The fundamental solution is to raise wages everywhere in the world, with perhaps fewer millionaires but a more generalized prosperity, especially in developing nations. In short, the global system needs more workers with the incomes to buy what they make. Globalization would have to proceed at a more moderate pace, with less rip-and-run disruption, financial crisis and social disorder. It is most unlikely, I have to add, that America's governing elites will come around to such drastic measures in time to avert an end-of-era reckoning.

If a full-blown crisis does occur, the macroeconomic challenge would be unlike anything the United States has faced in more than half a century. While this would be a time of wrenching, painful change, the new adverse circumstances might also inspire a great shift toward a new, more progressive politics. Given our rapidly deteriorating condition, it is not too soon to begin considering how the nation might dig out, lest popular confusion and bitterness generate reactionary politics instead.

The first imperative--an unavoidable necessity--would be to suppress consumption through credit-restraining measures, fiscal caution or tax reform, and to stimulate greater domestic savings, yet somehow to keep the economy growing. If this great adjustment is left to market forces alone, the predictable consequences will be to punish the innocent--struggling households and small businesses--first.

Thus, the second imperative would be to confront inequality aggressively, through progressive taxation and other measures. An interlude of mild austerity will seem more tolerable if people know the sacrifices are genuinely shared by all.

The principle of equity also matches the economics. With consumption suppressed, far greater investment spending will be needed to sustain the economy--an ambitious agenda of public and private investments. After decades of obsession with global competition, the country's wealth and ingenuity will be refocused inward--rebuilding and expanding the public infrastructure and common assets all citizens need and use (education, healthcare, transportation, energy, the environment). But the investment also would be aimed at long-term redevelopment of the economy, force-feeding new industrial sectors. Not coincidentally, this will generate millions of new jobs not subject to export.

The jump-shift strategy I am describing would be the economic equivalent of wartime, without the bombing and killing. Indeed, the closest precedent is World War II, an extraordinary era of economic development that virtually shut down many forms of domestic consumption (cars and housing) while the government's spending on war production launched major new industries (electronics, petrochemicals, modern aircraft and many others). Essentially, accelerated investment and forced savings replaced consumer spending as the leading fuel for economic growth. After the war, pent-up desires and needs became the economic demand that drove the long postwar era of prosperity.

War mobilizations encourage national cohesion, but the need for solidarity can also create a political consensus to enact greater social and economic guarantees to citizens. In that sense, World War II was a seedbed for postwar reform and lasting social change: The GI Bill, which universalized access to higher education, broadened home ownership and the initial political agitations for what became the civil rights movement. In Britain, wartime solidarity produced bipartisan agreement to enact national health insurance. If the United States must accept a period of shared sacrifice, the experience can similarly create commitments to enact fundamental measures involving health, education and other social needs once the financial cloud has lifted.

An important difference from the World War II example, however, is that the reconstruction could not be financed primarily through deficit spending, given that the country is already burdened by growing indebtedness and the objective would be to reverse that trend. Financing would come, most obviously, from the revival of steeply progressive taxation. But private capital can also be pushed to invest in neglected domestic priorities. For example:

§ An "invest or else" wealth tax, quite modest in size, would give the largest wealth-holders and financial institutions this choice: Either pay the wealth tax or invest an equivalent amount in a priority list of long-term public improvements, from high-speed rail to renewable energy systems, these projects to be pursued as both private ventures and public programs. Alternatively, one's "wealth tax due" could be invested in ten-year, low-yield, inflation-proof government bonds that provide cheaper financing for softer projects like revitalizing education, from early infancy to midlife job-skills training.

§ Progressive taxation could be restored through a graduated consumption tax, replacing the deformed federal income tax. The tax rate on consumption would rise steeply by income class, but generous deductions for necessary household living expenses would effectively exempt most families on the bottom half of the income ladder. They might still be taxed on their consumption through value-added taxes collected at points of sale, much like Europe's. Either system could discreetly encourage more responsible choices by favoring less wasteful and damaging products, while lucrative tax-avoidance schemes and pointless subsidies would disappear for both corporations and wealthy individuals. Suggesting a consumption tax is risky, I concede, because unless political forces are realigned by crisis, the right wing would turn it into a regressive flat tax--injuring those who have already been injured.

§ A Fannie Mae for environmental progress, for small businesses, for inner-city rehabilitation and for other capital-starved realms of the economy would insure greater access to capital and credit, just as Fannie Mae's financing does for home ownership. Other quasi-governmental institutions might provide partial tax preferences for experimental ventures embracing equitable commitments to workers, like the living wage, or important new priorities, like ecological sustainability and worker ownership.

§ A less grandiose military posture toward the rest of the world would save scarce capital. Why exactly does the United States maintain its vast forward empire of military outposts? The $500 billion military budget, citizens may observe, does not protect America from the $500 billion trade deficit.

§ Trade deficits (or surpluses) could be held to moderate levels for all nations by a band of tolerances that, when violated, would authorize nations to take protective measures. Global leaders would need to focus on institutional reforms like labor rights and ecological accords and on inventing a new international financial institution that could end destructive currency wars and other instabilities.

All these ideas, I know, sound quite improbable at this moment. Certainly, the establishment would brush them aside. But do not dismiss the possibility that dramatic change and epic political reforms lie ahead. When self-important people and powerful institutions are governed by illusion, history has a way of biting back.

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