Misery index (economics)

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The misery index is an economic indicator, created by economist Arthur Okun, and found by adding the unemployment rate to the 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[edit]

Index = Unemployment rate + Inflation rate
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+4.68
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–June 2012
Incomplete data
10.7507.30 – July 2009
index offset by negative inflation (-2.10)
12.97 – September 20117.739.9+2.17

[2]

Variations on the Misery Index[edit]

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]

His Misery Index calculations for the Middle East and North Africa indicated that countries in the region generally suffered from prolonged, high levels of economic misery -- with little improvement in the years leading up to the Arab Spring uprisings. Hanke also noted that, in under a month, the Misery Index score for Iran more than doubled, with the onset of hyperinflation in September 2012. [5] To calculate Iran’s misery index score, Hanke calculated an implied monthly inflation rate, using black-market data on the Iranian Rial to U.S. Dollar exchange rate. [6]

In order to illustrate just how dramatically Bulgaria's currency board system improved life for Bulgarians, Hanke also constructed a Misery Index for Bulgaria during the 1995-98 time period. Using this misery index, Hanke demonstrates how Bulgaria's hyperinflation crisis came to an abrupt halt and the level of misery plummeted. [7]

In Mike Maloney's Hidden Secrets of Money bonus features for Episode 1, Bonus Feature 1, Dave Morgan suggests that if you multiply the unemployment rate times two and add it to the inflation rate, you will get chaos when the sum of the two quantities is greater 50.

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. [8]

Criticism[edit]

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."[9]

Misery and crime[edit]

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.[10] 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[edit]

The data for the misery index is obtained from unemployment data published by the U.S. Department of Labor and the Inflation Rate from Financial Trend Forecaster. 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[edit]

  1. ^ The US Misery Index
  2. ^ "US Misery Index by President". 
  3. ^ http://www.businessweek.com/stories/1999-02-21/reagan-vs-dot-clinton-whos-the-economic-champ
  4. ^ http://www.cato.org/publications/commentary/misery-mena
  5. ^ http://www.cato-at-liberty.org/the-iran-hyperinflation-fact-sheet/
  6. ^ http://www.cato.org/publications/commentary/irans-death-spiral-ii
  7. ^ http://www.cato.org/publications/commentary/bulgaria-fifteen-years-later
  8. ^ Capital as Power: A Study of Order and Creorder Nitzan and Bichler, 2009: pp. 384-386
  9. ^ Di Tella, Rafael; MacCulloch, Robert J. and Oswald, Andrew (2001), "Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness", American Economic Review, 91(1), pp335-341. p340
  10. ^ http://ideas.repec.org/a/eee/ecolet/v102y2009i2p112-115.html New evidence from the misery index in the crime function, Tang, Chor Foon Lean, Hooi Hooi

External links[edit]