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Anarchy in the U.K.: Research Shows That Austerity Can Lead to Riots

London raged this week. Are New York, Washington or other American cities next, as the U.S. follows the U.K. into self-imposed economic austerity?

As my BNET colleague Constantine von Hoffman notes, this country is no more immune to social upheaval than Argentina, Greece or other nations where violent protests have erupted in wake of sharp government spending cuts. And certainly Americans know how to disturb the peace. From Depression-era food riots, to the "race" riots in the 1960s, to the Los Angeles riot in 1992 triggered by the police beating of Rodney King, public anger in the U.S. has periodically spilled into the streets.

Such events have many causes, of course. But one key contributing factor is economic shocks. More specifically, new research suggests a direct link between cuts in government spending and social unrest (h/t Derek Thompson). Focusing on Europe between 1919 and 2009, economists Jacopo Ponticelli and Hans-Joachim Voth of London's Centre for Economic Policy Research recently looked at whether budget cuts during that period led to discord. Their findings:

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.... High levels of instability show a particularly clear connection with fiscal consolidation.
Causal link
The harsher the austerity measures, the more intense the disturbance, the researchers found. The risk of turmoil rises for every additional percentage point of GDP in spending reductions (see graph at bottom; click to enlarge). When budget cuts hit 5 percent or more, incidents of unrest were twice as high as when spending increased.

But was it really the government cut-backs that lit the torches, or was social instability driven more by other economic hardships, such as rising unemployment? The former. Ponticelli and Voth controlled for economic growth and got the same results. Austerity causes social strife, they conclude.

Of course, a case can be made that soaring government debt poses a greater threat to social stability than any short-term shift toward "fiscal contraction." A standard cautionary tale along these lines is the hyperinflation that crippled Germany's Weimar Republic, with its woeful scenes of starving people lugging deutschemarks around in wheelbarrows to buy loaves of bread. Some economic research also suggests that countries with higher levels of debt also experience greater social turbulence.

Anger management
In the U.K., meanwhile, it's worth noting that most of the spending cuts ordered up by Prime Minister David Cameron have yet to kick in. That raises the question of what responsibility current economic policy bears for the rioting and to what extent other factors, such as high youth unemployment and ethnic tensions, are playing a role. As one expert says regarding Britain's soaring jobless rate among 15-to-24-year-olds:

"This is a very big cohort that you ignore at your peril," said David Blanchflower, a Dartmouth College economist and former member of the Bank of England's Monetary Policy Committee. Older workers "if they're unemployed go home and watch the television. Unemployed 18-year-olds go out on the street," he said.
Whether austerity will lead to similar outbreaks of violence in the U.S. obviously depends on many factors, notably the direction of the economy and the size and composition of spending cuts. Would a reduction in federal outlays for, say, bridge repairs set Americans off? I doubt it. But gutting Medicaid might. And how would we feel if in years hence our new President, former Goldman Sachs (GS) CEO Lloyd Blankfein, told us that to save Social Security our retirement benefits would have to shrink by a third?

Right, pass the kerosene, comrade (and hand me that iPhone while you're at it). After all, Ponticelli's and Voth's findings merely support what seems intuitively certain: The more you take away from people, the angrier they get.

Image by Bryan Tong Minh via Wikimedia Commons, CC 2.5

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