The coming deflation

Mike Whitney believes America will eventually confront a demand-constrained economy, the existence of which will produce deflation and not the inflation the right believes will result from the Obama stimulus program. Whitney continues:

The subtext of the financial crisis is class warfare, a fact that mainstream economists would rather ignore than invoke the musty imagery of disheveled revolutionaries and Soviet-era repression.

As we know, wage earners in the United States have not fared well since the end of the Golden Age (around 1968), and their losses are a component of the misdistribution of the country's wealth:

…during the Bush years, the chasm between rich and poor widened to levels not seen since the Gilded Age. Now the top 1 percent of wealth holders own more than twice as much as the bottom 80% of the population. All of the real gains in national income, total net-worth, and overall growth in financial worth have gone to the same 1 percent.

The common person, dependent as he or she is on wage income and when considered as a consumer of those goods produced by the economy, must have access to the monetary means needed to purchase the goods they want to consume. Consumption in general is but a necessary moment in the production of value and since wage earners tend to spend most of what they earn, both the rate of employment and the distribution of wealth have functional roles to play in the steady reproduction of the economy. Thus:

…the strides in personal enrichment have come at great cost. The US consumer, long considered an inexhaustible resource, is tapped out. Without job security and access to easy credit; consumer spending will slow, prices will fall, demand will flag and the economy will tank. There won't be a recovery, because pre-crisis levels of consumption will not return; that much is certain. Sustainable growth requires higher wages and longer working hours; neither of which are likely anytime soon. The economy is headed for a protracted slowdown with persistent high unemployment and growing social unrest. The future is deflation.

Briefly put, what remains of America's post-war system is threatening to disintegrate. But Goldman Sachs and JP Morgan-Chase have managed to surge during the crisis.