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 ...

• Why is the U.S. so awful at job creation? - How the World Works - Andrew Leonard, 1/18/2011. The US is unusual - in a bad way.
• The Age-Income Profile Is Less Steeply Sloped than I Had Thought It Was - DeLong 1/21/2011. Income basically peaks at 35, flatlines to 54, then falls quickly. This is important.
• Why Might There Be High Unemployment? DeLong commenting on WCI's ZMP post. Zero Marginal Product (ZMP) is the economic term for disability. WCI writes: "It is possible that some potential workers, perhaps because of severe disabilities, simply cannot produce anything useful, even in a perfectly functioning economy... They have a Zero Value Marginal Product. There's no coordination failure. The problem simply can't be solved, given existing technology, tastes, and resources.". This is what I call "mass disability". Disability, remember, is a relative term. I would be disabled in much of pre-industrial history.
• Nancy Folbre: Borderless Economy, Jobless Prosperity - Nancy Folbre, NYT 1/2011. Corporate incentives, and the incentives of the investors (I claim these aren't the same thing), no long align with American society. She includes a wide review of recent discussions.
• What Have We Unlearned from Our Great Recession? DeLong 1/15/2011
• William PFAFF-Are We Committing Economic Suicide?: This isn't terribly useful, but it's a common meme. Our problem isn't money. We are doing well by skimming the wealth of India and China. The problem is that we're now living in Goldman Sachs plantation.
• A radical pessimist's guide to the next 10 years - The Globe and Mail 10/8/2010. He makes me seem like a bundle of cheer. I admit though, we could be kin.

Some relevant old posts of mine

• Causes of the Great Recession: China, GPSII and RCIIIT. Now for Act III. IT and the rise of the world means whitewater economics.
• Mass disability and Great Depression 2.0 3/2008
• Post-industrial employment: adjusting to a new world 5/2010
• Civilization is stronger than we think: Structural deficits and complex adaptive systems 5/2010
• Why your daughters should be roofers -- not architects 3/2004
• Krugman on globalization: how to manage the losers 12/2007 - I think he still believes this, but it's not politic to say it
• 2011: The year American life changes: 7/2007. I predicted then that gas prices would hit $5/gallon in the US in 2011. I didn't expect the Great Recession, but I'll stand by this prediction. Note gas hit $3.60 in Chicago in 5/2007, we're heading back to that this May.
• Deficits, climate, BP and immigration: Saving America is suspiciously easy. 7/2007. Our problems are fixable. And ... American crisis – imagining a way out 2/2010.
• Retiring at 70? Don't legalize marijuana. 7/2010. Raising the retirement age is spitting in the hurricane.
• What would make Krugman wrong about spending? 6/2010. Not entirely successful post, but there's something there.
• Gasoline prices: refining or secular trend - the 11 year chart: 5/2007. I need to redo this now.
• Employment in the Great Stagnation: 8/2010. Remembering the Zero Sum Society.
• Peak Oil? Hell, yes. 10/2008, after pump prices cratered in the Great Recession. See also The three meanings of peak light sweet oil and praise for rational speculation and Oil price speculation: is it rational investment or a bubble? 3/2008
• My Peak Oil Call 8/2008. I make my call. Then the Great Recession hit and prices fell. Funny.
• When the market is your deity, there is no such thing as corruption 7/2009 - why the GOP can't help
• Welcome to the wild times... 5/2010. Don't believe in predictions, including these.

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