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 by US presidential administration
Index = Unemployment rate + Inflation rate (lower number is better)
PresidentTime PeriodAverageLowHighStartEndChange
Harry Truman1948–19527.8803.45 – Dec 195213.63 – Jan 194813.633.45-10.18
Dwight D. Eisenhower1953–19609.2602.97 – Jul 195310.98 – Apr 19583.289.96+5.68
John F. Kennedy1961–19627.1406.40 – Jul 196208.38 – Jul 19618.316.82-1.49
Lyndon B. Johnson1963–19686.7705.70 – Nov 196508.19 – Jul 19687.028.12+1.10
Richard Nixon1969–197410.5707.80 – Jan 196917.01 – Jul 19747.8017.01+9.21
Gerald Ford1974–197616.0012.66 – Dec 197619.90 – Jan 197516.3612.66-3.70
Jimmy Carter1977–198016.2612.60 – Apr 197821.98 – Jun 198012.7219.72+7.00
Ronald Reagan1981–198812.1907.70 – Dec 198619.33 – Jan 198119.339.72-9.61
George H. W. Bush1989–199210.6809.64 – Sep 198914.47 – Nov 199010.0710.30+0.23
Bill Clinton1993–20007.8005.74 – Apr 199810.56 – Jan 199310.567.29-3.27
George W. Bush2001–20088.1105.71 – Oct 200611.47 – Aug 20087.937.39-0.54
Barack Obama2009–20168.8305.06 – Sep 2015
12.87 – Sep 20117.836.77-1.06
Donald Trump2017–20206.6005.21 – Sep 2019
15.03 – Apr 20207.308.06+0.76

[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]

Misery Index of 2019
Misery Index 2019[7]
Ranked from worst to best
Rank Country Misery Index
1  Venezuela 7,459
2  Argentina 136.1
3  Iran 75
4  Brazil 52.3
5  Turkey 50.6
6  South Africa 36.8
7  Bosnia and Herzegovina 33.5
8  Nicaragua 32.9
9  Ukraine 31.4
10  Pakistan 31.2
11  Egypt 28.8
12  Uruguay 28.7
13  Jordan 28.5

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 employment rate for a 1.7-percentage-point increase in the inflation rate."[8]

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.[9] 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.

See also

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.CS1 maint: uses authors parameter (link)
  7. Misery index scores for the most miserable countries in the world 2019
  8. 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. doi:10.1257/aer.91.1.335.CS1 maint: uses authors parameter (link)
  9. Tang, Chor Foon; Lean, Hooi Hooi (2009). "New evidence from the misery index in the crime function". Economics Letters. 102 (2): 112–115. doi:10.1016/j.econlet.2008.11.026.
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