Applauding the return to economic growth is like celebrating the release of an innocent prisoner

Nobody doubted a return to growth under austerity was possible - but all the evidence suggests it has been hampered by George Osborne's radically anti-stimulus position.

The IMF’s growth forecast for the UK, which was revised upwards on 21 January, was met with relief, rather than joy: we have finally started to climb out of the worst slump in over 100 years. The Chancellor responded, saying that "Our long-term plan is delivering a brighter economic future."

Really? Below is the UK's real output per person since the crisis, compared with America. Whereas USGDP reached its pre-crisis peak in 2012, we don’t even show signs of reaching ours this decade.

Source: Eurostat for real GDP figures 2007-2012. 2013 forecasted using 2012 real GDP growth rates, also from Eurostat. Accessed 04/02/2013

However, let’s assume that the growth figures forecast by the IMF result in real growth of 2.4 per cent and 2.8 per cent for the UK and US, respectively, in 2014. The picture would certainly be brighter, as shown below.

Source: Same as above and IMF growth figures used to project for 2014. (Population growth not taken into account)

Assuming growth continues at this rate (the IMF predict it to fall next year), we would be back to 2007 levels of GDP by 2016-17. The US economy would, by that stage, be 11 per cent larger than it was in 2007. This is as much a cause for celebration as the release of a prisoner who has spent a wasted decade behind bars.

But the reaction in the mainstream press is that this “success” vindicates the chancellor’s economics and, by proxy, ridicules the shadow chancellor’s. The Economist, this week, said that Labour had been blasted on the economyand mocked Ed Balls's views, calling him a Good Keynesian”. Clearly The Economist thinks that using fiscal stimulus in the aftermath of the Great Recession would have been folly.

Firstly, they are wrong. Nobody suggested that growth would never return with austerity - but we would surely have seen growth years sooner if the government had stimulated demand. (For comparison, America’s stimulus package was almost a trillion dollars).

Secondly, the upturn in growth we are seeing now may actually be the product of an unexpected bout of fiscal stimulus in 2012 by none other than George Osborne. (Don’t believe me? I didn’t at first either...)

I’ll deal with these two points in turn. First, the case for fiscal stimulus. Faced with the task of driving a car up a steep hill, few people would focus on saving fuel. Or as John Maynard Keynes put it: The boom, not the slump, is the right time for austerity...” Now, to be fair, the forces that govern economies are not as well understood as the force of gravity on a car and, yes, economists are divided in many areas of macroeconomics - but the idea that you can create growth by imposing fiscal austerity on a recessionary economy is not one of those areas.

The graph below shows that those European countries who engaged in the most fiscal austerity over 2008-2012 had the biggest slumps.

Source: Krugman, P. “Night of the living Alesina”, NY Times Online; March 12th, 2013. European countries: GDP growth 2008-12 vs the size of their austerity programmes.

The idea that government belt-tightening during a recession causes a further contraction of GDP is as basic as it gets, but in post-2007 recessionary economies there was even more cause than usual to increase government spending. Firstly, normal monetary policy became impotent after we reached 0 per cent interest rates - and while quantitative easing has helped, its possible repercussions are not yet fully understood.

Secondly, multipliers have been shown (by the IMF, among others) to be higher when economies are depressed - so each pound spent by government generates more than just one pound of output - by some estimates, more than £2.50. Thirdly, and perhaps most importantly, countercyclical spending helps to maintain normal levels of output and therefore jobs: this not only decreases human misery, but it prevents the de-skilling of the labour force. In the long run this means higher employment and tax revenues, lower welfare and deficits, and a higher potential GDP.

As an aside, this is one of the biggest conundrums in right-wing economics: free-marketeers believe that growth is determined primarily by the supply side: so they want, for example, to cut red tape and taxes so that companies can more easily create jobs. But they are happy to watch unemployment rise and a substantial proportion of the labour market become deskilled and devalued - making those companies less able to find talent at home. And when those companies turn instead to foreign labour markets? No! Send the immigrants home!

But back to Mr Osborne. The government’s two main theories for shirking Economics 101 - that austerity could actually be expansionary and that debt over 90 per cent would cause investors to think of Britain as equivalent to Zimbabwe - have been proven beyond all reasonable doubt to be based on poppycock. Yet the coalition has remained firmly, publicly committed to austerity. As recently as November 2013, David Cameron told the CBIWe have to continue with Plan A. We have to continue to reduce the deficit.

Indeed, over the past three and a half years, every soundbite we have heard from the government would lead us to believe that Plan A has been motoring on ruthlessly through schools, councils and government departments, oblivious to any potential harm it might cause, like a sort of necessary Evil Kinevil. Not so.

Last summer, I wrote that fiscal austerity had so far been self-defeating as proven by the latest projections, which showed a budget deficit refusing to budge:

Public sector net borrowing excluding the Royal Mail and Asset Purchase Facility transfers. Source: OBR Economic and Fiscal Outlook, December 2013. Light blue=forecast.

My reasoning at the time was that austerity was self-defeating via the automatic stabilisers route: cutting public services in a recession worsens unemployment, which means more people on benefits and lower total tax revenues - so the deficit balloons. This mechanism is even more pronounced when the private sector is engaging in massive hoarding and is unwilling to hire, as we have seen in the past few years

But by breaking down the deficit figures further, it is clear that something else has been going on.

The top red and blue lines are the budget deficit as a percentage of GDP (normal and cyclically adjusted). It is clear that the pace of reduction stalled in 2012, slightly increased last year and is forecast to continue increasing slowly towards 0 per cent - but it is impossible to tell what is causing the reductions.

The green line at the bottom, however, is a measure of total government consumption of goods and services as a percentage of GDP. This measure strips out the automatic stabilisers” - tax and transfers - and is, therefore, a better measure of discretionary government spending - it is, essentially, George Osborne’s signature.

For a chancellor committed to plan A this is a fairly sizeable deviation, but it is a deviation of his own making. And yet while this anomaly has been well documented in the economics blogosphere (see here, here or here), it simply hasn’t made it into the mainstream press.

If a football team won the Premier League on a small budget, they would be well praised. If it was then discovered that they had actually spent a fortune on the sly, it would be front page news.

Instead, we have the FT writing articles with titles such as “Osborne wins the battle on austerity” - and worse, polls showing that more people now think cuts are good, rather than bad for the economy.

To be fair, it is impossible to say for certain that the return of growth was due to a year of increased stimulus (though any basic economics text will tell you that fiscal stimulus takes about 12-18 months to kick in), but that doesn’t explain the strange fact that there was a year of stimulus under an outwardly parsimonious Chancellor. And it begs the question: does George Osborne believe in austerity or not?

If the plan was to create growth two years before an election, while outwardly claiming that this was the result of ongoing austerity under a wise economic custodian, then the political rationale is clear. But if that is the case, then George Osborne has tacitly acknowledged the effectiveness of fiscal stimulus to create growth.

Does George Osborne have full faith in austerity? Photograph: Getty Images.

Dom Boyle is a British economist.

Photo: ASA
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Harmful gender stereotypes in ads have real impact – so we're challenging them

The ASA must make sure future generations don't recoil at our commercials.

July’s been quite the month for gender in the news. From Jodie Whittaker’s casting in Doctor Who, to trains “so simple even women can drive them”, to how much the Beeb pays its female talent, gender issues have dominated. 

You might think it was an appropriate time for the Advertising Standards Authority (ASA) to launch our own contribution to the debate, Depictions, Perceptions and Harm: a report on gender stereotypes in advertising, the result of more than a year’s careful scrutiny of the evidence base.

Our report makes the case that, while most ads (and the businesses behind them) are getting it right when it comes to avoiding damaging gender stereotypes, the evidence suggests that some could do with reigning it in a little. Specifically, it argues that some ads can contribute to real world harms in the way they portray gender roles and characteristics.

We’re not talking here about ads that show a woman doing the cleaning or a man the DIY. It would be most odd if advertisers couldn’t depict a woman doing the family shop or a man mowing the lawn. Ads cannot be divorced from reality.

What we’re talking about is ads that go significantly further by, for example, suggesting through their content and context that it’s a mum’s sole duty to tidy up after her family, who’ve just trashed the house. Or that an activity or career is inappropriate for a girl because it’s the preserve of men. Or that boys are not “proper” boys if they’re not strong and stoical. Or that men are hopeless at simple parental or household tasks because they’re, well...men.

Advertising is only a small contributor to gender stereotyping, but a contributor it is. And there’s ever greater recognition of the harms that can result from gender stereotyping. Put simply, gender stereotypes can lead us to have a narrower sense of ourselves – how we can behave, who we can be, the opportunities we can take, the decisions we can make. And they can lead other people to have a narrower sense of us too. 

That can affect individuals, whatever their gender. It can affect the economy: we have a shortage of engineers in this country, in part, says the UK’s National Academy of Engineering, because many women don’t see it as a career for them. And it can affect our society as a whole.

Many businesses get this already. A few weeks ago, UN Women and Unilever announced the global launch of Unstereotype Alliance, with some of the world’s biggest companies, including Proctor & Gamble, Mars, Diageo, Facebook and Google signing up. Advertising agencies like JWT and UM have very recently published their own research, further shining the spotlight on gender stereotyping in advertising. 

At the ASA, we see our UK work as a complement to an increasingly global response to the issue. And we’re doing it with broad support from the UK advertising industry: the Committees of Advertising Practice (CAP) – the industry bodies which author the UK Advertising Codes that we administer – have been very closely involved in our work and will now flesh out the standards we need to help advertisers stay on the right side of the line.

Needless to say, our report has attracted a fair amount of comment. And commentators have made some interesting and important arguments. Take my “ads cannot be divorced from reality” point above. Clearly we – the UK advertising regulator - must take into account the way things are, but what should we do if, for example, an ad is reflecting a part of society as it is now, but that part is not fair and equal? 

The ad might simply be mirroring the way things are, but at a time when many people in our society, including through public policy and equality laws, are trying to mould it into something different. If we reign in the more extreme examples, are we being social engineers? Or are we simply taking a small step in redressing the imbalance in a society where the drip, drip, drip of gender stereotyping over many years has, itself, been social engineering. And social engineering which, ironically, has left us with too few engineers.

Read more: Why new rules on gender stereotyping in ads benefit men, too

The report gave news outlets a chance to run plenty of well-known ads from yesteryear. Fairy Liquid, Shake 'n' Vac and some real “even a woman can open it”-type horrors from decades ago. For some, that was an opportunity to make the point that ads really were sexist back then, but everything’s fine on the gender stereotyping front today. That argument shows a real lack of imagination. 

History has not stopped. If we’re looking back at ads of 50 years ago and marvelling at how we thought they were OK back then, despite knowing they were products of their time, won’t our children and grandchildren be doing exactly the same thing in 50 years’ time? What “norms” now will seem antiquated and unpleasant in the future? We think the evidence points to some portrayals of gender roles and characteristics being precisely such norms, excused by some today on the basis that that’s just the way it is.

Our report signals that change is coming. CAP will now work on the standards so we can pin down the rules and official guidance. We don’t want to catch advertisers out, so we and CAP will work hard to provide as much advice and training as we can, so they can get their ads right in the first place. And from next year, we at the ASA will make sure those standards are followed, taking care that our regulation is balanced and wholly respectful of the public’s desire to continue to see creative ads that are relevant, entertaining and informative. 

You won’t see a sea-change in the ads that appear, but we hope to smooth some of the rougher edges. This is a small but important step in making sure modern society is better represented in ads.

Guy Parker is CEO of the ASA