Financial Crisis and Social Unrest

At the weekend, a series of Occupy-Wall-Street-inspired protests were staged across the financial capitals of the world - see here.  You can read more about the Occupy campaign on their website.

Why have these protests been taking place?  Firstly, the median wage in the US (and other developed economies) has been constant for decades.  In the meantime, the distribution of wealth and income has become extremely unequal (see previous post).  Secondly, the bailout of Wall St and the resultant austerity suffered by the average person has exacerbated inequality (perceived or otherwise) in the West.

A recent working paper (click here) by Jacopo Ponticelli and Hans-Joachim Voth looks at the relationship between fiscal austerity and social unrest over the twentieth century.  They find (unsurprisingly) that fiscal retrenchment is followed by social instability, and that this instability is more severe when there are fewer checks on the executive branch of government.

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