The Signal and the Noise: Why So Many Predictions Fail-but Some Don't

by Nate Silver

In the year after the stimulus package was passed in 2009, for instance, GDP was growing fast enough to create about two million jobs according to Okun’s law.41 Instead, an additional 3.5 million jobs were lost during the period. Economists often debate about what the change means. The most pessimistic interpretation, advanced by economists including Jeffrey Sachs of Columbia University, is that the pattern reflects profound structural problems in the American economy: among them, increasing competition from other countries, an imbalance between the service and manufacturing sectors, an aging population, a declining middle class, and a rising national debt. Under this theory, we have entered a new and unhealthy normal, and the problems may get worse unless fundamental changes are made. “We were underestimating the role of global change in causing U.S. change,” Sachs told me. “The loss of jobs internationally to China and emerging markets have really jolted the American economy.” The bigger question is whether the volatility of the 2000s is more representative of the long-run condition of the economy—perhaps the long boom years had been the outlier. During the Long Boom, the economy was in recession only 15 percent of the time. But the rate was more than twice that—36 percent—from 1900 through 1945.