What is the Misery Index?
The misery index is a measure of economic distress felt by everyday people, reflecting the combined effects of joblessness and rising costs of living. It is calculated by adding the seasonally adjusted unemployment rate to the inflation rate.
Since both high unemployment and inflation negatively impact economic well-being, their combined value serves as an indicator of overall economic health. The misery index gained significant attention in the 1970s during periods of stagflation – high unemployment and high inflation occurring simultaneously.
Key Takeaways
- The misery index was first crafted in the 1970s to offer a quick snapshot of the U.S. economy.
- It is calculated by combining the inflation rate and the unemployment rate.
- While historically focused on these two factors, recent versions include additional indicators like bank lending rates.
- The index provides a convenient but less precise metric of economic conditions.
- There are various iterations of the misery index utilized globally to gauge economic health.
Understanding the Misery Index
The misery index consists of two main components: the unemployment rate and the inflation rate.
Unemployment Rate
The unemployment rate measures the percentage of able-bodied adults actively seeking work but unable to find employment. This rate is seasonally adjusted to better reflect actual labor conditions.
Inflation Rate
The inflation rate measures the annual percentage increase in prices for goods and services commonly consumed. This rate signifies the reduction in purchasing power.
The misery index combines these two rates:
Misery index = Seasonally Adjusted Rate of Unemployment + Annual Inflation Rate
A stringently acceptable range for a healthy misery index would be around 6% to 7%, based on targets for full employment and inflation.
Components of the Misery Index
Seasonally Adjusted Rate of Unemployment
The seasonally adjusted unemployment rate removes the effects of predictable seasonal employment patterns, providing clearer insight into true employment levels. The rate specifically includes actively job-seeking individuals and excludes retired workers and those who’ve ceased job searches.
Annual Inflation Rate
The annual inflation rate shows the yearly percentage surge in the prices of consumer goods and services, reflecting overall economic inflation trends. This index is published monthly in reports like the Consumer Price Index (CPI).
Misery Index as of December 2022
Misery Index = 9.95
(Unemployment rate of 3.5) + (Inflation rate of 6.45)
The History of the Misery Index
Origin by Arthur Okun
Economist Arthur Okun created the first misery index at the Brookings Institution in the 1970s. Okun, previously part of President Lyndon Johnson’s Council of Economic Advisers, combined national inflation and unemployment rates to form an easily understood snapshot of the country’s economic health.
Stagflation Period
The U.S. faced stagflation during the 1970s, a period marked by high inflation and unemployment. This contradicted earlier economic theories that expected these factors to counterbalance. The public experienced significant struggles as unemployment and living costs surged.
Use in Presidential Campaigns
The index became a political tool, notably utilized by Jimmy Carter during his 1976 presidential campaign to critique Gerald Ford. Ronald Reagan later used it in the 1980 campaign against Carter after the index rose during Carter’s tenure.
Limitations of the Misery Index
While providing a quick glimpse of economic difficulties, the misery index has limitations:
- It omits influences like economic growth.
- It measures only current data, potentially underrating expectations and economic forecasts.
- It operates on the principle that inflation and unemployment cause equal urgency, which may not hold true.
Criticism and Attempts at Modernization
Critics note its exclusion of growth metrics and inadequate reflection of future economic expectations. Factors such as personal economic distress can be influenced by future wage stagnation and economic uncertainties more so than current rates.
Modern Versions of the Misery Index
By Robert Barro
In 1999, economist Robert Barro introduced a modified misery index that includes interest rates and a GDP gap measure, aiming to gauge presidential post-WWII economic success.
By Steve Hanke
Johns Hopkins economist Steve Hanke expanded and applied it globally in 2011, with an index summing unemployment, inflation, and lending rates and subtracting real GDP per capita changes. Hanke annually publishes global misery index rankings, covering many nations.
By Tom Lee
Tom Lee, a financial analyst, crafted the Bitcoin Misery Index (BMI) to judge bitcoin investor distress, which considers trade winning percentages against total trades and overall volatility.
By Bloomberg
Bloomberg created an alternate misery index with global applications. Countries like Argentina top this index for prevalent inflation and unemployment woes.
Misery Index Under Different Presidents
Analyzing presidential terms through the misery index reveals differences in economic challenges:
- Highest misery index: Great Depression-era under Franklin D. Roosevelt.
- Noteworthy periods: Richard Nixon, Jimmy Carter’s tenure saw record wrong indicators, reflecting economics of stagflation.
- Recent trends: George W. Bush’s presidency, post-2008, reflect modern economic woes.
Average Misery Index by U.S. President
o | President | Term | Average |
- | ---------------------| --------------- | ------- |
| Joseph Biden | 2021-present | 10.85 |
| Donald Trump | 2017-2020 | 6.91 |
| Barack Obama | 2009-2016 | 8.83 |
| George W. Bush | 2001-2008 | 8.11 |
| Bill Clinton | 1993-2000 | 7.80 |
| George H. W. Bush | 1989-1992 | 10.68 |
| Ronald Reagan | 1981-1988 | 12.19 |
| Jimmy Carter | 1977-1980 | 16.26 |
| Gerald Ford | 1974-1976 | 16.00 |
| Richard Nixon | 1969-1974 | 10.57 |
Employ the discourse provided and armed with an economically potent index - addressing current crises is paramount. For those worried about economic travails, building an emergency fund is a prescient and essential recommendation.
Related Terms: Stagflation, Full Employment, Inflation Rate, Employment Rate, Economic Indicators.
References
- Bureau of Labor Statistics. “Employment Situation”.
- Bureau of Labor Statistics. “Consumer Price Index”.
- U.S. Misery Index. “United States Misery Index - How miserable do you feel?”
- Brookings Institution. “The Brooking Institution’s Arthur Okun - Father of the ‘Misery Index’”.
- Bloomberg. “Reagan Vs. Clinton: Who’s The Economic Champ?”
- Cato Institute. “Hanke’s Annual Misery Index: the World’s Saddest (And Happiest) Countries”.
- National Review. “Hanke’s 2021 Misery Index: Who’s Miserable and Who’s Happy?”
- FSInsight. “Bitcoin Misery Index BMI”.
- Bloomberg. “U.S. Worse Off Than Russia, Mexico in 2020 Economic Misery Ranking”.
- InflationData.com “Misery Index”.
- United States Misery Index. “Misery Index by President”.
- Statista. “Misery index scores for the most miserable countries in the world 2021”.
