What Can Insurance Tell Us About the Capitol Mob?
And how Biden can use economic theory to stave off more riots.
The events at the U.S. Capitol on Jan. 6 have occasioned a lot of analysis of the reasons people mobilize politically. Some have pointed to deep polarization, others to disinformation, and still others to economic crisis.
The connection between economics and protest is well documented. The phenomenon existed at least as long ago as the First Secession of the Plebs in 495 B.C. and is a cornerstone of Marxist theory. More recently, protests emerged in Thailand and Indonesia in response to dropping financial markets during the 1997 Asian financial crisis. In 2011, protesters rallied against austerity measures in Greece and the removal of a fuel subsidy in Bolivia. Chile just rewrote its constitution in response to such protests. And France has had a “grand debate” over economic fairness that was a direct result of protests by the “yellow vest” movement in 2018.
Still, although scholars tend to agree that bad economic times are associated with more protest, the relationship is far from fleshed out. One issue is that “bad economic times” as a concept tend to conceive of an individual’s economic circumstances as one-dimensional, composed only of income. For many, though, economic well-being is dependent on other sources of wealth as well, such as accumulated assets or support from the government. We know that individuals can make up for losing their job, for example, by tapping into savings to cover their immediate needs—that’s called “consumption smoothing.”
What researchers are beginning to find out is that it is when individuals cannot smooth their consumption that they most turn to an immediately available form of political participation: protest. It is more appealing than other political options to address economic issues mainly because it can push the government into implementing policy that increases well-being relatively quickly. Other forms of political participation, such as voting, operate on long-term time schedules.
So what are the circumstances under which would-be protesters cannot smooth consumption? Here, a comparison to insurance is helpful. Insurance, in the case of consumption smoothing, is a stock of assets that, when exchanged for cash at some point in the future, functions as income. Insurance takes two forms: private and public. Private insurance (wealth) is an individual’s stock of accumulated assets. Public insurance (think unemployment benefits) is funded by the government but does the same thing as private insurance. In both cases, the stock of available funds grows as more money is contributed incrementally—whether by personal savings or tax contributions—and can be liquidated and used as income if needed.
But smoothing consumption is much harder when a negative shock prevents wealth from being exchanged for cash. For example, the corralito policy the Argentine government put in place in 2001 prevented withdrawals from bank accounts. This stopped a bank run, but it also made it hard for people to make ends meet. If an individual no longer has enough insurance to smooth consumption, the benefits of protest start to outweigh the potential social and physical costs. And if the shock is bad enough, it can alter the future expectations of many individuals simultaneously, coordinating many individual-level decisions and resulting in a mass movement. Economic crises can therefore be a coordinating device for collective action.
Data from 11 Western European countries between 2002 and 2018 shows this to be the case. In an analysis based on survey data, the effect of a recent income shock (losing one’s job within one year) on protest participation was smaller when the respondent had some form of income insurance. That is, individuals who lived with an employed partner or received unemployment benefits from the government were less likely to protest.
To see this effect, consider a hypothetical 30-year-old recently unemployed high school graduate in the United Kingdom in 2016. She was not a member of a union and was a political moderate. If her income did not come mostly from social insurance, having an employed partner decreased her probability of protesting from 5.7 percent to 3.2 percent. If she also received social insurance as income, her probability of protesting decreased to 0.00001 percent.
Across a whole population, insurance also mitigates protest in the aggregate. Consider that wage cuts are generally associated with more protest. However, a concurrent increase in savings tempers this increase. In general, savings increase when individuals are insecure about the valuation of other assets: People sell investments, cease borrowing, and shift to cash because of unsure revenue streams. Having cash on hand is a sign that people expect to have to smooth consumption using accumulated assets. Meanwhile, rising unemployment generally correlates with more protest. Yet concurrent increases in the stock market reduce this effect: Increasing asset values in the market soothe concerns about unemployment.
Even more than income, then, household economic security overall matters. So how does this apply to the Capitol riots?
Participants in that mob included a CEO and someone who flew to Washington on a private jet. These people likely have plenty of wealth and are not economically anxious. However, other rioters may have been: Donald Trump enjoys support among people concerned about shifting employment markets and technology supplanting human labor. On the other side of the political spectrum, participants in Black Lives Matter protests call attention to police brutality but also highlight the systemic economic gap (in both earnings and assets) between Black and white Americans that remains from centuries of disenfranchisement of Black people.
Different propensities for racism, nativism, violence, and evidence-based decision-making certainly separate these two types of protests. But it’s clear that while neither set is purely about economic interests, household economic security underlies some participants’ ability and willingness to mobilize. The Biden administration would thus be wise to balance enforcement of the law with an attempt to solve underlying problems. Any ability to improve household economic security across the board will likely help Biden unite the country and reduce protest along the way.