John Maynard Keynes explained the dynamics of an economy in a prolonged period of high unemployment more than 70 years ago in The General Theory. Unfortunately, it seems very few people in policymaking positions in the United States or Europe have heard of the book. Otherwise, they would be pushing economic policy in the exact opposite direction than it is currently heading.Do yourself a favour and read the whole thing. Do everybody a favour: read this, fully comprehend it, then agitate to get governments to follow a Keynesian approach. Otherwise we are all back to Hoovervilles and bread lines hoping that a new Hitler will come along to kill maybe 200 million people this time but give governments an excuse to give their economies a real Keynesian boost through military spending that will get us out of the ditch.
Most wealthy countries have now made deficit reduction the primary focus of their economic policy. Even though the US and many eurozone countries are projected to be flirting with double-digit unemployment for years to come, their governments will be focused on cutting deficits rather than boosting the economy and creating jobs.
The outcome of this story is not pretty. Cutting deficits means raising taxes and/or cutting spending. In either case, it means pulling money out of the economy at a time when it is already well below full employment. This can lower deficits, but it also means lower GDP and higher unemployment.
I never cease to be amazed that people are more stupid than I think possible. And sure enough, they prove that even my low expectations are far too high. I once again must lower my expectations about intelligence in government.