01/27/2013 10:42 pm ET Updated Mar 29, 2013

Obama's Heaviest Lift

President Obama is off to a good start in his second term. "We, the people," he pledged in his second inaugural, "still believe that every citizen deserves a basic measure of security and dignity." Amen to that.

But as the economy continues its agonizingly slow recovery, his greatest challenge will be to reverse the economy's widening inequality. Ordinary working families are falling further and further behind the cost of living.

The picture is especially brutal for young adults, who are likely to find themselves saddled with college debt, facing jobs that offer neither benefits nor career security.

Though the unemployment rate is coming down, the deeper trends in job markets only intensify the trend of the past three decades -- the lion's share of the gains going to the top.

Corporate profits are up over 60 percent since Obama took office. Average earnings are just about flat, despite productivity gains, but that average conceals widening inequality. A new report by the Economic Policy Institute finds that income for the top one percent is up by 8.2 percent since 2009, while earnings are down by 1.2 percent for the bottom 90 percent.

There is a lot of blather about why our income inequality continues to widen -- it's the educational system; it's the skills gap.

But think about it. Our incomes were far more equal in the golden age of the blue-collar middle class during the post-World War II boom -- when most Americans did not go to college. Even though most of our citizens had only basic skills, we managed a much more equally shared prosperity.

You want to talk about skills? The lion's share of America's earnings increases in the past 30 years went to financial engineers -- people whose "skills" cost the rest of the economy trillions of dollars of lost assets and output.

How should we fairly compensate those financial engineers? By my reckoning, they owe the rest of us about ten trillion dollars. What sort of skill does it take to give toxic mortgage-backed securities triple-A ratings? The most notable skill of these people was staying out of prison. The link between skills and earnings, always somewhat arbitrary, has evaporated.

The latest hot trend is the proclaimed renaissance of American manufacturing. The press is full of stories about how companies such as General Electric are bringing jobs and factories home.

Why is manufacturing coming back? It's a combination of multiple factors. Higher energy prices have raised shipping costs; engineers and designers want to be closer to the factory floor; retailers don't like delays; robotics have made the manufacturing process so much more productive that less human labor is needed -- and American workers have substantially cut their wages. G.E., the star of a recent feature in The Atlantic magazine, for "insourcing" jobs back from China, pays workers about $13.50 an hour (or a lot less than a room-cleaner in a unionized hotel.)

This manufacturing renaissance, just in its infancy, is good news of a sort. It's good for our trade balance, and good that American industry is staying in the game, to compete for the next generation of innovation.

But a manufacturing resurgence, by itself, will not solve the good jobs problem or the earnings-inequality problem. For starters, corporate executives are bringing these jobs home precisely because they require fewer human workers. And production workers today are finding hourly pay falling, not rising, and good fringe benefits dwindling.

So if an industrial renaissance, however desirable, is no panacea, what can be done about relentlessly rising inequality?

Keep in mind, please, that the overall productivity of the American economy roughly doubled in a generation. To be precise, it increased 80.4 percent between 1973 and 2011 -- and all of the gains went to the top ten percent; nearly two-thirds of the gains to the top one percent.

So the challenge, as President Obama famously told "Joe the Plumber" is to spread the wealth around.

How do we do that? Here are four ways.

Unions. Last week, the government reported that the unionized share of the U.S. workforce dropped again, to a 97-year low. The percentage of organized workers in the private sector dropped to just 6.6 percent.

This is not because most workers don't want a union. It's because enforcement of the Wagner Act (guaranteeing the right to join a union) is so weak that workers know that if they try to organize a union, they risk getting fired.

President Obama has promised to fight Republican obstructionism through the use of his executive powers. He signed 23 executive orders to reduce gun violence. How about an executive order like the ones President Roosevelt issued barring any company that violates the Wagner Act from bidding on a federal contract?

Good Service Jobs. As factory jobs become more automated, more and more jobs are being created in the service sector, a great many of them human service positions. How about a national policy that anyone who cares for the old, the young, the sick or the vulnerable, must receive a middle-income salary? How about no more minimum-wage childcare workers or home care workers or nursing home workers?

Tax And Spend. Where will we get the money? Let's restore the income tax schedule of the 1940s and 1950s, when the economy was booming and the rich paid their fair share of taxes. If higher taxes push people out of financial engineering into useful work, that's a bonus.

Infrastructure. Government could also create millions of good jobs repairing, rebuilding, and modernizing our dismal infrastructure. I know, that will cost still more tax dollars. But it's a far better use of the money than the private speculation that still is wrecking our economy.

Have you ever wondered why it's become almost a hobby of billionaires to scapegoat our public schools for the widening inequality of our society? The answer is that if the problem is schools, then we don't have to think about all the other drivers of inequality. And if we can weaken a public institution along the way, so much the better.

The fact is that in the late 1990s, when we had full employment, inequality narrowed and people at the bottom made the biggest gains. And we had the same schools; in fact, the test scores and graduation rates were worse back then than the ones we have today. In the 1950s and 1960s, when we had strong unions and near-full employment, the society became more equal.

Face it, we could improve our test scores, and send everyone to college, but until we address the other sources of inequality, we will just have more frustrated graduates. Oh, and it would help if young people without rich parents didn't have to saddle their lives with debt in order to get a college degree.

So while I am delighted with President Obama's new forcefulness and commitment to a more just society, he -- and we -- need to recognize what an uphill climb this is. All of these ideas are at the outer edge of political discourse. They need to become part of the mainstream.

Robert Kuttner is co-editor of The American Prospect and a senior Fellow at Demos.

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