Adjusting To A Productivity Revolution

Joseph Stiglitz lays out a theory that the Great Depression and the Great Recession are linked by a structural shift in the economy, driven by productivity, permanently changing the economy (h/t Mark Thoma):

For the past several years, Bruce Greenwald and I have been engaged in research on an alternative theory of the Depression—and an alternative analysis of what is ailing the economy today. This explanation sees the financial crisis of the 1930s as a consequence not so much of a financial implosion but of the economy’s underlying weakness. The breakdown of the banking system didn’t culminate until 1933, long after the Depression began and long after unemployment had started to soar. By 1931 unemployment was already around 16 percent, and it reached 23 percent in 1932. Shantytown “Hoovervilles” were springing up everywhere. The underlying cause was a structural change in the real economy: the widespread decline in agricultural prices and incomes, caused by what is ordinarily a “good thing”—greater productivity.
At the beginning of the Depression, more than a fifth of all Americans worked on farms. Between 1929 and 1932, these people saw their incomes cut by somewhere between one-third and two-thirds, compounding problems that farmers had faced for years. Agriculture had been a victim of its own success. In 1900, it took a large portion of the U.S. population to produce enough food for the country as a whole. Then came a revolution in agriculture that would gain pace throughout the century—better seeds, better fertilizer, better farming practices, along with widespread mechanization. Today, 2 percent of Americans produce more food than we can consume.
What this transition meant, however, is that jobs and livelihoods on the farm were being destroyed. Because of accelerating productivity, output was increasing faster than demand, and prices fell sharply. It was this, more than anything else, that led to rapidly declining incomes. Farmers then (like workers now) borrowed heavily to sustain living standards and production. Because neither the farmers nor their bankers anticipated the steepness of the price declines, a credit crunch quickly ensued. Farmers simply couldn’t pay back what they owed. The financial sector was swept into the vortex of declining farm incomes.
The cities weren’t spared—far from it. As rural incomes fell, farmers had less and less money to buy goods produced in factories. Manufacturers had to lay off workers, which further diminished demand for agricultural produce, driving down prices even more. Before long, this vicious circle affected the entire national economy.

I've been arguing along these lines for a long time.  The productivity increases brought about by computers brought companies profits, and allowed them to carry extra workers, until demand slowed down and companies had to cut costs.  As long as people were spending, even if it was debt-financed, they didn't have to cut employment.  Once that debt bubble popped though, then companies dumped workers they didn't have to have, both because of the productivity gains, and because of decreased demand.  Economists have been arguing between the structural unemployment and the cyclical unemployment positions, and I think it is a combination of the two.  Stiglitz sums up well my feelings on the roots of the crisis.  His solutions make sense also, but they won't get much play with the Austerians in the saddle.