need to focus. When we come closer to the crisis (the last few years) we see the debts changing so lets examine a little further why this happens.

How debts change

When governments spend more money than they receive, debt increases and if they spend less, debt decreases. This simple rule holds for the absolute debt in euro’s. But to normalize the debt to a country’s economy, we express it in GDP and this can also change. So now when absolute debt remains the same, Debt in GDP will increase when GDP decreases and vice versa. So it would be nice if we could find a graph of these parameters against each other so we can see how a government is performing from a business point of view. Unfortunately we couldn’t find this kind of graph so here we have to get a little creative ourselves.

Visualizing the key parameters

Luckily most of this data is available at EuroStat of which other data have also been used multiple times around the data blog. So we need to have data of government spendings versus income, which is compressed as budget surplus/deficit and GDP growth. When we plot these parameters against each other we can actually draw a curve which defines whether the relative debt will increase, remains the same or decreases. Thus, we now have a real threshold on how a government is performing as a business (how cool is that). To make this line even more intuitive we rotate the axes 45 degree counter clockwise so that the axes are now diagonally and the curve changed in a symmetric bowl. Now the key issue is: if a government is above the bowl, it is healthy, debt is relatively decreasing. If it is beneath the bowl, problems might be even bigger then they appear in the first place as I will discuss later on and debt is relatively increasing.

Features of the visualization

A visualization has to speak for itself, though here we would like to add a few remarks about some features of the graph. The parameters at the axes are sufficiently talked through at this point. Of course the time has come into the chart so we can see how things develop along the years towards the crisis, no more words needed for that parameter either.
Then we decided to use the absolute debt of a country as the size for a country’s dot in the chart. This because we must not forget that inside Europe (and also outside) all economies are linked to each other, so if one country drops below line this affects all countries. But the size of the problem depends on the absolute debt of the country below the line, so that is why we want to see this in this graph. In other words: the bigger the dot below the line, the bigger the problem at payday. Color is used to represent the relative debt in GDP of a country, which is a nice subtle indicator of how deep in the red a country already is. Of course we don’t want to overdo things and mess up the the initial idea, but it is a shame not to use the buttons which set the year. So also the size is linked to absolute debt, but now for whole Europe and the color also to relative debt in GDP so we can compare the relative debts of countries in the chart with the whole of Europe.

The visualizations

Click on one of the images to see its full interactive visualization.