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.
By contrast, 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.
3. What Else Should Be Done
What else could be done to raise wages and thereby spur the economy? I don't pretend to have all the answers but some initiatives seem worthwhile.
[Pause for a commercial announcement. These points, and others, are developed at length in my upcoming book, "AFTERSHOCK: The Next Economy and America's Future," out in two weeks from Alfred Knopf.]
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. The carbon tax would raise the prices of goods and services especially dependent on carbon-based fuels, which is appropriate given that the social costs of carbon-based fuels should be included in their prices. Consider how much our society now spends on such things as foreign wars designed to secure our sources of oil, as well as oil cleanups. But the wage subsidies would more than make up for these price rises, at least for most Americans in the middle and below.
Another step would be to exempt the first $20,000 of income from payroll taxes and paying for it with a payroll tax on incomes over $250,000. This, too, seems reasonable, given that under current law only the first $106,000 of income is subject to the Social Security portion of the payroll tax a particularly regressive system. Most higher-income people, who get good medical care, live longer and collect far more in Social Security benefits, than do lower-income people.
In the longer term, Americans must be better prepared to succeed in the global, high-tech economy. Early childhood education should be more widely available, paid for by a small 0.5 percent fee on all financial transactions. Public universities should be free; in return, graduates would then be required to pay back 10 percent of their first 10 years of full-time income.
Another step: workers who lose their jobs and have to settle for positions that pay less could 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.
These measures would not enlarge the budget deficit because they would be paid for. In fact, such moves would help reduce the long-term deficits by getting more Americans back to work and the economy growing again.
Here's the point. 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.
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
