Austerity leads to political unrest

http://www.underpaidgenius.com/post/8729189868

by sp332 • 15 years ago

16 26 15 years ago

I would take the same data and argue that government social welfare programs lead to political unrest. When you start to take away the free government benefits that the underclass has grown to depend upon, you cause stability. It is analogous to withdrawals symptoms during an intervention on a drug addiction. Don't blame the doctor for the patient's withdrawal symptoms, blame the drug addiction.

_delirium5• 15 years ago

The hypothesis that social unrest is primarily the result of withdrawal of social programs, rather than simply their absence, should mean that we fail to see riots when the social programs didn't exit in the first place. But there are plenty of examples of riots predating a strong social safety net; for example, the Haymarket riots in the United States.

I don't see any historical evidence for the claim that stability typically accompanies lack of social programs.

yummyfajitas3• 15 years ago

The article claims a correlation between withdrawal of social programs, not a hard and fast rule. Pointing out a single data point which goes against the trend does not invalidate the statistical claims.

Hoff• 15 years ago

It's not just the "underclass" that benefits, BTW.

The "overclass" (continuing with your phrasing) is also dependent on various forms of social welfare. Most recently through socialized business losses and corporate bailouts (qv: TBTF, zombie banks, federal discount window rates), on complex tax policies (qv: "double irish", etc), on expenditures on "nation building" and "police actions" and related distortions, and indirectly through qualitative easing and depressed exchange rates and policies that can move jobs and capital offshore.

And that's before you get to discussions around the mortgage deductions and other forms of social welfare, which are aimed at homeowners and particularly at the rates that banks can charge.

Or at whether or not there will be any number of prosecutions for securities fraud, or investors in failed entities getting their hair cut, or around that national candidates can measure campaign contributions in the multi-millions or now billions of dollars, or any increase in market transparency or the effects of HFT on the market. (This is probably the most pernicious form of social welfare, as a crooked system leaches out the money; business continues, but a lack of trust costs everybody.)

And while I doubt that these "overclass" social programs will see particular cuts, this largesse can also lead to social unrest. (Though usually not among the recipients of this largesse.)

Is there a simple answer? No. But a discussion of "underclass" and "social welfare programs" without a corresponding discussion of "overclass" and "corporate welfare programs" and related is playing directly into the divisive political kabuki, and not likely working toward a solution.

po2• 15 years ago

Here's a link to the original instead of blog spam:

http://www.voxeu.org/index.php?q=node/6851

sp332• 15 years ago

Dang, I missed the link right at the top. Sorry for the blogspam.

po2• 15 years ago

When an post is only a few sentences of commentary and thousands of words of block quote, it's easy to mistake it for original content.

Good article, thanks.

aj700• 15 years ago

Correlation is not causation. I am British.

The austerity cuts haven't started yet. They may cause unrest later. They can't cause unrest before it.

reasons for UK problems:

1. Economy is crap.

2. Inequality. Public education is crap. Lower classes are as anti-intellectual as any red state American.

3. Multiculturalism. Between new immigrants and old ones. Young and old. Muslim and non-Muslim. Black and white. Taxpayer class, benefits class. These cultures are totally ghettoised from each other.

4. Rioting is fun. Herd behaviour. Media coverage - monkey see monkey do. Monkey sees little social sanction.

5. Britain is not a democracy. First past the post is the most stable oligarchy for a political class short of dictatorship. 3 parties fight only for a few thousand swing voters.

politician• 15 years ago

4 out of 5 of your points could be summarized as "bourgeoisie oppression." When this happens in the Middle East the media calls it "the Arab Spring," but when it happens in an ostensibly Western democracy it's "random acts of violence without cause."

At least, that's how Fox News was portraying it this morning.

MrScruff3• 15 years ago

There is no oppression, just no equal opportunities for all. However, a sufficiently motivated and able person can do well for themselves in the UK regardless of their background. They're just statistically unlikely to.

MrScruff3• 15 years ago

Agreed on all your points. However, the kids involved in this will come from homes that actively encourage them to shun all forms of authority and actively discourage betterment via education. They'll go on to have families of their own who will think and act the same way. There is honestly nothing in the UK that will prevent someone from succeeding other than bad parenting and there's only so much the government can do about that.

CWuestefeld• 15 years ago

Consider also that gov't expenditures tend to decrease at the end of a war. But the period surrounding the end of a war -- either the protests leading to the cease of hostility (remember, the resolution of their time axis is only whole years), or the jockeying for political power in the wake of the war -- is bound to be unstable.

Thus, there's an obvious explanation for political "chaos" in periods when government expenditures decline.

Indeed, I bet with some research, you could generalize much more than that. Governments don't like to cut expenditures. Something needs to precipitate that action. The very thing that causes the cuts may also be causing the political instability.

djm4• 15 years ago

The austerity cuts haven't started yet

Actually welfare benefit rates have already been frozen. Couple that with an increase in prices in food/utilities etc and benefits claimants are already being hit hard.

These rioters seem to be primarily young people in areas of high unemployment so it is reasonable to assume that a substantial percentage of them may have experienced financial difficulty recently.

djm4• 15 years ago

I'd guess that unrest is inevitable when a country gets a debt problem whichever way you deal with it. The current unrest in London and other UK cities may be the result of austerity and what happened in Greece recently certainly is.

However, the alternative (inflation) would have the same effect. See 1920's Germany/Austria for example - 'When Money Dies' by Adam Fergusson is the book on this.

_delirium5• 15 years ago

> However, the alternative (inflation) would have the same effect.

I don't think this is necessarily true. Pre-euro, Greece devalued the drachma several times in order to manage its debts and trade balance (by around 15% each time in 1983, 1985, and 1998), but it didn't lead to rioting in the streets.

djm4• 15 years ago

That's interesting. I guess it depends on the scale of the inflation. Germany printed money to pay their war reparations with and when it got to the hyper-inflation stage everybody was screwed.

Inflation in relatively small amounts is only going to really hurt savers so I guess if the population distribution is skewed towards more people with debt than with savings (isn't it always!) then a government might be able to use it to reduce the likelyhood and scale of unrest.

nhaehnle3• 15 years ago

1. What makes you believe that the UK government has a debt problem?

As long as the UK government emits gilts in pounds, they will never become unable to pay the resulting obligations. So: where exactly is the problem? Where are the Emperor's clothes?

2. What makes you believe that unusually high inflation would result if the UK government reversed its austerity stance and implemented some kind of public works program?

Inflation is largely the result of the normal processes in the economy whereby the relative valuation of different goods changes, and different actors in the economy strive to increase their share of the total income. If you actually look behind the scenes how the various inflation measures are computed, you will see that the different types of goods in the baskets used usually show quite different behavior. Most of the time, a few goods and services will be decreasing in price while the majority increases in price, though at (often vastly) different speed. So what you are really seeing is changes in relative price, which reflects changes in how goods are valued. Without this process, the market could not function properly.

This process is biased towards larger nominal prices on average for a number of reasons - mostly because it is rare that somebody voluntarily decreases their profit - but there is nothing inherently bad about that. You could think of it as the Red Queen Hypothesis of economics.

It is clear that, beyond those processes, inflation can be pushed higher by excessive aggregate demand or by increasing resource prices - price increases in the last months were dominated by energy prices.

So I could rephrase my question as: What makes you believe that turning away from austerity would create excessive aggregate demand in the UK? Keep in mind that the current context is one of high unemployment and idle factories, i.e. there is more supply capacity than is currently being used.

As a final note: I think it is quite disingenuous to jump directly from "there could be higher inflation" to "1920's Germany". Those scenarios are entirely different beasts.

djm4• 15 years ago

Perhaps my comment didn't make my thoughts clear enough.

First of all, I think we are working on different definitions of 'inflation'. There seems to be two schools of thought on this: some people think inflation is driven by prices and some people think prices are driven by inflation.

Your comment suggests you are in the first camp and I am in the second. I define inflation as simply being 'when the government prints more money'. Prices increase when the money supply increases. Businesses have to raise prices when this happens because otherwise they will reduce the buying power of their profit.

I wasn't talking about the UK specifically. I was just trying to say that, in general, I think the outcome in terms of social unrest is going to be about the same whether you reduce the amount of money you give people or whether you give them money that is worth less.

To be clear, I didn't say that reversing the austerity measures would result directly in hyper-inflation or that we'd end up like 1920's Germany. I'd agree that that kind of scenario is a long way off.

Austerity leads to political unrest

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