It's not all about productivity. People are already quite productive. Technology can continue to improve on this too.
It's all about how we value people.
Labor is the source of new wealth creation. Capital can augment this by sourcing technology, automation, etc...
There is also infinite demand. That's good news. However, this demand breaks down into two coarse buckets:
1. Demand backed by liquid dollars and or access to credit
2. Demand not backed by liquid dollars and or access to credit.
The latter kind of demand doesn't do us much good, in that people want and need stuff, but do not have the means to participate in an economy to get those wants and needs satisfied. As a result, they go unmet, or are met by crime or local trade, or some other means that does not contribute to the overall demand otherwise present in the economy.
Wages have been essentially flat in the US for roughly 40 years. During that time, productivity has gone up, profit has gone up, GDP has gone up, and the cost and risk exposure seen by ordinary Americans has also gone up.
Our response has generally been to work more hours and or improve access to credit.
Many people also take on significantly greater risk exposure due to needs consuming most of their liquid dollars, which prevents them from accumulating savings.
It's not necessary to increase taxes on wealthy people to improve on this scenario and create more demand.
What is necessary is they simply take less. Increasing wages will increase demand. Think of that as an investment, not a tax, or cost.
As liquid demand improves, so will employment and so will tax revenue to the treasury. That tax revenue can be put to good use on infrastructure and other public works type efforts that are long overdue.
Spending on something that results in value being added to the nation makes the nation worth more and it makes the nation better able to compete globally, given that value is roughly aligned with those goals.
Obviously, the dig a hole and fill it in type scenario so often cited isn't a value add, and would not have the desired impact. But bridges, roads, networks, etc... would provide better paying jobs and those better paying jobs would begin to present demand rapidly.
The Interstate Highway system is a great example of this in action. We've been paid back many times the amount of money put into that system, and it presented lots of demand to business as well as enabled trade. Private investment, in tandem with the roads and liquid dollars available, resulted in lots of new economic activity, jobs and opportunity.
One problem I have with the idealized market view of labor is the imbalance between the buyers and sellers. A strict market view says the more supply of labor, the lower the cost in response. So a basic job is worth very little as there are always lots of competitors willing to work those basic jobs.
However, when a job does not pay as much as it costs the laborer to perform the work, we end up with a gap. The laborer has basic needs that will be met, or they die. That laborer may also have wants, that may or may not be met depending.
Where full time work, and that is a 40 hours / week on average expectation, does not actually deliver enough dollars to meet the basic needs of the laborer, something has to give, and that thing that gives is our safety net spending, crime, and other expensive things close the gap.
In reality, our taxes are subsidizing labor.
As much as wealthy people are concerned about being targeted to fund more of the society, all of us should be concerned about labor subsidies like this. I agree on limiting the scope and size of "tax the rich" type solutions, BTW.
But I also am sensitive to having to pay for labor subsidies when it's clear the enterprise could very easily pay modest living wages.
People have lives that break down into thirds. One to sleep, another for family / personal time, and one for work. Some argument can be made about the division of personal time and work, say 40 hours or 50 hours or 30 hours, but beyond that, it's not realistic to expect people to live to work and work to live.
This means full time labor needs to deliver enough income for the laborer to live a modest life and meet basic needs. That is the cost of labor for the laborer. And in this market based view, we all talk about the cost of business and margins. Perhaps we need to think about the laborer as a business and understand that they too have some basic costs, and that margins actually present in the form of non-committed, liquid dollars.
Demand.
If we do not value our labor properly, we fail to actualize demand in our economy which results in the AD as loss case we face right now. This also means we do not have the economic activity necessary to maintain our basic standard of living expectations either.
Pay people more. In the vast majority of cases profit will still be made and the business will still be viable, just with a reduced income expectation. For some, the increase in demand associated with more liquid dollars out there will mean growth by volume or revenue growth by improving on value added in the form of higher quality, etc...
And there is the choice right there. Some enterprises make that choice and they pay modest living wages when they could be paying minimum ones. Most aren't doing that, instead paying the absolute least, and the product of that is tepid demand and an ever increasing drain on our safety net programs, which are often performing as labor subsidy programs when they are intended to be real help for people who need it.
Full time laborers, on average, really do need to make enough to fund labor full time, or we deny ourselves the full benefit of that economic activity.
Finally, productivity continues to rise, but wages do not. Until we change those dynamics somehow, there is absolutely nothing that shows even more productivity would somehow resolve the problem.