A Surefire Way For Governments To Provoke Riots, Chaos And Revolution
Apr. 1, 2012
Economist Paul McCulley, formerly of PIMCO, has a great new paper out called Does Central Bank Independence Frustrate the Optimal Fiscal-Monetary Policy Mix in a Liquidity Trap? (.pdf), which is a cry for “irresponsible” monetary policy.
Basically, he says, in typical times, it would be the job of the central bank to act independently to counter governments that are borrowing and spending so much that they’re causing inflation.
But in a liquidity trap, the job of the central bank is to row in the same direction, and do everything it can to facilitate inflation and spending, even if on paper that seems irresponsible.
It’s a big paper, and we’re still going through it, but one thing he cites in there is another paper by economists Jacopo Ponticelli and Hans-Joachim Voth called Austerity and Anarchy: Budget Cuts and Social Unrest in Europe,. 1919-2009 (.pdf), which explores the link between, as the title states, austerity and social unrest.
What Ponticelli and Voth found, looking back over budget cutting over that 90 year period, is that the relationship between austerity and social unrest (riots, attempted revolutions, and even assassinations) is pretty clear.
Not only that, but the size of the cuts bear a close relationship to the volume of social unrest.