I firmly believe that in the future, the person who doesn't dig deeply into this political moment will read the essays of Krugman and Sidney Blumenthal to find out "what it was all about". That is, that these two writers are going to be the "voice" of this political moment in the ears of people who live with the echos have died away. Krugman is an important thinker in his own right, and Sidney Blumenthal has, to my eye, a prose style that is to almost all other columnists what the iPod is to almost all other music players – a smoothness which is perfect in its uniqueness and unique because of its fluid perfection. His current column marks a milestone in his recent flowering into the spokesman of a coming era.

This is not to say that there are not other great writers, or that these two writers are the drivers of the change in politics, but no other pair have so consistently place the matters at hand before the examination of the world so clearly. Blumenthal himself seems to be liberated by the events of the last three years, having lost a kind of coy patience which, at one time, seemed to bury his instincts beneath caution and a life time of nearly flawless political surefootedness.

In recent months he has proven that he is as sure footed off of the beaten trail as he ever was on it, and that he is a voice of a generation which has decided to renew its credentials as being socially active, socially aware, and seeking to find the front of the historical wave. Dylan may have urged the young generation to "prophethize with the pen" – Sidney is on the other side, show that his generation still can work magic with words.

His most recent Salon piece is a case in point, the velvet prose is wrapped around a sledgehammer of statistics, which add up to a single bottom line: the young generation has rejected Bushism, and rejected the conservative world view. They are not only the most Democratic generation in a very long time, but they are part of an increasing wave of activity and energy. The apathy and cynicism of my cohort came from constricting chances and ever higher gatekeeping barriers. In fact, that is still the experience of my generation, as anyone on a job search will tell you. There is a company pitching executive search services that go all the way back to childhood, young childhood, on candidate hiring profiles. Your three year old nursey school, for my age bracket, is on your "permanent record".

The liberation of Blumenthal's pen comes at an opportune moment, just as Krugman, somewhere in mid 2000, was liberated from his allegiance to a system of technocracy, and went from being a moderately obscure genius academic, to being the first columnist to make it his job to point out that the New Emperor had no clothes.

It is an opportune moment because it is time to dream again. I was recently flamed by a moderately distinguished elder economist for not being realistic about the future. I will leave aside both the flame and the historically bungled arguments he made about the past, and take on the future. The future of work and of a decent society is not in the government taxing corporations to spread the misfortune out a bit more thinly, but in a society which has dedicated itself to a continuous improvement in the quality of how we do everything. Either we will do this, or we will not make it through the era that is coming. Already there are going to be high costs in life and suffering for our failure to awaken early enough to the unsustainability of our predicament, costs which can not be avoided, and will only be ameliorated in limited ways.

The false choice that we have is to some how juggle the books to keep things going a bit longer, or to change our ways. The first is not really a choice, even though it is the choice being offered to us. Bush is attempting to juggle the books on Iraq for a bit longer, hoping to hold out and see improvement there in time, or at the very least avoid having to actually make the humiliating decision to leave. He is still hoping that some friendly buyer will come along and take Iraq off his hands, as it took his oil company off his hands.

It is also the false choice on Social Security. Social Security, we are told, is in crisis, and we will have to do something. This is wrong, Social Security is a pin that holds two parts of our monetary system together. It looks like it is in trouble simply because we look at it over the distance of two generations. If we were to look at the General Fund – that is what all discretionary and interest payments come out of – it will be in much worse shape in 75 years than will Social Security. Social Security is the canary in the coal mine, if it is showing problems in the far future, it is because we have deep economic problems in the present. It is absurd beyond the point of reason to expect that we can tell people 75 years from now whether they should raise taxes, cut benefits or change formulas. Those people are your young children, you can't tell your three year old whether he can have cookies reliably, it strains credulity to think you can, from beyond the grave, tell him what his retirement money is going to be like.

Instead the problems in social security come from the realities of demographics and a deep set of problems with productivity. The first is that there is not enough productivity growth – that is, real output per worker hour. If productivity were growing at a higher rate, then revenues would easily cover our commitments, and a bit more. But productivity growth is not enough, more of it must go to wages. Over the course of the last generation, the median hourly worker has seen precisely none of the increases in productivity as wages. Instead, his savings have gone down to buy all those things which generated that productivity. This is a point embraced across the Democratic Party and progressive movement – from Ben Nelson and Harry Reid on its right flank, all the way across to Senator Sanders of Vermont.

These two parts – lower than required productivity growth, and no increases in wages for productivity to some extent reinforce each other. After all, if you don't pay people more, in real terms, they can't buy as much more. Also, there is less incentive for them to improve themselves as workers – instead, the marginal trade off is towards more leisure. We have indeed seen the explosion of the "Hobbies are life, the rest is details" mentality. Lower improvement in the worker base reduces productivity growth. Rob Shapiro ably lays out why the breaking of the link between productivity growth and wage growth is such a problem both for policy and society.

If this were the extent of the problem, then the solution would be pretty simple. Raise taxes on rich people.

However, this is not the limit of the problem, and in fact the real underlying problem creates the slower than needed productivity growth, the non-existent real wage growth, and prevents the simple brute force solution of redistributive taxation or wage increases from working.

That real problem is that the quality of productivity is bad. We don't just have too little productivity growth, and it isn't merely that companies are keeping almost all of it as profits, but the nature of productivity growth is narrow, and this limits both the amount, and the distribution of productivity.

Consider if you will the American economy. During the 1990's five sectors of the economy accounted for virtually all of the productivity growth in the economy: wholesale trade, retail trade, investment trade, high tech and aerospace. Or, to boil it down: Wall Street, Wal*Mart, the software they use and the planes that fly their executives out to look at their factories in China. If productivity growth is narrow, then it is difficult to impossible to have broad based wage growth. This is because in most of the economy there is no productivity increase to pass on to workers. By expanding the number of customers one can increase salaries at the top of the pyramid – one CEO getting some of the production of a million customers can be paid more than one getting the production of one hundred thousand, all other things being equal, but there is no actual improvement in productivity to pay the workers who serve those customers more.

The narrowness of productivity growth means that even workers in most of the productivity improving areas can't demand higher wages, because there are dozens of people from the lower productivity areas eager for their jobs. While unemployment might be low, the pool of low quality employment is huge. In effect, outside of the high productivity sectors, everyone is unemployed.

The narrowness of the productivity improvements comes from a fact which is even more bad news, namely why productivity as grown so narrowly. Retail and Wholesale trade has improved because of consumer debt, labor land and regulatory arbitrage, monosopy power and Wal*Mart locking people in the building without pay until their work is done. In short, as Prof. Solow of MIT noted – there was very little technology there, and a great deal of market power.

Investment trade tells a different, but equally unpleasant story: much of the improvement in productivity comes from asset inflation. While technology has indeed had a tremendous impact, half of the improvement in productivity over the last 25 years has come from the simple fact of investors paying a great deal more for each dollar of future earnings.

Thus low productivity and non-wage growth are a direct consequence of the narrowness of productivity, and the narrowness is a direct consequence of not having a broad based technological improvement in production.

Because of this, merely taxing, or merely improving unionization would simply dump us back into the inflationary cycles of the 1970's. We can't just grow the economy, we can only grow it in a very few ways. While the mantra of the last 30 years in economics has been "the free market" and avoiding planning, the reality is that this is one of the most tightly locked down economic eras. The winners were picked long ago.

To end this problem – the lumpiness of where productivity can be generated – means addressing the underlying structural problems. Keynesian economics – the tool which allows aggregates to be treated as interchangeable – does not work if money matters, and different kinds of commodity produce different effects on the market for interest and money against the market for goods. The very simplicity of macroeconomics, which makes it possible to govern, is also the obstacle. It was Brad DeLong, I believe, who said that the job of the government was to make Say's Law apply in practice even if it does not apply in theory. The second pillar must be that it is the job of government to make Keynesian economics apply in practice as well as it applies in theory. Doing this takes a large fraction of national effort, but it is so much of an economic win, that it repays the investment many times over. Government has to be big enough to make the economy get out of its own way.

The sources for the narrowness of productivity are known by their bumper sticker versions, rather than their true shapes. It isn't energy per se that is the problem, but the problem of recycling petrodollars and the marginal profits of energy. Namely, if the last barrel of oil that keeps everyone happy is at $64/barrel – where it is today – then the producer who has costs of $5/barrel, which is about the Saudi cost all in – will make $59/bbl, less the costs of the bribes. This distorts the economy. The related problem is that the sprawlconomy relies on this energy system, and while it produces a great deal of nominal wealth, much of that nominal wealth is really negative savings. That is, it relies on someone in the future paying more of their income to buy the same house.

These is 180 degrees from how we should be paying for both Medicare and Social Security. It's a hard problem, but we have an advantage. It has been said that Philosophy is a series of footnotes to Plato, and it can be said that economics is a series of footnotes to Adam Smith. It was Smith who realized that rent is inflationary, that is taxing rent does not reduce real production, because really it was all about bidding prices of natural monopolies up. Land is a natural monopoly, so is money, and so is oil.

It is not, therefore, profits, per se, that we should be taxing to pay for retirement, but all of the demons of hidden loss of production: inflation, stagnation, rent and stasis. Some of these will be taken in the form of profits of corporations, and to the extent that they are, the corporations should be taxed,. But far more effective is to tax stagnation and inflation directly, and use the money created to pay for retirement.

Social Security, in fact, is designed to do just this, and, in the present, it is doing so fairly effectively. The problem isn't that social security taxes aren't covering costs, on the contrary, they are more than doing so. The problem is that general income taxes are not taxing inflation and stagnation, and government policy is not trading the benefits of stagnation and inflation – and there are those who benefit greatly from both – and converting them into better wages and living standards. The hidden demon of our present economic problem is that the real economic activity that we would like to use to improve the living standards of the majority of people – doesn't exist in the form of money that can be taxed. We can't tax the rich for the money we need, because that isn't where the rents live. Instead the rents live in the structure of our economy, in the kinds of utility we pursue, and in the control over the economy that we allow.

One of the most important skills in political economy to learn is the skill of finding out who is really paying for something. Whose "entitlement bundle" is being reduce to pay for whose increase in an entitlement bundle. Adam Smith, again, noted the non-monetary nature of benefits when he observed that those who controlled trade would engage in fraud and price fixing. The ability to reduce the risk of competition is a benefit, one that people want. It isn't bought directly, but instead indirectly. One can't tax rent seeking behavior directly, because it isn't just in the profits of a monopoly, but in the wasted activity used to get that monopoly, or to try and get it.

I'd like to point to Iraq as a perfect example: the purpose of Iraq is to shift the control of oil and of the consumption of its profits, from one group to another. The war in Iraq is rent seeking behavior. Merely taxing the profits, if any, of the companies who do business because of the Iraq war would not recapture the real loss to the economy. Some of the economic loss is in the form of the dead and wounded, and in the decision to build swords rather than plowshares.

What this means is that we can't tax "profits" because the profits are fictional, they come from inflationary assets, and from activity which is already water over the dam. Instead, what we have to do is shift rent seeking behavior to productive behavior, we have to remove the top down nature of money creation, and we can then use Keynesian tools to spread demand and prosperity. However, the order is important, as is the method. Since profits don't represent consumption by corporations which can be shifted as consumption by individuals, but instead control over the economy, the way to prevent Social Security from becoming mired in economic difficulty is to shift control from the people who are currently running around the world executing $50 Billion dollar buyouts, as a play against Bernanke's inflationism – to a different group of people. Control is the issue, not consumption surplus. One can't tax ones way into control, but, instead, must create a mandate for change which forces those who have control to cede that control to others. Here is where realities such as global warming and peak oil come in, the plutocratic right hates them, because they are exactly the kind of national rent which the public, through its arm, the government, can force a change in the control of investment.

The steps to fixing the wages problem, which is what is driving the long term social security problem, comes first from admitting the reality of the problems we are facing.

The right wing sees the coming shift from payroll tax surplus to payroll tax deficit as a "crisis" because it implies taxing profits to pay for consumption. Since consumption will generate inflation, it will hit them doubly, first by taxing their profits, and then by the inflation tax hitting their currency holdings. That's what government created inflation is – a tax on holding currency.

The reason this is a problem is that taxing the control that American wealthy have – since they are within reach – and turning it into consumption will create a vicious circle. Much of that money will end up in the hands of Saudi and Chinese wealthy, and allow them to buy control that the American wealthy will have to sell to pay taxes. Robbing Peter to pay Paul works only if Paul is one of your friends, and Peter isn't.

The running out of the "trust fund" is, by comparison, meaningless. This is because we have been squandering the excess revenues of Social Security on tax breaks for the wealthy and the Iraq War. If we had, instead, used it as national savings to invest in production enhancing investment above and beyond what we were otherwise spending, it would have meant something. But as it is, all it was was an excuse for one generation of wealthy people to loan other people's money back to them. It had a minor disinflationary effect, and it reduced borrowing costs – which were increased by continued deficits.

The problem then isn't that the wealthy are going to be taxed, it is that to effectively change the dynamics of the system, there has to be a way of taxing all of the world's wealthy simultaneously. It doesn't really matter if that money goes to the US, though it would be nice to recapture some of it, just so long as the total quantity of investment demand goes down, and the total of public investment goes up.

This is where global warming and peak oil come in. Changing the energy basis of the global economy allows this shift to take place, since it removes the marginal barrel of oil problem, and it is something that everyone, logically, has an interest in.. Global warming is the global rent which allows the publics of the world to behave as one public, and demand that the control over the global economy be shifted back to the public and away from the globally wealthy.

So what is my policy outline?

1. Improve the quality of productivity.

Since the first problem is that there are only a limited number of activities that improve productivity, and many of these activities are explicitly about reducing wages, the first goal must be to broaden the technological advantages that generate productivity,

2. Tax Rent

It doesn't get any clearer than this, as the cost for a dollar of future earnings has gone up, there has been a demand to take revenue out of the public domain and put it into private hands. The copyright industry's quest to both lengthen and make more virulent the power of copyright control is a case in point. Oil is rent, land is rent, copyrights and patents are rent, brand names are rent, the high level of credit card interest rates are rent. Profits that do not come from rent are not the problem.

3. Increase investment supply.

Where as for the last 25 years we have not really increased investment supply, but, instead, have taxed the public domain to pay for the private, we must, instead, create new categories of good that will return money.

4. Accessible money

One of the reasons for studying the late 19th century is that it featured to non-solutions to the their problems – the gold standard and free coinage of silver. The real problem was that money creation was centralized, it was in the hands of those who could get gold, generally governments, and those who could concentrate enough of it to build large, impossible to duplicate, capital. Railroads, large mils, factories, big mines.

Free coinage of silver would have expanded the number of people who could create money, but there is still no organic relationship between the common good and people digging up silver. This is why asset based money – the New Deal solution – was so brilliant, even if it was to a great extent an accident. Anyone can build a house or a business, and as the community they are in grows in size and prosperity, the value does. This is Adam Smith's taxing of ground rents in reverse – give people an incentive to create ground rents, and reward them with some of the profits of their efforts.

Our current problem is that this once democratic means of wealth creation is becoming top down again. It relies on oil. Oil is in the hands of a few. Instead of money going to wages, it goes to those who sell the oil to create the asset money. This is why shifting the transportation grid to electricity – which can be created in a host of ways – is so crucial to our future.

-:-

With these three policy goals begun, and to the extent that they have been accomplished, we can then engage in the secondary policies:

1. Increase worker bargaining power.

The best way to redistribute wealth isn't to tax it, but, instead give workers parity of bargainin power. They will agitate for improvements in wages and benefits, and companies will negotiate, finding the ways to provide the highest utility at the lowest cost. This can only be done in limited ways now, because of the poor quality of productivity growth. Right now, only protectionism allows immediate increases and that will cost far more than it gets.

However, with broader productivity, wages will rise automatically as workers have more options, with more investment supply the very wealthy will have to spend more on pursuing the new areas of growth. With unionization acting to reduce systematic risk for individuals, individuals will be able to take more personal risks.

2. Increase savings, taxed out of profits.

The simplest thing to do would be to create a progressive savings tax, which taxes upper incomes – above their marginal propensity to consume, and plows this money into a national portable pension system. That is, take savings from those who have a lot of savings, and give it as savings to those who do not save. Taxing profits to provide consumption does not work because it shifts control to commodity. This would shift control to control. National 401k plans have been proposed, but the returns on 401k investing can only be described in terms that a South Park character would use. Thus both Sperling's plan and Max Sawicky's lack key ingredients. Max would end up falling into the grain of producitibity problem, and Sperling would end up creating a glut of the dummest money imagineable to be pillaged.

People don't make better investment decisions than the market, by definition, since the market is the sum and total of the decisions of people. Since retirement savings carries a lack of moral hazard - that is if people screw up they will vote for higher public retirement - there is no incentive to allow people to play with their retirement money. This knocks out national 401k as the mechanism.

Since we are not trying to fund consumption here, which is social security's basis in demand spreading, but investment to lower future costs - that is the goal is to produce enough additional increase in production to pay for the consumption that will come - regressivity is of no use. This knocks out simply removing the social security cap to pay for future benefits. It also knocks out the idea that taxing profits is the way to fund social security.

This mechanism is strictly about moving control from a very small group of executives and investors to the public at large. Thus it would be steeply progressive, and tax the top, rather than the bottom, dollar of income.

3. Recapture

One of the most important concepts for policy in the future is the realization of government recapture and time arbitrage as the important tools of political economy. Governments outlive people, and even corporations. Governments do not have to figure out how to make people pay for a product, only that someone will make money from a product that can be taxed.

-:-

With these policy directions, over time, wages, real wages, will rise, and with them Social Security revenues. Medicare is a different problem, since it slams into us much sooner and much faster. In order to deal with Medicare we must realize that medicine is a protected industry – that is it deals primarily in a non-tradeable – and it must have its profits matched to the profits of tradeable goods, and it's labor must be globalized as fast as is possible.

Social Security does not need to be changed, instead, if Social security shows either a wage deficit, or an inflationary falling behind of benefits, then it is a clear mandate to change the economic policy to alter the inputs from which those projections are derived. Social Security is not the engine, but the thermometer, and fiddling with the thermometer will not stop the engine from stalling or overheating. Social Securit works by increasing total real demand, that is it gives an incentive to economies of scale, which taxes stagnation, and it regressively acts as disinflation. It thereby serves the humane purpose of reducing the number of people too poor to afford to eat and heat their homes and generally meet the basic expenses of life. Accomplishing this is not difficult, as can be seen from the extreme distance that social security problems occur in projections, and the easy with which they disappear if we can simply increase productivity and wages by relatively modest amounts.

However, the above plan of action addresses a far more real problem, and that is the collapse of the current retirement system - the collapse of corporate defined benefit pensions, after all, no productivity growth, no stream of revenue to pay pensions and medical care out of - the disintegration of being able to cash out of homes, the poor quality of growth in 401k plans, and the lack of control that the public has over the national investment effort. It is these problems that show up as problems in Social Security, and in many other parts of our budgetary future. After all, it is very doubtful that if a generation falls into poverty upon retirement, that we will idly sit buy and let them starve in the dark.

There seems, in the present, to be a great deal of needless jostling about whose plan is better, or which approach is better. This is wrong. The Rubinites of the Hamilton Project are correct that we are going to have to do fiscal and monetary tuning and juggling to buy time and autonomy to implement plans going forward. Bob Rubin is a genius at this. However, this temporizing with the problem will not, alone, save the day. It is expressly to buy time to do something else. Rubin has openly said that he feels the US can come up with something, but he doesn't know what. On the other side of the coin we have a generation of economic progressives who know that returning control of the direction of the country, and reducing the systematic risk to workers is an absolute essential - but they aren't clear on how to do this without brute force approaches.

These two stones are on opposite sides of the same river - while Rubinonomics revisited can buy time, that time has to be put to productive use to get to greater autonomy and a reëstablishment of proper risks and rewards - labor gets little reward, but takes on a great deal of risk. Sperling is right in the need for a national retirement system, Sawiky is right in that social security should not come out of wages, of the poor taxing the poor. However, no one proposed piece produces the desired results, because they do not link a change in the monetary basis of the economy to policies designed to shift long term control of investment from a few agents, to the many owners - public and private - of the economy and polity.

The joining point is using the urgent needs of the day to shift control from rent seeking investment demand, to production creating investment supply. The energy system is the first of a series of such hurdles required to remove bottlenecks to global affluence, because, only global affluence will be able to provide enough return to pay for the promises already made.