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Robert Reich on what ails America, how we got here, and what to do about it:

The national economy isn't escaping the gravitational pull of the Great Recession. None of the standard booster rockets are working: near-zero short-term interest rates from the Fed, almost record-low borrowing costs in the bond market, a giant stimulus package and tax credits for small businesses that hire the long-term unemployed have all failed to do enough.

Why not, you ask?

That's because the real problem has to do with the structure of the economy, not the business cycle. No booster rocket can work unless consumers are able, at some point, to keep the economy moving on their own. But consumers no longer have the purchasing power to buy the goods and services they produce as workers; for some time now, their means haven't kept up with what the growing economy could and should have been able to provide them.

And it started a long time ago:

This crisis began decades ago when a new wave of technology -- things like satellite communications, container ships, computers and eventually the Internet -- made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.

Which is a crazy statistic, when you think about it. Although not nearly as crazy as this one:

Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation's total income; by 2007, the top 1 percent took in 23.5 percent of total income. It's no coincidence that the last time income was this concentrated was in 1928.

Reich goes on to detail why, in fact, this unprecedented concentration of wealth is unhealthy for the country:

The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.

What's more, the rich don't necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they'll summon the highest returns -- sometimes that's here, but often it's the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.

Alas, what can be done?

The Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity. In the 1930s, the American economy was completely restructured. New Deal measures -- Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage -- leveled the playing field.

In the decades after World War II, legislation like the G.I. Bill, a vast expansion of public higher education and civil rights and voting rights laws further reduced economic inequality. Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes. And as America's middle class shared more of the economy's gains, it was able to buy more of the goods and services the economy could provide. The result: rapid growth and more jobs.

Specifically, Reich proposes the following:

Little has been done since 2008 to widen the circle of prosperity. Health-care reform is an important step forward but it's not nearly enough. We might consider, for example:

** extending the earned income tax credit all the way up through the middle class, and paying for it with a tax on carbon.

** exempting the first $20,000 of income from payroll taxes and paying for it with a payroll tax on incomes over $250,000.

** making early childhood education should be more widely available, paid for by a small 0.5 percent fee on all financial transactions.

** making public universities free; in return, graduates would then be required to pay back 10 percent of their first 10 years of full-time income.

** helping workers who lose their jobs and have to settle for positions that pay less to qualify for "earnings insurance" that would pay half the salary difference for two years; such a program would probably prove less expensive than extended unemployment benefits.

On this Labor Day weekend, we would all do well to heed Robert Reich's advice, as he concludes:

Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth -- and that's good for everyone. The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that's barely moving. That's the Labor Day lesson we learned decades ago; until we remember it again, we'll be stuck in the Great Recession.

Would America sign up for even one of these ideas? Read the entire editorial and see how much of it you agree with.

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