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Why The Economy Can't Get Out of First Gear

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How? We might learn something from history. During the 1920s, income concentrated at the top. By 1928, the top 1 percent was raking in an astounding 23.94 percent of the total (close to the 23.5 percent the top 1 percent got in 2007) according to analyses of tax records by my colleague Emmanuel Saez and Thomas Piketty. At that point the bubble popped and we fell into the Great Depression.

But then came the Wagner Act, requiring employers to bargain in good faith with organized labor. Social Security and unemployment insurance. The Works Projects Administration and Civilian Conservation Corps. A national minimum wage. And to contain Wall Street: The Securities Act and Glass-Steagall Act.

In 1941 America went to war -- a vast mobilization that employed every able-bodied adult American, and put money in their pockets. And after the war, the GI Bill, sending millions of returning veterans to college. A vast expansion of public higher education. And huge infrastructure investments, such as the National Defense Highway Act. Taxes on the rich remained at least 70 percent until 1981.

The result: By 1957, the top 1 percent of Americans raked in only 10.1 percent of total income. Most of the rest went to a growing middle class -- whose members fueled the greatest economic boom in the history of the world.

Get it? We won't get out of first gear until the middle class regains the bargaining power it had in the first three decades after World War II to claim a much larger share of the gains from productivity growth.

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Robert Reich, former U.S. Secretary of Labor and Professor of Public Policy at the University of California at Berkeley, has a new film, "Inequality for All," to be released September 27. He blogs at www.robertreich.org.

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