Misery index (economics)

The misery index is an economic indicator, created by economist Arthur Okun. The index helps determine how the average citizen is doing economically and it is calculated by adding the seasonally adjusted unemployment rate to the annual inflation rate. It is assumed that both a higher rate of unemployment and a worsening of inflation create economic and social costs for a country.[1]

Misery index – era by U.S president

Index = Unemployment rate + Inflation rate
President Time Period Average Low High Start End Change
Harry Truman 1948–1952 7.88 3.45 – Dec 1952 13.63 – Jan 1948 13.63 3.45 -10.18
Dwight D. Eisenhower 1953–1960 9.26 2.97 – Jul 1953 10.98 – Apr 1958 3.28 9.96 +5.68
John F. Kennedy 1961–1962 7.14 6.40 – Jul 1962 8.38 – Jul 1961 8.31 6.82 -1.49
Lyndon B. Johnson 1963–1968 6.77 5.70 – Nov 1965 8.19 – Jul 1968 7.02 8.12 +1.10
Richard Nixon 1969–1974 10.57 7.80 – Jan 1969 17.01 – Jul 1974 7.80 17.01 +9.21
Gerald Ford 1974–1976 16.00 12.66 – Dec 1976 19.90 – Jan 1975 16.36 12.66 -3.70
Jimmy Carter 1977–1980 16.26 12.60 – Apr 1978 21.98 – Jun 1980 12.72 19.72 +7.00
Ronald Reagan 1981–1988 12.19 7.70 – Dec 1986 19.33 – Jan 1981 19.33 9.72 -9.61
George H. W. Bush 1989–1992 10.68 9.64 – Sep 1989 14.47 – Nov 1990 10.07 10.30 +0.23
Bill Clinton 1993–2000 7.80 5.74 – Apr 1998 10.56 – Jan 1993 10.56 7.29 -3.27
George W. Bush 2001–2008 8.11 5.71 – Oct 2006 11.47 – Aug 2008 7.93 7.39 -0.54
Barack Obama 2009–Aug 2015
Incomplete data 		9.41 5.30 – Aug 2015
12.97 – Sep 2011 7.83 5.30 -2.53

[2]

Variations

Harvard Economist Robert Barro created what he dubbed the "Barro Misery Index" (BMI), in 1999.[3] The BMI takes the sum of the inflation and unemployment rates, and adds to that the interest rate, plus (minus) the shortfall (surplus) between the actual and trend rate of GDP growth.

In the late 2000s, Johns Hopkins economist Steve Hanke built upon Barro's misery index and began applying it to countries beyond the United States. His modified misery index is the sum of the interest, inflation, and unemployment rates, minus the year-over-year percent change in per-capita GDP growth.[4]

Hanke has recently constructed a World Table of Misery Index Scores by exclusively relying on data reported by the Economist Intelligence Unit.[5] This table includes a list of 89 countries, ranked from worst to best, with data as of December 31, 2013 (see table below).

World Table of Misery Index Scores as of December 31, 2013.

Political economists Jonathan Nitzan and Shimshon Bichler found a negative correlation between a similar "stagflation index" and corporate amalgamation (i.e. mergers and acquisitions) in the United States since the 1930s. In their theory, stagflation is a form of political economic sabotage employed by corporations to achieve differential accumulation, in this case as an alternative to amalgamation when merger and acquisition opportunities have run out.[6]

Criticism

A 2001 paper looking at large-scale surveys in Europe and the United States concluded that unemployment more heavily influences unhappiness than inflation. This implies that the basic misery index underweights the unhappiness attributable to the unemployment rate: "the estimates suggest that people would trade off a 1-percentage-point increase in the unemployment rate for a 1.7-percentage-point increase in the inflation rate."[7]

Misery and crime

Some economists posit that the components of the Misery Index drive the crime rate to a degree. Using data from 1960 to 2005, they have found that the Misery Index and the crime rate correlate strongly and that the Misery Index seems to lead the crime rate by a year or so.[8] In fact, the correlation is so strong that the two can be said to be cointegrated, and stronger than correlation with either the unemployment rate or inflation rate alone.

Data sources

The data for the misery index is obtained from unemployment data published by the U.S. Department of Labor (U3) and the Inflation Rate (CPI-U) from the Bureau of Labor Statistics. The exact methods used for measuring unemployment and inflation have changed over time, although past data is usually normalized so that past and future metrics are comparable.

References

  1. ↑ "The US Misery Index". Inflationdata.com.
  2. ↑ "US Misery Index by President".
  3. ↑ Robert J. Barro. "Reagan Vs. Clinton: Who's The Economic Champ?". Bloomberg.
  4. ↑ Steve H. Hanke (March 2011). "Misery in MENA". Cato Institute: appeared in Globe Asia.
  5. ↑ Steve H. Hanke (May 2014). "Measuring Misery around the World". Cato Institute: appeared in Globe Asia.
  6. ↑ Nitzan and Bichler (2009). Capital as Power: A Study of Order and Creorder. RIPE Series in Global Political Economy. Routledge. pp. 384–386.
  7. ↑ Di Tella, Rafael; MacCulloch, Robert J. and Oswald, Andrew (2001). "Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness" (PDF). American Economic Review. 91 (1): 335–341, 340.
  8. ↑ Tang, Chor Foon Lean, Hooi Hooi. "New evidence from the misery index in the crime function". pp. 112–115. doi:10.1016/j.econlet.2008.11.026.
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