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Related topics: politics, economy, jobs, recession, Anthony Mirhaydari

We're more than two years into a recovery. The economy is growing again. Stocks have more than doubled off their lows. Yet it's easy to be underwhelmed.

Job growth has been anemic at best. Home prices are falling again. Inflation is on the rise as food and fuel prices surge. Consumer sentiment is plunging at a rate typically seen ahead of recessions and on par with the declines seen in the wake of Hurricane Katrina and the 9/11 attacks.

Something's not right.

The American people know it. They can feel it. There are structural problems. How else can you explain a situation where corporate profits surge to all-new highs and small-cap stocks return to their 2007 bull market peaks, even as food stamp usage hits records and the labor participation rate falls to levels not seen since the early 1980s?

Yet politicians and policymakers are still fighting the remnants of the Great Recession. It's all very backward-looking. And it's all about repair and restitution rather than fresh growth on fertile new ground. They offer baby steps in the face of hard choices.

An economy of conundrums

Decades of fiscal impropriety is forcing Congress and the White House to hack away at budget largesse and even consider cuts to Medicare and Social Security as America's debt load nears its statutory limit of $14.3 trillion. Yet the nation's infrastructure, its schools and its energy system are failing -- at a time when we need the very best to compete with rising economic powers like China.

Image: Anthony Mirhaydari

Anthony Mirhaydari

Likewise, just when we need consumers and business to spend more, regulators are putting new shackles on banks and lending, tightening the availability of credit to homebuyers and pushing housing prices down again.

And now, despite massive doses of fiscal stimulus and ultracheap cash from the Federal Reserve, the economy is showing signs of weakening once again as we reap the inflationary side effects. While we're clearly in better shape than we were in the dark days of 2008 and 2009, things are still very fragile.

Wall Street economists are already marking down their growth estimates to account for slower exports to Asia and reduced consumer spending. Since Jan. 28, Morgan Stanley's first-quarter GDP tracking estimate has fallen from 4.5% to 2.9%. Already, as I discussed last week, the burden of high energy prices has moved to levels not seen since 2008 and the 1970s ahead of deep economic slowdowns.

Enough with the half-measures. Something more is needed. We saw glimpses in President Barack Obama's State of the Union address two months ago, but his proposals have since been criticized for being too vague by even his supporters -- and outright ignored by an opposition that refuses to give him any credit.

Our leaders have other things to worry about, like the 2012 elections. So where do we look?

Well, the brain trust at McKinsey Global Institute set to work on ways to fix America. The institute has proposed seven steps the authors believe are needed to sustain the nation's historic growth rate and ensure the prosperity of the next generation. They may not have all the answers, but they at least nailed the key: productivity. We need more of it.

The economic problem

By definition, economic growth is driven by two big factors: The number of people working and how efficiently they can produce high-value goods.

Over the last 50 years, both of these have powered the United States forward and pushed up living standards here. Driven by the post-war baby boom and the influx of women into the workforce, increases in labor contributed 1.6% to annual GDP growth since 1960. The other portion, at an average of 1.7%, came from productivity gains via technological advances and more efficient business practices (think Amazon.com for warehousing or Boeing for manufacturing).

Together, these two factors have contributed to a 3.3% growth rate that's now considered normal. But that rate is set to slow. As fertility rates drop and the windfall from female empowerment fades, the rate will drop closer to 2.2%, according to McKinsey. That would translate into standard-of-living increases nearly 40% smaller for those born in 2000 than for those born in 1960. Watch out, "millennials," you won't be better off than your parents were.

Already, productivity gains are driving 80% of total GDP growth, compared with 35% in the 1970s. So if we're going to fix America's problems, we need to make the American worker much more efficient -- something on the order of 65% more efficient if we're going to keep chugging along at 3.3% growth.