Depressing yourself with economics

There is a rule-of-thumb in economics called Okun’s law, which says that reducing unemployment by 1% requires a 2% increase in GDP above it’s long-term average. Let’s see what this means for Cheatham County.

The average unemployment rate in Cheatham between 1990-2008 was 3.7%. The current unemployment rate is 9.0%. So we need to reduce unemployment by 5.3% to get back to normal unemployment.

The average US GDP growth rate since 1973 is 2.7%. The average GDP growth rate during the boom (1992-2000) was 3.7%. So during the era, the GDP was growing at 1% above its long-term average.

So, if we cross our fingers and hope that the US economy suddenly bursts back into growth, then it will take:

2 * 5.3% / 1% = 10.6 years

for our unemployment rate to return to normal.

Now, predicting this stuff is like trying to predict the weather. This is just an order-of-magnitude number, not some iron law of physics. There are all sorts of real-world factors, both good and bad, that will affect this. But barring some economic miracle, we’re going to have chronic unemployment for years to come.

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