Flag and U.S. dollar signs © Doug Armand, Getty Images

Let me start by saying I love this country.

It remains the hope of the Earth, a beacon of hope for the distressed and oppressed, and a reason people all across this country, including my father, left their country of birth to come in search of freedom and opportunity.

But as we mark the fifth anniversary of the financial crisis -- the bank bailouts passed on Oct. 3, 2008 -- it's clear that the American economy is still faltering, and that our problems go deeper than that financial mess.

The middle class in this country faces an existential threat. The expansion of government benefits hasn't stopped its decline. The expansion of cheap credit hasn't solved the problem, either. Our problems predate the financial meltdown, and the two asset bubbles this century -- in stocks and homes -- only made the existing problem worse.

The American Dream is quickly becoming a false promise for many. A higher education is no longer a guarantee of success. Homeownership isn't necessarily the road to riches, or even financial security. The stock market looks to many like a den of thieves armed with weapons-grade computer trading algorithms.

I've explored these issues in a number of recent columns, including "No recovery for the middle class." Today, I want offer a few ideas on what it'll take to turn things around. Because I believe we can, if we have the will.

The great disconnect

The core of the matter is that, while the overall U.S. economy continues to grow, albeit at a slower pace than what we're used to historically, average families aren't capturing the benefit. You can see this in the way household income is badly lagging each family's share of the economy.

Image: Anthony Mirhaydari - MSN Money

Anthony Mirhaydari

In 2009, which is the most recent data, the average household pulled in $34,100. But the share of the economy the average family produced was $47,041; the difference goes to things like business profits and executive pay, which are rising quickly.

Back in the late 1970s, an average household's income slightly exceeded its share of the economy. So this is a recent change.

Part of the problem is that fewer folks are working, with the percentage of full-time workers in the population down to 37%, versus 41% in 2000. And part of the problem is that wages for most working people have stagnated as laborers have lost the negotiating power they once enjoyed to the pressures of outsourcing, offshoring and automation. These have hollowed out the medium-skill jobs that are the backbone of the middle class.

That growing difference between productivity and pay has, in fact, benefited somebody. Corporate profits are at record highs and have grown, as a share of the overall economy, by 34% since 1981. Middle-class income, as a share of the economy, has fallen 20% over that period.

That, in turn, has benefited the wealthy who own the vast majority of corporate equity, including stocks. The gross before-tax real income of the top 1% has more than doubled since 1979, rising from $523,300 to more than $1.2 million. The middle class has seen a paltry 21% gain, from $53,100 to $64,300.

The result? More than one in seven Americans are on food stamps. And 47 million Americans are now living in poverty.

Low taxes, giveaways haven't worked

So far, our elected (and unelected) officials have tried to battle our economic malaise using low taxes, more spending and more money printing from the Federal Reserve.

The results speak for themselves. We're in the midst of one of the weakest economic recoveries in the country's history, after one of the sharpest downturns.

Tax cuts haven't worked because businesses and investors view them as temporary. Increased welfare spending (up 158% since 2001) is encouraging many to simply give up. Disability enrollment is up 53%, with the ratio of disabled to active workers above 6%, versus the nearly 2% seen in the 1980s. This suggests some people are using disability to avoid the chaos in the job market.

As benefits are structured now, ambition and drive are discouraged amongst the disadvantaged. This undermines one of the core tenets of the American Dream: The idea that hard work, risk taking and self-determination are the way to a better life.

According to a presentation by Gary Alexander, Pennsylvania's secretary of public welfare, a single mom is better off earning a gross income of $29,000 and applying for welfare benefits (including children's health insurance, child care and housing subsidies) that would bump up her total income to $57,327. If she worked hard and earned a gross income of $69,000, her after-tax take-home pay would be just $57,045.

Why then, would she take that extra shift at work or apply for a promotion, even if it's offered?

The health care conundrum

The other big economic problem, over the long term, is health care. We are all simply overpaying for substandard care early in life and avoiding the tough end-of-life decisions that cause 25% of all Medicare spending to go to the 5% of recipients who die each year -- with 80% of that going to those in the last two months of life.

There's also no reason an MRI screening should cost $1,080 in America but just $280 in France, according to the International Federation of Health Plans. Or why the cost of an MRI in Washington, D.C., varies from $400 to $1,861, depending on provider. Or why, in 2009, Americans spent $7,960 per person on health care versus $4,808 in Canada, $4,218 in Germany and $3,978 in France. We're no healthier.

There's also no reason why less expensive, palliative hospice care that allows people to enjoy their last days on this earth in peace at home is shunned in favor of having loved ones poked, prodded and intubated, floating in and out of consciousness under the fluorescent lights of a $30,000-a-night hospital room.

We've also overpromised entitlement benefits without collecting enough in taxes to fund them. The average two-earner couple that retired in 2010 will enjoy $387,000 in Medicare benefits after contributing (assuming a 2% real rate of return) $122,000 in Medicare taxes.

Whatever you think of Obamacare, it doesn't make enough of the hard decisions we need.

There's not enough cheap money in the world

The Fed's constant flow of cheap money has kept the recovery trickling along. Short-term interest rates have been held near 0% since 2008 to help the nation get past the financial crisis. Multiple iterations of long-term bond purchases -- dubbed "quantitative easing" -- have taken the monetary base from $800 billion before the financial crisis to nearly $3.6 trillion now.

That's helped inflate asset prices on Wall Street. And last week, the surprise "no taper" decision shows the Fed will keep pumping money in until inflation gets out of control, which it inevitably will.

But all this monetary malfeasance hasn't benefited middle-class families or spurred robust job gains, because among the many problems we face, a lack of low-cost credit isn't one of them. We're already too deep in debt, as the chart below shows. And the harder the Fed pushes, the higher the risks are down the road.

Société Générale U.S. economist Aneta Markowska believes that, based on the classic "Taylor rule" interest-rate setting formula created by Stanford economist John B. Taylor, the Fed shouldn't just have already stopped its ongoing, open-ended $85 billion-a-month QE3 bond-purchase program. It should already be raising short-term interest rates from near 0% toward a target of around 3% next year.

Washington won't fix this

The longer these problems stand unaddressed, the worse America's finances get. Unless things improve soon, we'll run out of runway.

The long-term federal budget is broken as the state, and the promises it's made, overwhelms the private economy. The Congressional Budget Office is warning of serious trouble if we don't get a handle on it, despite all the budget cutting we've already done over the last few years. (For details on what the CBO said, read last week's column, "Caution: Budget fight dead ahead.")

As I touched on last week, the only way out is to reform both spending and taxes in a pro-growth way that kick-starts the economy. Welfare programs need to be restructured. On entitlements, we need to recognize that there are better end-of-life options, that the rich don't need the same level of assistance as everyone else, that hospitals and doctors should be subject to the forces of free market competition (price transparency and quality rankings), and that some medical treatments do, in fact, provide more benefits than other more expensive options.

But given what we're seeing in Washington, it seems we'll be lucky if they can even agree to pay bills they've already run up.

Fixing the deeper problems

Yet the real task is tougher: addressing the deep, hard-to-fix problems holding the economy and the country back.

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Mainly, I'm talking about the way the economy's potential growth rate has plummeted from 5% a year in 2003 to just 1.8% now, as businesses have made fewer productivity-increasing investments and disillusioned workers have dropped out of the workforce and let their skills erode. This is calculated as the five-year average growth rate in labor productivity and labor force growth.

Both are the fundamental drivers of economic growth.

Right now, real GDP per capita in the United States stands at just over $48,000, down from a prerecession high of nearly $50,000. If a 1.8% growth rate is maintained over the next 20 years, and holding population growth constant, this measure will increase to nearly $69,000. Better, but not great. And that's assuming no recessions or other business cycle turbulence.

If the growth rate rises to 2.5%, this measure grows to more than $79,000. If we could recapture the 3.75% average, it would grow to nearly $101,000. That would be a much more productive economy, helping everyone move forward.

This growth would only come in the context of a reversal of some of the trends that have held back the middle class. And there are signs this is happening. Manufacturing is returning to the United States as costs rise in places such as China and companies recognize the benefits of timeliness and flexibility that manufacturing here at home provides.

CEOs have also been complaining of an emerging skills shortage as baby boomers stop working due to age, physical frailty and death. The CEOs say the millennial generation just isn't up to snuff. Addressing this will require the resurrection of the kind of worker training programs that haven't been seen since the 1950s and 1960s -- either directly at factories or through the vocational and community colleges.

The result of such programs should be a reversal of the persistent decline in labor's share of the economy as wages rise, businesses are forced to hire and invest in new equipment, and "Made in U.S.A." makes a comeback to satisfy new demand coming from places such as China and India.

Resolving other worries keeping CEOs from spending, mainly concerns over taxes and regulations, would expedite this. But much of this work can be done by workers and entrepreneurs outside Washington, which is good news.

There is still hope

For all the problems and tough choices I've outlined, I remain a guarded optimist. Capitalism still works. It encourages new ideas and innovation, and allows a few special people to push everyone forward. Pure capitalism can be rather coldhearted, as we see around the world in low pay and poor working conditions, but the modern American version can work.

The risk is that we don't make the hard choices, and that as growth slows, the situation grows more desperate and people turn on each other. More class warfare. More wealth redistribution. More worried CEOs pulling back. More blame game.

Sort of what we're seeing in Washington right now.

Economists such as Robert Gordon and Tyler Cowen are happy to paint a dark future in which technological innovation slows, automation continues to hollow out the middle class, and society overall makes little progress.

Gordon argues that we still owe much of our prosperity to the wave of innovation between 1870 and 1900, when there were huge advances in electricity, industrial engines, indoor plumbing, communications, chemicals and energy. That bagged us big gains in the speed of travel, life expectancy and urbanization. People went from traveling by horse and wagon to traveling by jumbo jet.

Then, he says, things stopped progressing.

The space shuttle and the Concorde are museum pieces now. We get excited when someone jumps from a hot air balloon at the edge of space when, 44 years ago, American astronauts were walking across the Sea of Tranquility.

More recent innovations focus on workplace efficiency and entertainment, rather than transformational change. The voyeurism of Facebook (FB) and the ability to watch snarky YouTube videos on your smartphone pales in comparison to the miracle of human flight.

If this country is to regain its glory, and end the dark mood that has fallen on so many regular Americans, it needs to quicken its pace and, once more, dream impossible dreams.

This is where I part company with the pessimists. I think we can still do this, particularly if Washington at least gets out of the way.

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Final note

This will be my last weekly column for MSN Money. I appreciate those readers who've followed me over the years. You can continue to find my work at the Edge Letter, a daily investment and markets newsletter, as well as Dow Jones MarketWatch, InvestorPlace.com and other channels. Feel free to drop me a line at anthony@edgeletter.com anytime.

At the time of publication, Anthony Mirhaydari did not own shares of any equity mentioned in this column.