ADE,

Brian’s post was indeed brilliant. I read on another blog recently (can’t find the link) where someone alleged there has been no real productivity in the US for over 10 years. It was a powerpoint display. Instead of productivity we could substitute the term “destructive innovation” where each innovation destroys the value of something else. This happens all the time and creates unemployment, lost capital, etc and too much of it can make an economy sick. So what happens if this “productivity” is in “innovations” that turn out to be not so useful, substituting flimsy cheap products that break, fads and fashions that destroyed more useful traditional products, financial wizardry that turns out be poorly understood derivatives and scams, etc?

As Brian pointed out (or I think this is what he means) to compensate for this the government stimulates the economy but this doesn’t go directly to those whose jobs are destroyed by increased productivity or dubious innovation, it can go into speculation. So then we have the common spectacle of programmers and manufacturing workers becoming real estate agents and financial advisors. Eventually the stimulus cannot continue to support this kind of unemployment benefits for speculators and there is a deep recession. Then people have to go back to real productivity, and maybe keep the old products that work well enough rather than tossing them for the next dubious destructive innovation.

So unemployment is the natural outcome of destructive innovation, and needs to occur for productive emplyment to replace it. It also slows productivity to a more sustainable level.