Saturday, January 22, 2011

Unemployment and the new American economy - with some fixes

The thinkers I follow [2] have been struggling to understand why America's unemployment is so high. Productivity is rising, the economy is growing, but workers are not in demand. Obama has hired Jeffrey Immelt to help, which is either clever politics or a sign that Obama's not as smart as I thought he was.

There's too much to say here. So I'll drop seven bullet points and a set of the best links. This is what I think is happening ...

  • The Great Recession has exposed structural unemployment that otherwise would have become evident around 2015.
  • The digital economy (IT) impacts predicted in the 1970s have come about thirty years later than expected. [3]
  • The extremely rapid industrialization and post-industrialization of about 3 billion people is incredibly destabilizing. It is a testament to the power of civilization that we're not yet living in caves.
  • In a virtualized economy workers with average analytic and social IQ less than 125 are increasingly disabled. Since this average falls with age the rate of disability is rising as the we boomers accumulate entropy. Experience counts for less.
  • America is the world's most virtualized economy. We have invested more intellectual capital in Finance, entertainment and software than any other nation. We are also aging, though less quickly than many. We are the harbinger.
  • China is going to hit the wall between 2011 and 2012.
  • Peak Oil is here, soon and then later. Oil prices will rise until China's 2012 recession, then fall, then rise again.

Here is what I think we need to do ...

  • Institute a Carbon Tax with a component that drops as supply decreases to both decrease carbon emissions and stabilize energy prices. We need a predictable rise to help us with extensive adaptations. Whether this is revenue neutral or not depends on politics. Global warming is real.
  • Prepare for China's coming recession. The world needs a health, wealthy China. There are things we can say and do that will help China pass through these times and recover.
  • Slow the progress of economic virtualization over the next five years[4]. I think this is going to happen anyway, but we need to encourage and support diversion to an economy with more employment niches. Throwing sand in the gears of Finance is a good idea. One way to do that would be to give Goldman Sachs more competition. Regulation, taxation, and, paradoxically, reducing barriers to entry into the Finance market are all important.
  • Start applying the lessons learned from providing employment to cognitively impaired adults to the entire US population. The US is a world leader (yes, this shocks me [1]) in the integration and support of adults with disabilities. Might as well learn something.

See also

What I've been reading lately ...

Some relevant old posts of mine

- fn --

[1] The ADA was enacted in 1990 under Bush I (!).
[2] Beyond my own stuff, I'm a DeLongian. DeLongian's are closely aligned with Krumanians, but are less constrained by the conventions of polemical discourse. I suspect, for example, that, in his heart, Krugman believes a lot of what I've written above. It's just not something he dares to say just now.
[3] Gibson's Neuromancer, written in 1984 and influenced by the memes of the late 70s and early 80s deserves a re-read.
[4] I'm being terse by necessity. The thesis is that virtual economies are winner-take-all; effectively, they create mass disability. We need to shift to an economy that has more diverse employment niches -- effectively lowering disability.

Update 1/30/11Gordon's Notes: Unemployment and the great stagnation - this meme is in the air.


Charlie Stross said...

I think on balance I agree about the peak oil thing. We're at an all-time high here in the UK, and petrol is forecast to hit £8/gallon (that's Imperial, not US -- you've got a little leeway) later this spring as prices continue to soar.

ice caps said...

Yes, but look what going to happen in just four years: