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Listen Up, Budget Cutters. Austerity Can Lead to Blood on the Streets, Even in America ... Researchers find statistical evidence that austerity policies are linked to explosive unrest.

Burgess COMMENTARY

Peter Burgess

ECONOMY Listen Up, Budget Cutters. Austerity Can Lead to Blood on the Streets, Even in America Researchers find statistical evidence that austerity policies are linked to explosive unrest. Photo Credit: shutterstock.com

Squeeze and push. Punish and strain. Since the global financial crisis of 2008, elites across the world have been on a tear against ordinary citizens, promoting austerity policies that strip hard-working people of their jobs, their security, and their dignity. In many places, people have pushed back — violently. Maybe you’ve been wondering if it could happen here, too.

In some corners of America, plutocrats seem to be experimenting to find out. In North Carolina, discount store tycoon Art Pope, a close ally of the Brothers Koch, is installed in the office of State Budget Director, where he has placed his boot firmly on the neck of the public with regressive policies, including the denial of Medicaid expansion to 500,000 of the needy, slashes in unemployment benefits to 170,000 people, devastating cuts to education, and voter suppression to make sure it all sticks.

These actions have led to protests across the state, most prominent among them the Moral Monday demonstrations led by Rev. William Barber. Do a quick Google search of the terms “North Carolina” and “unrest”, and you find plentiful headlines testifying to an increasingly jittery population. The police have even resorted to sending undercover agents to church gatherings to collect information on presumed “anarchists” among the protesters.

So far, U.S. protests have been remarkably peaceful. What conditions have to happen before things get really ugly?

The work of Jacopo Ponticelli and Hans-Joachim Voth may help us find out. They are economists at Universitat Pompeu Fabra in Spain, the scene of massive —and often violent — anti-austerity demonstrations since the global financial crisis of 2008.

For a long time, academics have tried to understand which factors are involved in creating explosive social environments. For example, economist Ed Glaeser, who studied race riots in the U.S., found that you typically need two ingredients to spark racial violence: racially mixed neighborhoods and unemployment. Hard times alone weren’t enough do it. Ponticelli and Voth decided to look closely over the history of Europe from 1919 to 2009, examining such events as riots, demonstrations, political assassinations, government crises, and attempted revolutions. Researching everything from minor civil disturbances to full-blown attempts to overthrow the established political order, the economists studied the conditions that attended explosive outbreaks of anger and dissatisfaction.

You might think that poverty would be enough of a catalyst to drive people to the streets. You would be wrong.

Hard times + austerity = chaos

Ponticelli and Voth found that the countries in their European study have an average of 1.5 incidents of civil unrest per year. But during times where the government is implementing austerity policies, that number goes up. When those cuts reach 1 percent or more of GDP, the number of events goes up by a third compared to periods of expanding budgets.

What’s more, the number of disturbances rises as cuts intensify. “Once austerity measures involve expenditure reductions by 5% or more,” write Ponticelli and Voth, “there are more than 3 events per year and country -- twice as many as in times of expenditure increases.”

In other words, economic shocks alone are not enough to cause people to flip out. It’s the way governments respond to them that sets the stage for blood in the streets.

After looking at Europe, the authors collected data on South America, and found the same connection: When governments pursue budgets cuts during economic downturns, all hell often breaks loose. “From Argentina in 2001 to Greece in 2010-11,” note the authors, “austerity measures have often created a wave of violent protests and massive civil unrest.”

Austerity sparks a vicious cycle: Political and social chaos that results from budget cuts tends to make the economic conditions even worse. With every additional percentage point decline in spending as a percent of GDP, the risk of unrest increases.

So what about the U.S.?

When people think of violent civil unrest in the U.S., they tend to think of the bloody race riots of the Jim Crow era or the student demonstrations and racial conflicts of the 1960s, or the more recent L.A. riots. They might recollect something about the history of labor riots, like the Haymarket Riot of the 1880s.

What many Americans don’t realize is that the U.S. has a blood-soaked history of austerity-related unrest, from the anti-rent and labor union riots of the 1830s that attended the bursting of the Jacksonian land bubble, to the Coxey’s Army protest of unemployed workers during the economic depression of the 1890s, right up through the various uprisings of the Great Depression. If you look closely at these incidents, you tend to find the government responding with inadequate aid and budget-cutting mania.

Following the shock of the stock market crash of 1929, American incomes collapsed, one out of five Americans found themselves unemployed, and starving people camped on the streets. President Herbert Hoover insisted on responding with budget-cutting austerity policies, which intensified not only the scope and duration of the economic crisis but led to massive civil unrest.

It got very ugly. By 1931, food riots were breaking out as hungry citizens smashed the windows of groceries. Before the New Deal made them illegal, many corporations kept private armies that could be unleashed to brutalize protesting workers, and companies like Ford and GM did just that during the Depression. In March 1932, three thousand unemployed workers marched on the Ford Motor Company's plant in River Rouge, Michigan, where a clash with company guards left four workers dead and many more injured. Destitute veterans camped in Washington, where violence erupted, causing Hoover to call in Federal troops under the command of General Douglas MacArthur to assist D.C. police in clearing the veterans.

When Franklin Delano Roosevelt was elected president in a landslide over Herbert Hoover in November 1932, he promised a better government response to the catastrophe. Instead of cutting off aid to citizens, he would increase it. The New Deal, which focused heavily on enhancing aid and expanding government investment in jobs, was arguably the government’s strategy to keep the population from descending into total chaos. Economist A.A. Berle, a member of FDR’s “Brains Trust,” famously stated that “in a world where revolutions just now are coming easily, the New Deal chose the more difficult course of moderation and rebuilding.” Austerity, Berle new, was a path to revolution.

In the wake of the Great Recession, the Obama administration responded to widespread economic hardship with a stimulus package that kept the population from descending into a full-scale freak-out. But the package was inadequate, contributing to significant unrest, most notably the Occupy Wall Street demonstrations of 2011. Police buildup since 9/ll and a generally aggressive stance in the U.S. toward protesters may have worked to keep many would-be demonstrators at home since the crisis. But history shows that even the most brutal police and aggressive armies can’t keep the lid on when austerity becomes too severe.

Without an agreement in Washington this month, the U.S. could be facing a second round of the automatic spending cuts known as sequestration. In a recent speech concerning next year’s federal spending, the President took an anti-austerity stance with big talk about safety nets, education, and opportunity, but his words did not erase GOP-driven budget decisions which place increasing hardship on Americans. Hard-pressed citizens face decreased access to food stamps and unemployment benefits, and are looking down the barrel of a retirement crisis unseen since before the Great Depression.

In U.S. states where the GOP is in control, budgets are being balanced on the backs of working and middle class people who are already strained. In Wisconsin, for example, Governor Scott Walker has gone full-throttle on austerity, promoting sharp reductions in spending. As a result, not enough jobs are being created, schools are operating on bare-bones budgets, and economic insecurity is increasing. (Meanwhile, neighboring Minnesota is faring much better with fiscal policy geared towards investment). The Walker administration, facing ongoing protests, recently ordered Capitol police to start arresting people. Right now in North Carolina, Moral Monday protesters who have been arrested are being tried in court.

Many who study American society wonder why violent protests have not yet erupted in the face of unemployment, police brutality, failing schools, segregation and poverty. Historian Michael Katz, in his 2011 book Why Don't American Cities Burn?ponders various explanations, including the idea that immersion in consumer culture may make Americans particularly docile. But hunches like this have to correlate to actual data in order to be useful, and so far such explanations have not been tested. The work of Ponticelli and Voth does suggest that countries where executive power is limited and strong democratic institutions prevail may have less intense social unrest. Historically this may have given the U.S. some built-in anti-riot protection, but those advantages are quickly eroding.

What’s special about the U.S. is that since the days of Herbert Hoover, the kind of austerity measures that have been tried in other parts of the world have not been implemented, despite the efforts of the GOP and the weak stance of Democrats. But if we do given into budget-cutting, we may expect this to change. States where the GOP has gotten the upper hand will likely be the first places that riots will happen.

Pundits and policymakers have been backing off claims that austerity can promote economic growth since the infamous Reinhart/Rogoff debacle last spring in which the work of two Harvard economists on the topic turned out to be based on faulty data. The truth is that budget cuts damage economies. Now we have research that suggests it creates social chaos, too.

Ponticelli and Voth’s work provides a cautionary message: austerity does have a tipping point. Ratchet up the budget cuts a few notches, and sparks will fly.