Rarely in history has the cause of a major economic problem been so clear yet have so few been willing to see it.
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The answer is in front of our faces. Itís because American consumers, whose spending is 70 percent of economic activity, donít have the dough to buy enough to boost the economy Ė and they can no longer borrow like they could before the crash of 2008.
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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.
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 Ė whose members fueled the greatest economic boom in the history of the world.
Get it? We wonít 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.