A fas­ci­nat­ing arti­cle at New Deal 2.0 details the steps we are tak­ing towards a likely sec­ond Great Depres­sion. At a time when economies are tee­ter­ing on the edge of recov­ery and a sec­ond reces­sion, gov­ern­ments are start­ing to make noises, par­tic­u­larly in Europe, about reduc­ing deficits as a model for respon­si­ble finan­cial health. Unfor­tu­nately, this is the exact oppo­site response gov­ern­ments should be tak­ing as reduc­ing a gov­ern­men­tal deficit will nat­u­rally result in defla­tion­ary pres­sures on the pri­vate sec­tor because the two are nec­es­sar­ily related.

Gov­ern­ments have two main ways to reduce deficits, increase taxes and reduce spend­ing, both of which are defla­tion­ary. Doing either at a time when unem­ploy­ment runs at 10% in most First world coun­tries would result in huge bur­dens on the pri­vate sec­tor. Gov­ern­ments are cur­rently run­ning large deficits because we just came out of one of the worst reces­sions the world has ever seen. Unfor­tu­nately, the big­ger prob­lem is that a huge por­tion of the gov­ern­ment spend­ing dur­ing those reces­sions actu­ally resulted not in job cre­ation but in an amaz­ingly brazen trans­fer of wealth from the mid­dle class to the wealthy through pay­ing bond­hold­ers at par value and keep­ing the oli­garchs in the big banks solvent.

Bail­ing out the banks instead of the com­mon peo­ple was a mon­strous mis­take but not one that needs to be com­pounded now by cut­ting spend­ing which will nec­es­sar­ily affect the very same classes of peo­ple neg­a­tively that the bank bailouts did through reduc­tion of pub­lic ser­vices and increased unem­ploy­ment. The fact that our elites are even con­sid­er­ing this shows how lit­tle they under­stand of the sit­u­a­tion. Or play­ing more cyn­i­cal, how lit­tle con­cern they have for the plight of the mid­dle and lower class.

What we need are states­men and lead­ers who can clearly explain why the cur­rent bud­gets deficits are nec­es­sary and then begin to for­mu­late plans to redi­rect stim­u­lus not to the oli­garchs in power but to the peo­ple most affected by the eco­nomic dis­as­ter. Instead, we have cap­tured men and cronies in power who will con­tinue to rape the mid­dle class until they no longer can, either because there is no mid­dle class left or because they have been deposed. Until the sys­tem is reformed and our polit­i­cal lead­ers once again serve the inter­ests of the many instead of the power of the few, I don’t see how we aren’t in for dark days ahead.