I'll preface this by saying that I have yet to find squalor a substantial problem in M2TW, but that's likely only because I plan things ahead in games like this...

Having said that, though, I can see how it could be a huge issue if you get even close to letting it really affect a settlement. One thing I've seen mentioned is that farms cause growth, and therefore promote squalor. Taking that a step further, has anyone noticed that a lot of the public order granting buildings also promote growth? IIRC any health bonus contributes to growth, and the town hall series as well as the churches both eventually grant health bonuses. Any of the pure happy buildings also grant growth for each 2 you have. So if you let yourself get to the point where you have to build any of those buildings I mentioned to maintain order, you get a growth bonus along with it, which pretty much guarantees in a few turns you're going right back into the same situation. As has been mentioned previously, the only really viable strategy is to make sure you stay out ahead of it by stockpiling PO.

If you do find yourself trapped at low taxes and no spare public order, it's often too late (i.e. eject and prepare to sack/exterminate), but sometimes you can escape it. Military buildings can help here, as they provide PO without any growth - one of the few things I can think of that do so. On top of those, it's probably useful to remove any chivalrous governor if possible (to kill growth), install a dreadful governor (PO w/o the growth of chivalry), and bring in/build more garrison to get control of PO. After those measures, you should upgrade any of the earlier mentioned PO buildings that also cause growth as a side effect - you need to get enough PO slack to bump taxes up and alleviate all the growth that's causing you problems.

The biggest thing, though, is that you should always make sure you've controlled all other things that negatively impact public order. That is, be sure you deal with religious unrest, distance to capital, and enemy spies. Squalor alone is never enough to give a city PO problems, and the most effective thing you could ever do is to eliminate the other things that are much more in your control. So of course do everything you can to limit squalor, but realize that it's far easier and more effective in the end to deal with the other things that are PO problems, since they can all be completely or largely eliminated, unlike squalor. Any one of those 3 things, if out of control, can easily sink a given settlement - especially very large ones, as they are precariously balanced. However, if you convert the population quickly and efficiently, locate your capital smartly, and field spies in a defensive capacity to protect your cities, you'll generally find that squalor becomes a non-issue.