Austerity leads to political unrest | Hacker News Reader

Austerity leads to political unrest

underpaidgenius.com

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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.

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.

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.

I don't know much about the UK job market; how does race-blindness compare to, say, continental Europe? From what I can tell here in Denmark, it's still harder to get hired if you have a Muslim- or African-sounding last name, even with good credentials, than with a Danish or at least European last name.

It's undoubtedly true that you'll face some prejudice as a minority in the UK. However I would imagine if you have better qualifications than the other candidates most of the time you'll get the job.

I would say in the UK race and class both incur a noticeable handicap. Just not an overwhelming one.

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.

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.

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.

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

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

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

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.

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.

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.

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.

The post I was replying to has no statistical claims. My example was illustrative; the broader point is that to advance a hypothesis that riots accompany withdrawal of social safety nets, but not their absence, you would need to show a general lack of riots in periods where social safety nets didn't exist in the first place. But there are thousands of examples of riots in countries and periods with no social safety nets; the Haymarket riots are just one random example.

Perhaps it is possible to perform a statistical analysis that shows that the absence of social safety nets does still, in general, produce stability, but I haven't seen one put forth. The linked article certainly does not include any data relevant to that hypothesis.

The original article claims that a % change in social benefits is a strong predictor of riots. I'm assuming that by choosing to focus on this factor, the article intends to imply that it is the strongest predictor within their data set.

If that is the case, then the number of riots is related more strongly to withdrawal of benefits than to their base levels.

This would support joshuaheard's claims, though of course it doesn't rule out the possibility that riots(social benefit levels) is a nonlinear function, increasing near 0 and flat in the regime where the original dataset lived.

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.

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.

> 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.

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.

Yeah; now that I think of it, it also may depend on how easily you can decouple inflation in external terms (currency devaluation vis-a-vis another currency) from internal inflation (change in prices in local currency). From what I can tell from Greek relatives, the average person didn't see much effect from the 83/85 devaluations, because there wasn't much internal inflation. Imported items got more expensive in drachma terms due to the exchange rate, but going to the barber didn't: he still charged about as many drachmas as previously, so your local buying power wasn't really reduced. It's just that everyone now both made and charged less money in dollar terms, which is actually deflation from an external perspective.

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.

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.

I define inflation as simply being 'when the government prints more money'.

I would posit that this definition is useless in a fiat currency. Under a gold standard, the government printing money was relevant because that increased the amount of money, which in turn had some meaning because of the gold-to-money ratio. But in a fiat currency no such meaning exists.

Furthermore, has whether the government printed more or less money actually ever affected you directly, provably in your personal life? I bet that it hasn't. [1] But I bet that the Consumer Price Index does affect your personal life. So CPI as measure for inflation is actually useful, unlike your definition.

Finally, it would be nice if you used clearer language to describe what you are talking about. I'm sure that it is obvious to you that the government literally printing money is completely irrelevant. But your use of such language makes it hard for me to understand what you are actually talking about (I just appreciate a clear conversation on the matter).

Are you talking about the government spending more money? Clearly you can't be saying that government spending is always inflationary, can you? And if you did, I hope you'd at least acknowledge that it's just the spending part that matters, i.e. it is irrelevant whether we're talking about government, foreign, or private spending.

Are you talking about the Fed increasing the size of the Monetary Base, as happened with Quantitative Easing? In that case, hasn't that QE/QE2 demonstrated clearly enough to you that there is no causal link from the MB to Consumer Price Indices?

Are you talking about the government increasing the amount of money in terms of M1-M3? In that case, you'd be woefully misinformed, since that amount largely depends on bank lending, and so the government has basically no direct influence over it.

Are you talking about something else that I've missed?

There is actually an interesting technical argument against that stance that dates back to the days of Keynes. Basically, what progressive economists were (and still are) arguing is that for most people, X% inflation is better than an X% decrease in income. The reason is that most people have long-running contracts forcing them to pay nominally fixed amounts, such as rents or mortgages.

Here's an illustrating computation with very simple numbers. Say I earn 1000# per month, of which 500# are committed to such contracts. 500# are available for "discretionary" spending (food, clothes, etc.). I now have the choice between 10% inflation and a 10% reduction in income.

In the case of 10% inflation, I still have 500# available for discretionary spending, only it's worth the equivalent of 450# of the old money.

In the case of 10% reduction in income, I earn 900# with my contractual commitments remaining the same, so I only have 400# left for discretionary spending.

Clearly, inflation is better for me. The situation is different for people with significant net financial assets of course, but the majority of the population does not fall into that category.

[1] Unless by printing money you mean spending money and you are a government contractor.

Basically, what progressive economists were (and still are) arguing is that for most people, X% inflation is better than an X% decrease in income. The reason is that most people have long-running contracts forcing them to pay nominally fixed amounts, such as rents or mortgages.

No, this is not the reason Keynesians argue for inflation. Keynesians believe that nominal wages are sticky - people will not work at a nominal wage lower than their pre-crisis wage.

Inflation is a way of reducing real wages (a necessary step in the recovery) while allowing people to maintain their prior nominal wage.

Strangely, a large number of people who support Keynesian economics also support measures aimed at increasing wage stickiness (unionization, minimum wage laws, etc). This last fact is something I can't figure out.

There are actually two separate arguments here. What you are saying is one argument: that people resist nominal price decreases (e.g. workers resist nominal wage decreases). What I was saying is the other argument: people are right to resist nominal price decreases, because inflation is better for them than the alternative. Both arguments have been made (the second argument may be less known) and I would agree with both of them.

There really isn't a conflict between being supporting Keynesian-style anti-cyclical government behaviour (this is what most people mean when they say they support Keynesian economics) and resisting nominal wage decreases.

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