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)
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]

Misery Index of 2016

MISERY INDEX 2016[7]
Rank Worst to Best
Rank Country Misery Index Major Contributing Factor
1  Venezuela 573.4 Consumer Price
2  Argentina 83.8 Consumer Price
3  Brazil 75 Lending Rates
4  South Africa 44.9 Unemployment
5  Egypt 43.9 Consumer Price
6  Ukraine 36 Lending Rates
7  Azerbaijan 35.9 Consumer Price
8  Turkey 30.7 Lending Rates
9  Iran 29.3 Lending Rates
10  Colombia 28.7 Lending Rates
11  Greece 28.1 Unemployment
12  Russia 27.4 Lending Rates
13  Algeria 24.2 Unemployment
14  Kazakhstan 24.1 Lending Rates
15  Saudi Arabia 23 Unemployment
16  Peru 22.1 Lending Rates
17  Spain 19.1 Unemployment
18  Ecuador 18.4 Lending Rates
19  Indonesia 17.5 Lending Rates
20  India 17.1 Lending Rates
21  Portugal 15.5 Unemployment
22  Sri Lanka 14.8 Lending Rates
23  Italy 14.7 Unemployment
24  Pakistan 14.4 Lending Rates
25  Chile 14.4 Unemployment
26  Mexico 12.5 Lending Rates
27  Belgium 11.8 Unemployment
28  Bulgaria 11.7 Unemployment
29  Poland 11.5 Unemployment
30  Canada 11.3 Unemployment
31  France 11.3 Unemployment
32  Australia 11.1 Unemployment
33  Finland 10.9 Unemployment
34  United Kingdom 10 Unemployment
35  Hong Kong 10 Lending Rates
36  Norway 9.8 Unemployment
37  Philippines 9.6 Unemployment
38  New Zealand 9.4 Lending Rates
39  United States 9.4 Unemployment
40  Vietnam 9.3 Lending Rates
41  Slovakia 9.2 Unemployment
42  Czech Republic 8.7 Unemployment
43  Ireland 8.6 Unemployment
44  Sweden 8.4 Unemployment
45  Austria 7.9 Unemployment
46  Denmark 7.8 Unemployment
47  Singapore 7.6 Lending Rates
48  Taiwan 7.1 Unemployment
49  Israel 6.8 Unemployment
50  Romania 6.4 Unemployment
51  Netherlands 6.3 Unemployment
52  Hungary 6.2 Unemployment
53  Malaysia 5.9 Lending Rates
54  Germany 5.5 Unemployment
55   Switzerland 5.5 Unemployment
56  South Korea 5.5 Unemployment
57  Thailand 4.9 Lending Rates
58  China 4.5 Lending Rates
59  Japan 0.4 Unemployment

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."[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.

References

  1. ↑ "The US Misery Index". Inflationdata.com.
  2. ↑ "US Misery Index by President". Archived from the original on 2015-02-14.
  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. ↑ The World’s Most – And Least – Miserable Countries in 2016
  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.
  9. ↑ 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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