Wednesday, August 10, 2011

Do Episodes of Recent Global Unrest Have Any Commonalities?

This has been a year of unusually high amounts of public unrest.  It all began last December when a man named Mohamed Bouazizi.  He lived in Tunisia, in an area of reported 30% localized unemployment.  He had his street vending wares confiscated because he did not have the proper permit.  After arguing with government officials to have his wares and occupation returned to him, he set himself on fire.  His final words before the immolation have been reported to have been, "How do you expect me to make a living?"

A young individual frustrated with government regulation and corruption has started a wave of demonstrations and even revolution in Tunisia, Egypt, and Yemen.  There is ongoing protests and civil strife in Syria and Libya.  Initially, this so-called "Arab Spring" was confined to religiously Muslim majority countries.  They are demonstrating using violent and non-violent means.  Most of them are seeking to end dictatorships.  Recently there have also been large protests and riots in Great Britain and Israel.  Do these range of protests and riots have anything in common?

Protests in Tel Aviv ('avivi)

Protesters in Israel are protesting the high cost of apartment rents in Tel Aviv.  I perused craigslist where it says that one bedroom apartments are going for an average of 5,186 Shekels ($1,465) with a high of $1,723 and a low of $988.  This was a very unscientific and small sampling of Tel Aviv rents.  I'm sure there was a wide distribution of locations, amenities, etc., but I just wanted to get an idea of what numbers I'm working with.  Comparing it to Washington D.C. (another high rent location in my estimation) using the same method of craigslist polling. I found an average of $1887 with a high of $3000 and a low of $765.  Construction is quite widespread in Washington D.C. as companies are attempting to profit on the high prices.  It is much the same in Tel Aviv.  New construction can be quite a political issue in most urban areas.  There are typically significant zoning regulations that, in effect, stifle supply and create response lags to increases in demand.

A Stand-off in Croydon (Raymond Yau)
Great Britain has one thing in common with Tunisia.  The riots in Tottenham (which were later followed by ones in London, Manchester, etc.) were sparked by one incident.  In Tunisia's case, a self immolation.  For Great Britain, it was the police killing a reported gang member.  They have had days of violence throughout England, but they started out as anti-police demonstrations.  It is also suggested that the coalition government's austerity measures and general economic issues were also contributing factors.  Britain has been having several large non-violent protests for months for various issues relating to recent government cuts in health care and education.

Great Britain's austerity program has been a terrific counterpoint to the United States stimulus for economic observations.  Economists have been comparing economic conditions in each country to compare effects of different reactions.  The U.S. and U.K. are not completely alike, but it is rare that similar conditions (financial panic of 2008) have caused such severe economic slowdowns at almost exactly the same time.  In October 2010, the coalition led government instituted a five year plan to reduce the U.K.'s budget deficit from 11% of G.D.P. to 1% of G.D.P.  They did this by slashing citizen benefits and public sector jobs.  The United States has just lost its AAA bond status, while the United Kingdom kept its, but at what cost?

The chart above shows the relation between "jobseeking" (y axis) and employment and support allowance (ESA) (x axis) for the different regions of Great Britain.  I've blanked out some of the names so, the larger and more recognizable ones will be seen.  The chart shows unemployment over time by regions, and one can see the impact of the recession as about a  2% increase in job seeking across the board.  Just press the play button, and it will begin moving in a time series.

In the past couple years, the David Cameron led coalition government have been promoting austerity measures.  Prime Minister Cameron has likely made sound decisions from a long-term way of thinking.  In the short term, it appears that there is an increased propensity for civil unrest.  In the United States, we have been able to avoid civil strife, despite relatively high unemployment.  Have we avoided civil strife simply because we have continued to pay unemployment benefits for unusually long periods (and other forms of welfare)?  One of the drawbacks of Keynesian economics is that the debt is often not worth the benefits in the long run from a cost-benefit analysis.  This was played down by John Maynard Keynes, "The long run is a misleading guide.  In the long run we are all dead."

Surely the American stimulus must be paid for, and it likely will not be worth it from a cost-benefit point of view.  What if these programs fail a cost-benefit analysis, but they maintain intangible, unobservable factors such as what is often called the "fabric of society"?  Nobody can really tell which factor exactly keeps the façade of civilization apparent to all of its citizens (or fabric of society), but surely that has a real benefit as well.

So what do these protests, riots, and demonstrations have in common?  Frustration with economic conditions is widely observed to be a contributing factor to all of these protests, demonstrations, and riots.  If we are to keep this "fabric of society" woven, we must have some degree of economic success.  Moreover, that success must be widespread throughout society.  As economists, we must address economic growth and equality in a way that is not a handout or a burden on future generations.  We must be serious about education both on a national and individual level, as skills disparity have been shown to be a main contributor to economic inequality.  If we are to institute programs of austerity, we must study to find a better way of promoting, establishing, and easing into them.  They will never be pain free, but simply making wholesale cuts is not the best answer either.

Last, governments around the world need to allow their citizens to be economically free.  This means that everyone must be allowed to compete.  Too often, we handcuff poor and/or low skilled individuals through various regulations and then give them various forms of welfare.  Hand outs are dehumanizing compared to jobs.  Hand outs should be reserved for individuals that have no means to produce a reasonable level of income such as the handicapped and elderly.  Every able-bodied individual should have the right to pursue their best level of productivity and the responsibility of their results.

EDIT: Dr. Nouriel Roubini wrote a similar article to this topic here.

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