How austerity was based on market panic

Markets were full of fear. When that receded, so did the bond spreads.

When countries across Europe were putting together austerity policies in 2011, the orthodox reasoning was that the debt and deficit of the nations were out of control, and that this was being communicated by the markets, in the form of bond yields.

But did nations actually base their estimates of the need for austerity on the fiscal fundamentals? Or were they misled by market reaction? A research paper from Paul De Grauwe and Yuemei Ji breaks down the question.

It's certainly the case that the austerity was based, almost entirely, on the state of the market. The authors compare the extent of austerity measures in 2011 with the spreads of the nations' bonds (the difference between each country’s 10-year government bond rate and the German 10-year government bond rate), and find a near-perfect correlation:

Austerity measures and spreads in 2011

The authors write:

There can be little doubt. Financial markets exerted different degrees of pressure on countries. By raising the spreads they forced some countries to engage in severe austerity programs. Other countries did not experience increases in spreads and as a result did not feel much urge to apply the austerity medicine.

Now, that in itself is not particularly problematic. After all, if the financial markets are rationally responding to problems in the respective nations' finances, then it makes sense to try and calm them by getting finances under control. But if the markets are instead in the throes of irrational panic, then basing policy around their whims is problematic.

Ji and de Grauwe then come up with two proxies to test what it actually was which was driving the financial markets. If the markets are acting rationally, then as fundamentals improve, the spreads should fall. So, starting in mid-2012, they compare the change in debt-to-GDP ratio (just one possible measure of fiscal health) to the change in spread values.

They find that, over the period they're examining, debt-to-GDP ratio increases in every one of the ten nations they study. Despite this, however, the spreads decrease in each — and those decreases aren't particularly correlated with the debt-to-GDP change:

 

Change in debt-to-GDP ratio vs. spreads since 2012Q2

The bond markets don't appear to pay much attention to the basic financial health of the nations. What they do pay attention to is the European Central Bank. The paper states that:

The decision by the ECB in 2012 to commit itself to unlimited support of the government bond markets was a game changer in the Eurozone. It had dramatic effects. By taking away the intense existential fears that the collapse of the Eurozone was imminent the ECB’s lender of last resort commitment pacified government bond markets and led to a strong decline in the spreads of the Eurozone countries.

In the summer of 2012, the ECB removed fear from the equation. What happened then was a widespread collapse in bond spreads. But the collapse wasn't uniform; instead, "countries whose spread had climbed the most prior to the ECB announcement experienced the strongest decline in their spreads". By taking away panic, the ECB lets us see that almost all of the prior variation in the bond spreads had been as a result of that panic.

Basing policy on calm sensible market reactions might work; basing it on the reaction of markets in existential fear probably wouldn't. That's traditionally the time when politicians start trying to lead markets, rather than follow them. And, sure enough, the authors repeat a calculation confirmed by many others: panic-driven austerity has crushed growth in the nations it's been practiced…

Austerity and GDP growth 2011-2012

…and has hurt fiscal fundamentals in those same nations, with debt-to-GDP ratios getting worse the more austerity is practiced:

 

Austerity and increases in debt-to-GDP ratios

The TUC's Duncan Weldon (whose tweets first pointed me to the research) sums up the lessons we've learned:

  1. Financial markets are perfectly capable of acting irrationally. Market panic drove extreme austerity in Southern Europe.
  2. Extreme austerity has proved self-defeating – it means debt/GDP ratios are higher not lower.
  3. Markets, to quote the IMF’s Chief Economist, can be ‘schizophrenic’ – they initially reward harsh austerity measures and then panic when they, predictably, lead to weaker growth.
  4. The end result is that market panic, followed by policy-maker panic, has imposed huge economic and social costs across Europe

Seems like if politicians really really want to base their decisions on the ill-thought-out panic of large numbers of people, they ought to at least wait for an election.

Gambling with out future. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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How gendered are this year’s most popular Christmas present toys?

Meet the groups fighting back against the gendering of children’s toys over the festive season.

You’re a young girl. You go into WH Smith’s to pick out a colouring book for Christmas. You could buy the Girls’ World Doodling and Colouring Book, a "gorgeous gift for any girl". In this, the pictures range "from flowers, fans, feathers, to birds, buttons and butterflies". Or Colouring for Girls: Pretty Pictures to Colour and Complete, where you can colour in "beautiful birds, seashells, cupcakes, pretty patterns and lots more". The counterpart Boys’ Colouring Book has a range beyond buttons and feathers: "Planes, trains and automobiles – plus the odd alien spacecraft".

In the run-up to Christmas, this kind of gendered marketing is rife, particularly finding its way into the predominantly pink colour scheme of girls’ toys.

Take Amazon’s page "2016 Toys for Girls": a pink icecream trolly set, a pink light-up tablet, pink building blocks, pink and purple friendship bracelets and so on.

There are several groups taking action against the "pinkification" of children’s toys. One of these is Let Toys Be Toys, a group that targets large supermarkets with the aim of reducing the gendered marketing used on children’s goods.

The Let Toys Be Toys blog focuses on specific examples of targeted gendering within shops, catalgoues and online. A particularly revealing example of how prevalent this has become in recent years is in two pictures published from the Argos catalogue, one from the Seventies, and one from nowadays. The eye-wateringly pink page from now makes the 1970s page look dour by comparison. The lack of change over four decades of what kind of products are marketed at girls is equally striking:

Despite the efforts of campaign groups such as Let Toys Be Toys, the prevalence of gendering within the highest-rated children's gifts for 2016 is staggering.

Look no further than the Ultimate Christmas Gifts Guide from Toys R Us. One of the most immediately obvious examples is the way in which the pink/blue colour schemes are used to market identical products. This is repeated again and again:

This identical drawing board is uniquely packaged to the binary colour codes that are so common within children's toys stores.

The same applies with this keyboard, where the young girl and boy are pictured almost identically, save for the coordination of their clothes to the colour of their toys.

The message is a hugely limiting one: one that allows little movement away from the binary of pink/blue. The effects of this are longstanding. A recent poll from YouGov shows that "only a third of parents approve of boys playing with Barbies". The data goes on to explain that "while most parents approve of girls playing with toys marketed to boys, a minority of adults approve of the opposite".

Images like this were the inspiration behind Let Toys Be Toys, back in 2012. The campaign began on Mumsnet, the forum for parents, on a section called "AIBU", which stands for "Am I Being Unreasonable?". One parent posted the question: "Am I being unreasonable to think that the gendered way that children’s toys are marketed has got completely out of hand?" The heated discussion that followed led to a sub-section with the founding memebers of Let Toys Be Toys.

This aside, Let Toys Be Toys has made signifcant progess since it began. It targets large stores, focusing on gendered signage both in store and online. In their four years, they have campaigned for signs like "girls' toys" and "boys' toys" to be removed from retailers such as Boots, Debenhams, Morrisons, Toys R Us and TK Maxx. It is the go-to hashtag on Twitter for examples of the often shocking gendering of children’s toys.

"This is ostensibly about toys, but what we’re really talking about is gender stereotypes that shape our children’s worlds in an apparently very unassuming way," says Jess Day, a Let Toys Be Toys campaigner. "It seems very innocent, but actually what we’re doing is giving children very clear instructions about how to be a man and how to be a woman."

These clear instructions work beyond colour coordination: where girls are sold the image of the pink "girly girl", for instance. This is evident in children’s fancy dress costumes. Early Learning Centre’s (ELC) children’s fancy dress range imposes very rigid gender roles. To give examples from the current christmas range:


Credit: ELC

Again, the predominant colour sceme is pink. The roles offered are mainly fairies and princessess: generally make-believe.

“I found it really interesting that there were almost no ads showing girls doing anything," comments Day. "Physically they were very passive. The only physical activity we saw girls doing was dancing. They weren't really moving around much."


Image: ELC

By contrast, young boys are offered the possibility of pretending to be a firefighter, a policeman or a doctor, among other practical, professional roles.

This year's Toys R Us Christmas advert follows on from this, with girls mainly dressed as princesses, and boys dressed as knights and kings. Much like the pink/blue colour scheme that we see all over children's shops, these fancy dress costumes create an unnatural binary. They send out a message that restricts any kind of subversion of these two supposedly polar opposites.

What's more, the subtext is one that is deeply rooted in expectations, building up a picture where careers such as that of a policeman and fireman come more naturally to boys, who have been socialised into these roles from childhood through fancy dress costumes of this type. Instead, girls are later forced to learn that most of us aren't going to become princessess, and none of us fairies – and so the slow process begins to unlearn these expectations.

There are certainly groups who try to counteract this. Manufacturers such as the toy brand IamElemental aims to break down the gendered distinctions between boys' toys and girls' toys, by creating female action figures.

“We always say that we are not anti-doll or anti-princess, but that if you give a girl a different toy, she will tell a different story," says Julie Kershaw, a member of the organisation. "As the mom of two boys, I always say that it’s just as important to put a strong healthy female action figure in a boy’s hand as it is a girl’s”.

Like the campaigners behind Let Toys Be Toys, IamElemental sees children’s toys as the starting point.

“We want kids – both girls and boys  – to internalise these messages early and often,” says Kershaw. “While there are certainly biological differences between girls and boys, gender-specific toys are not a biologically dictated truth. Toys are not “for girls” or “for boys”  – toys are for play; for exploration and creative expression.”

This attitude is ingrained in a child’s early years. Only through reconfiguring the gender sterotypes of the toys we buy for our children can we begin to break down their expectations of how to behave in age. We challenge you this Christmas to avoid these highly gendered products. Below are our three favourite Christmas presents for children this year, for girls AND boys, as approved by Let Toys Be Toys:

Mini Table Tennis (£7.99)


From: The Little Toy Box

Djeco Intro to Origami - Animals (£3.99)

From: Rachel's Toy Shop

Seedling Make Your Own Dino Softie! - Dino(sew)or Kit (£5)


From: Gifts For Little Ones