Do Austerity Measures Increase the Risk of Social Chaos?

In a spectacularly well-timed paper, Jacopo Ponticelli and Hans Joachim Voth argue yes.

Expenditure cuts carry a significant risk of increasing the frequency of riots, anti-government demonstrations, general strikes, political assassinations, and attempts at revolutionary overthrow of the established order. While these are low- probability events in normal years, they become much more common as austerity measures are implemented. … We demonstrate that the general pattern of association between unrest and budget cuts holds in Europe for the period 1919-2009. It can be found in almost all sub-periods, and for all types of unrest. Strikingly, where we can trace the cause of each incident (during the period 1980-95), we can show that only austerity-inspired demonstrations respond to budget cuts in the time- series. Also, when we use recently-developed data that allows clean identification of policy-driven changes in the budget balance, our results hold.

Via Kevin O’Rourke.

7 Responses to Do Austerity Measures Increase the Risk of Social Chaos?

  1. ConsDemo August 9, 2011 at 8:54 pm #

    No kidding? Well, governments don’t opt for “austerity” just because they feel like, usually the alternatives are default or currency debasement, which can cause social unrest as well.

    • Jon Custer August 10, 2011 at 2:04 pm #

      “We test if the relationship simply reflects economic downturns, and conclude that this is not the key factor.” I’ll never understand people whose urge to critique papers in the comments is greater than their urge to go read the abstract and see if it’s even worth bothering.

  2. SPSS August 10, 2011 at 5:05 am #

    ConsDemo, you sound a bit defensive. This paper is not explaining the reasons for budget cuts, it does not claim to. It is just showing correlation between cuts and riots which is perfectly valid research. Your criticism makes no sense.

    • idiot August 10, 2011 at 10:18 am #

      While it may be a bit defensive, CosDemo is probably trying to highlight a potential problem to test. There could be an intervening variable (say, unsustainable budget deficits) that is correlated with both social unrest AND austerity, which seems plausible to me. What I do find concerning though is that CosDemo seems to view currency debasement or defaults as outright causing social chaos…inflation and default could harm different groups than austerity would, and those different groups may not resort to causing social chaos. I’m not saying debasement and default would not lead to social unrest, I’m just saying that we just need to test CosDemo’s hypothesis first.

      Though to be fair, what I suggest really doesn’t matter and just serves as an academic busy-body work, since the policy recommendation for States is likely going to be the same, whether or not CosDemo is right: If you want to avoid social chaos, avoid austerity (or default/currency debasements if it’d lead to social unrest), and if you want to avoid austerity, make sure you don’t get into a situation where you have to engage in it. Since it appears the paper is saying that ANY cutback in expenditures increases social chaos, the best way to avoid austerity is to try and increase social expenditure at a constant, but low rate [1], and that whenever you have to actually do have to cut spending, do so by reducing the rates of expenditure growth. About the only thing this paper rules out is a balanced Keynesian budget where you engage in economic stimulus during recessions and then austerity during economic booms, because any cut in expenditures WILL lead to social chaos (researchers controlled for the effects of economic growth in their research).

      [1]Since increased expenditure spending does not actually reduce social spending, it seems to me that there is some feeling of entitlement at work…people feel entitled to increased expenditures, so when you cut these expenditures, they could be more motivated to conduct social chaos. Keeping expenditures at a fixed, low level should reduce entitlement feelings to a managable level and avoid upsetting anybody.

      • idiot August 10, 2011 at 10:33 am #

        Footnote 1 should be amended to read “Since increased expenditure spending does not actually reduce social chaos”…and in any event IS wrong, re-rereading that article showcase that they find that increased expenditures can reduce social chaos IF there are few executive constraints (the relationship still exist as you increase executive constraints, but it becomes “non-significant” at democratic levels). The flip-side however is that austerity-related social chaos is increased as Polity IV decreases…You can buy social peace for a time, but once the funds run dry…

  3. Sam Greene August 10, 2011 at 8:04 am #

    Actually, it would be fascinating to push the analysis in the other direction: do austerity-driven protests systematically lead policymakers to switch from more to less austere policies?

    After all, austerity budgets are never adopted for their popularity but are generally sold to the public as inevitable and have little or no direct impact on the political class or major donors. Perhaps rioting helps shift some of the costs of austerity back to the rich and powerful? (Before you yell at me, that’s not a value judgment, just a question.)

    • Wonks Anonymous August 10, 2011 at 3:27 pm #

      I think rioting tends to be more negative-sum, so costs are being added rather than shifted. And I don’t know that the rich and powerful tend to be the big losers from rioting anyway.