When I first met Michael Moore more than 20 years ago, he was showing a half-finished documentary to a few dozen people in a classroom in Ann Arbor, Michigan. It was funny and poignant and had a powerful message. He had taken a second mortgage on his house – equipment for filmmaking was a lot more expensive back then – and raised some money from like-minded locals for a long-shot venture. We all loved what he showed us but thought he would be lucky if a few thousand people got to see it.

But the film, Roger and Me, about the irrationality and human cost of the destruction of America's auto industry, was a smash hit and Moore was on his way to become America's most influential documentary film-maker. Twenty years later, he has produced his most radical work, which was greeted with rave enthusiasm when I saw it at the world's oldest film festival in Venice.

As the old saying goes, you either blame the victim or blame the system. Moore is making an appeal to blame it on the system, big time.

You know this film is going to be subversive when it opens with clips depicting actual bank robbers – caught on security cameras in the midst of their heists – grabbing their loot with Iggy Pop's cover of Louie Louie (a special version for the film) blasting away in the background. Moral equivalence for the titans of the financial industry, and their political protectors, is just around the corner.

Capitalism: a Love Story doesn't just go after the seamy side of the American economy, although that is captured neatly in the scenes of "condo vultures" feeding on Florida's housing bust, alongside the corporations (including Wal-Mart and Amegy Bank) which take out insurance policies on their employees and cash in big when they die young. These ghoulish derivatives go by the charming name of "dead peasants" insurance – which says it all, really.

But Moore has bigger targets in his sights: he is questioning whether the whole incentive structure, moral values and political economy of American capitalism is fit for human beings. Although this will not seem so radical in Europe, where most countries have had governments in the post-second world war era that at least called themselves socialist, or in most of the developing world, where socialist ideas have popular appeal, it's pretty much unprecedented for something that can reach a mass audience in the US.

But you don't have to be a revolutionary to appreciate this film. Indeed, it can be seen as a social democratic treatise, with Franklin Roosevelt's proposed "second bill of rights" – an "economic bill of rights" that included a job with a living wage, housing, medical care, and education – as its reform program. Roosevelt is shown proposing this now forgotten program back in 1944.

As in his previous films, Moore combines the grief and tragedy of the victims – people losing their homes and jobs – with hilarious comedy, cartoonish film clips from the 1950's, and sober testimony as needed. And there are victories, too – as when workers occupy their factory in Chicago to win the pay that they are owed.

As an economist who operates in the think-tank world, I have to appreciate this work. He gets the economic story right. How is it that Michael Moore's father could buy a house and raise a family on the income of one auto worker, and still have a pension for his retirement? And yet this is not possible in the vastly more productive economy of today? The answer is not complicated: in the first half of the post-War era, employees shared in the gains from productivity growth; since 1973, most of them have hardly done so at all. (Productivity growth has also slowed.) Moore also explains the structural changes, such as Ronald Reagan's rollback of union and labour relations to the 19th century, that helped bring about the most massive upward redistribution of income in US history. (Moore even includes graphs and charts to back up the main points with data.)

From an economic point of view, the only thing missing was a look at the stock market and housing bubbles of the last decade. The current recession, like the last one, was primarily caused by the collapse of a huge asset bubble – an $8 trillion housing bubble in 2006, and a similar size stock market bubble in 2000-2002. This is something that most of the media has not really understood. Asset bubbles are as old as capitalism, and since this is a movie about capitalism and the current Great Recession, it would have been nice to see some of this in the movie. But I can't fault Moore too much for not taking on something that most economists and the press missed – and still don't talk about. It's a film, not a textbook.

Moore also wins my vote by getting his facts and numbers right. This is worth emphasizing because Moore's last documentary, Sicko – which was quite careful with the facts – drew attacks from CNN and a smear campaign from the insurance industry. Both attempted – unsuccessfully - to impugn its accuracy. One former vice president of corporate communications for a health insurance company, and the author of several memos attempting to discredit Sicko, recently admitted to Bill Moyers on camera that Moore "hit the nail on the head with his movie."

The new love story also targets the big boys who made our current Great Recession possible: Alan Greenspan, Robert Rubin, and Larry Summers (the three smugly depicted in that 1999 Time cover of the "committee to Save the world"), and Tim Geithner. Rubin, who came from Goldman Sachs, helped deregulate the financial industry and got rich at Citibank from the results. Larry Summers, who came from academia, also made millions from the deregulated, government-guaranteed casino that he helped fashion when he (like Rubin) was President Clinton's Treasury secretary. It's a bipartisan hall of shame, tracking the havoc wreaked by a burgeoning, parasitic, and increasingly politically powerful financial industry, through the Reagan, Bush I, Clinton, and Bush II presidencies.

In a heart-warming contrast to the age of greed, we see Jonas Salk, the man who discovered the vaccine for polio in 1955, saving millions from the crippling and often fatal disease and refusing to get rich off his work by claiming patent rights. He only wanted that it be as available as possible. "Could you patent the sun?" he asks. And the Catholic Bishop of Detroit, when asked what Jesus would think of capitalism, replies that Jesus would not want to participate in such a system. It's all part of Moore's plot to make democratic socialist values as American as apple pie. Which is a tough sell – but if anyone can do it, it's a boy from America's heartland, the Midwest, the kind that Garrison Keillor writes about when he says that it's "the dummies who sit on the dais, and the smart people who sit in the dark near the exits". As the son of a Flint autoworker, Moore doesn't forget which side he is on. Twenty years later, he doesn't seem to have been changed very much by fame and success.

Moore's last film was a devastating indictment of the US health care system, an excellent introduction to the battle for healthcare reform. This one could be a prelude to the anger and disillusionment that is only beginning to swell.

The Congressional Budget Office projects that the official unemployment rate will remain near 10% through next year. If we add in the underemployed (involuntarily part-time), dropouts from the workforce and other uncounted unemployment we are looking at a number nearly twice as high. Even if the economy were to begin its recovery soon, it won't feel like one for quite some time. This film will have an audience that is ready for it, in the US and elsewhere.

• This article was amended on 10 September 2009. The original referred to "Garrison Keeler". This has been corrected.