G20 deficit fight: A vote for global depression?

G20 deficit fight: A vote for global depression?

I noted in a previous post that esteemed economist Paul Krugman is against the deficit cutting orientation of the G20,  arguing that it will lead to a lost decade of extremely high unemployment.

An article by market analysts Marshall Auerback and Rob Parenteau, “The G20 votes for global depression” takes the argument even further, suggesting that deficit mania at this time will lead to a new Great Depression.

Their contention, like many others (including Krugman), is that government must ‘increase spending (either directly or via tax cuts) to arrest the downward spiral of private spending’.

However, instead of increasing spending, G20 governments are cutting it to pay down deficits. The authors argue that given current levels of high unemployment, these spending cuts will undermine the ‘reasonable level of demand’ for goods and services necessary for recovery.  This will cause the economy to plunge further into recession and ultimately into sustained depression.

All, in the words of the authors, to serve the bankers’ interest.

The article ends with this troubling warning:

The more the bankers’ interest is served, the worse and more debt-burdened the economy will become. Their gains have been bought at the price of domestic austerity. The G20 Communique (PDF) irresponsibly and immorally ratifies this disgraceful state of affairs and we will all pay a severe price going forward.

The G20 policy makers, and their allies in finanzkapital, are like vultures picking over a dying carcass. And the rest of us are helpless because the institutions designed to serve broader public purpose have become subverted. We are making bond holders and big bankers whole at the expense of impoverishing the entire society.

It is hard to avoid drawing very dark conclusions. Our policy making elites have discovered that the underclass doesn’t matter politically anymore, so why respond to it? That indifference is extending to the middle class. Ordinary, struggling folks are all becoming so demoralized that they present:

1. No voting threat, because none of the major political parties in Europe or the US genuinely represent their interests (and haven’t for years). There have been, as a result, no political price to pay for such shameless predatory capitalism.

2. They present no power threat, because they have been systematically destroyed over the last 30 years and what is happening now in Europe represents the final assault on the residue of the 20th century welfare state (the US social safety net eviscerated well before this).

The message from the G20 seems to be this: We’re through with domestic spending to employ the underclass.

There are decent jobs for about 20% of the working-age population in the west. And for the rest? Poverty a la South America. It is extraordinary that voters around the globe continue to tolerate this corrupt state of affairs, but it’s getting increasingly hard to see a way out.



  1. G20 state of play: Austerity or recovery? | G20 Breakdown - 21. Jun, 2010

    […] China doesn’t want the G20 to chastise them about their currency valuation (background here), and warns that focusing on them could derail the G20.  China also reiterated their warning about over-focus on deficits at the G20 and that stimulus should not be fazed out all at once.    Background on the G20 renewed focus on cuts and deficit reduction and the serious repercussions that will likely have for the world – here, and here. […]

  2. Canada and the G8 G20 Summits: Harper's Plans | G20 Breakdown - 25. Jun, 2010

    […] depress the global economy even further and reduce the tax base, deepening the recession.  Some prominent economists have even argued that this will lead the global economy to a new Great […]

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  4. Videos | G20 Breakdown - 03. Jul, 2010

    […] follow the austerity plan the G20 has agreed upon and examine if the austerity is leading us to a double dip recession as some have predicted.  And I’ll look at the effects they have on the various countries implementing them. This […]

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