Monday, 15 August 2011

this is history, this is a repeat

Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2009, by Jacopo Ponticelli and Hans-Joachim Voth, Discussion Paper No. 8513, August 2011, Centre for Economic Policy Research

Does fiscal consolidation lead to social unrest? From the end of the Weimar Republic in Germany in the 1930s to anti-government demonstrations in Greece in 2010-11, austerity has tended to go hand in hand with politically motivated violence and social instability. In this paper, we assemble cross-country evidence for the period 1919 to the present, and examine the extent to which societies become unstable after budget cuts. The results show a clear positive correlation between fiscal retrenchment and instability. We test if the relationship simply reflects economic downturns, and conclude that this is not the key factor. We also analyze interactions with various economic and political variables. While autocracies and democracies show a broadly similar responses to budget cuts, countries with more constraints on the executive are less likely to see unrest as a result of austerity measures. Growing media penetration does not lead to a stronger effect of cut-backs on the level of unrest.
The link above will download the whole paper in PDF and a summary of the paper can be found here.
Political implications
When the Great Recession spread, many governments embraced the advice from leading economists who had argued in a number of papers that budget cuts can be good for growth (Alesina et al. 2002; Alesina and Ardagna 2010; Giavazzi and Pagano 1990). In addition, an important literature has argued that there is no effective penalty for budget cuts at the ballot box – voters apparently understand the need for austerity, and do not punish governments that implement it (Alesina et al. 1998 and Alesina et al. 2010).

These results suggest a paradox – if austerity is good for growth, and the electorate doesn’t mind, why aren’t governments keener to cut their countries back to prosperity? Our findings suggest that fear of political unrest may be an important factor that is holding back governments. As expenditure cuts start to bite, the number of anti-government demonstrations, riots, general strikes, attempts to overthrow the established order, and political assassinations increases dramatically. In line with our results on expenditure, Woo (2003) shows that countries with higher levels of unrest are more indebted.

Ontario Premier Mike Harris's Conservative government has launched a full-scale reform of the province's education system, calling for standardized report cards, a provincewide curriculum and the right to determine the amount of time that teachers spend in the classroom. He has also called for additional unspecified spending cuts of $500 million. Such changes have provoked fierce debate. [including] ...the largest teachers' strike in Canadian history.

"Before we were elected, we were criticized for saying things like 'No blade of grass will be untrampled at Queen's Park.'"

Harris Under Siege (Nov97 Updates)

The "blade of grass" quote is discussed at 7:30

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