Thirty years of progressively higher consumer spending and debt have coincided with rising corporate profits, low savings rates, gambling preoccupation, and boom-bust asset cycles. All were deleterious to present resilience as we encounter the first economic depression since the 1930s.Case in point: a decade long economic expansion, with record corporate profits and rock-bottom unemployment and interest rates, ended this year with the majority of households and businesses unable to withstand even a month of lost income.

Financial discipline is deficit just as expected returns for most investable assets are nil to negative and further capital losses untenable. Adding more household debt and risky assets at extreme valuations to try and reboot spending will not work this time. That trick is done. The last decade was all about boosting the income statement at all costs the next will be all about improving balance sheets. This is an entirely different way of thinking.

The way forward dictates spending less, paying down debt and building up savings again. Frugality and proactive measures are coming back in vogue. For the economy overall, this means lower spending from the consumption sector that has driven about 60% of Canadian and 70% of US GDP over the last two decades.

It also suggests a secular downturn in sales and profits for most businesses (always reliably mean-reverting through history) with a reduction in debt, share buybacks, dividend payout ratios, and a laser focus on improving efficiency and productivity.

Governments will have to pick up on spending as the private sector rebuilds its balance sheets. But what we spend on will make all of the difference in the world. Spending to fund consumption or elongate dying business models will not cut it. Tax dollars will need to be invested in big picture improvements, infrastructure, and innovation that will reduce waste and illness, increase health and productivity–New (Green) Deal thinking, not old.

To pay for all of this, tax rates are headed up across the board, and blood doesn’t come from stones. Those who have income and property will be tapped to pay the lion’s share, obviously, while consumption taxes will move higher for everyone. It’s just the math of it. There is no government benefactor, there’s only us.

In the decade of the 1930s, corporate and capital gains tax rates nearly doubled while personal income tax rates rose about 150%. We should expect similar trends ahead, along with a tightening of loopholes and reinvigorated prosecution of tax evaders and their helpers. This is long overdue. Our next war effort has arrived.