The extent of the 2008 economic collapse surprised and shocked the conventional wisdom in Washington and on Wall Street. But in hindsight, a good case can be made that the massive globalization of labor and financial markets, coupled with free markets uber alles policies, formed a toxic mixture that made the collapse inevitable. Here’s why:

1). The globalization of labor markets — and especially the outsourcing of once high paying jobs to low-wage economies — drove down incomes in the United States and western Europe. That effect might have been tempered by the growth of unions and by trade agreements that protected labor rights. But the right wing assault on unions in the United States—and the passage of trade deals that protected the rights of capital and did nothing to protect the incomes of average workers—allowed real incomes for most Americans to drop, especially in the last eight years. In fact, all of the economic growth of the last eight years went to the wealthiest 2% of the population.

Stagnating incomes led the Central Banks in Europe and the U.S. to encourage massive increases in consumer credit to fuel the economy. Without all that new consumer debt, the economy would have tanked years ago. Long-term economic growth requires that there are more and more people who have more and more money to buy products and services. Otherwise, businesses won’t invest in new plants and equipment and hire new workers, since no one will have the money to buy their products.

The terrible consequences of shrinking incomes were also staved off by rising home prices. This allowed average people to borrow more and more against the rising equity of their homes.

But all of this new consumer and home equity debt created a giant house of cards. It masked the underlying sickness of the economy for a while. As long as the economy continued to grow enough to create a net increase in jobs — and as long as housing prices rose — things were rickety but continued to hang together. But as soon as the economy began to contract, and housing prices fell, the whole construction came tumbling down in a heap.

By themselves, stagnant average incomes lead to stagnant economic growth. But stagnant average incomes, coupled with large amounts of consumer and home equity debt, lead to precipitous collapse. Homeowners went into foreclosure, lenders failed, credit markets seized and the massive bubble in asset values burst.

2) The globalization of financial markets removed most sources of capital and credit from the regulated national environment and placed them into the deregulated international environment.

One lesson of the Great Depression was the need to assure that banks were no longer free to make investments so risky that they threatened the savings of average investors and the stability of the financial system. Banks were required to buy insurance from the FDIC that protected depositors, and they were subjected to oversight and regulation to assure their solvency.

The stock market was regulated — with margin requirements and strict disclosures.

Back then, banks were the major sources of capital and credit. The stock market was mainly domestic. Nowadays, most capital and credit is provided through investment banks and hedge funds that are barely regulated in U.S. and operate in international markets with virtually no regulation at all.

It was inevitable that in that context, the market would once again repeat the mistakes of the 1930’s. Hedge funds became heavily overleveraged. Some were simply Ponzi schemes. Risk was sliced and diced into derivatives over and over so that investors no longer had a clue about the underlying value of their assets. International currency speculators operated with no oversight.

Central banks and regulators encouraged these trends as financial innovation.

The bottom line was simple. Globalization created a context where market forces had more and more freedom to call the economic shots. They were free of non market forces like unions and the government regulation that been created precisely to control the natural tendency of private markets to self-destruct. Modern economic history — capped by the Great Depression — had made one thing clear: if left to their own devices, financial institutions and companies act in their own short term economic interest — but not necessarily in the interest of the whole economy. Financial institutions take more and more risk, and take on more and more debt, to make more and more money — even if doing so creates speculative bubbles that will one day burst. Individual companies continually seek cheaper sources of labor, even if cumulatively they end up choking off the very consumer demand they all need to sell their products.

Barack Obama has proposed a jobs and economic recovery program that is desperately needed. Right now, government investment is the only source of demand available to jumpstart the economy.

But we need much more to address the fundamental problems created by globalization:

* Stronger unions. Congress must pass the Employee Free Choice Act (EFCA) that will dramatically increase the percentage of the workforce with union representation. Wages and benefits are 30% higher for union jobs than non-union jobs. To generate long-term consumer demand in our economy, average people have to make good wages.

* Rewrite trade deals. NAFTA and the WTO must be revised to protect labor rights and assure that the world economy is integrated by bringing the bottom up — not the top down. Economic integration in Europe proved that you can maintain high wages in the most prosperous countries while you simultaneously increase standards of living in poorer countries. That is not what’s happening the in the world today.

* The U.S. must support the rights of unions to organize around the world. The unionization of workers worldwide is critical to the protection of American wages.

* Re-regulate credit markets. That requires tougher regulation in the U.S. and new regulatory structures on the international scale. The U.S. needs to lead in the creation of a new international system to regulate credit and financial markets — one that applies the lessons of the New Deal to the new reality of a global economy.

In the end, if we want our kids to have more prosperous and fulfilling lives, we have to abandon the right-wing economic conventional wisdom of the last thirty years. We must create a high-wage economy where the fruits of increased productivity are widely shared and everyday people have money to buy goods and services. That won’t happen without stronger financial regulation and a growing labor movement.

Robert Creamer is a long-time political organizer and strategist and author of the recent book: Stand Up Straight: How Progressives Can Win, available on Amazon.com .