Misery index (economics)

"Misery index" redirects here. For the American death metal band, see Misery Index (band).

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] It is often incorrectly attributed to Harvard economist Robert Barro in the 1970s, due to the Barro Misery Index that additionally includes GDP and the bank rate.^[2]

A 2001 paper looking at large-scale surveys in Europe and the United States concluded that the basic misery index underweights the unhappiness caused by joblessness: "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."^[3]

U.S. misery index

During the Presidential campaign of 1976, Democratic candidate Jimmy Carter made frequent references to the Misery Index, which by the summer of 1976 was at 13.57%. Carter stated that no man responsible for giving a country a misery index that high had a right to even ask to be President. Carter won the 1976 election. However, by 1980, when President Carter was running for re-election against Ronald Reagan, the Misery Index had reached an all-time high of 21.98%. Carter lost the election to Reagan.

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	03.45 – Dec 1952	13.63 – Jan 1948	13.63	3.45	-10.18
Dwight D. Eisenhower	1953–1960	6.26	02.97 – Jul 1953	10.98 – Apr 1958	3.28	7.96	+4.68
John F. Kennedy	1961–1962	7.14	06.40 – Jul 1962	08.38 – Jul 1961	8.31	6.82	-1.49
Lyndon B. Johnson	1963–1968	6.77	05.70 – Nov 1965	08.19 – Jul 1968	7.02	8.12	+1.10
Richard Nixon	1969–1973	10.57	07.80 – 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	07.70 – Dec 1986	19.33 – Jan 1981	19.33	9.72	-9.61
George H. W. Bush	1989–1992	10.68	09.64 – Sep 1989	12.47 – Nov 1990	10.07	10.30	+0.23
Bill Clinton	1993–2000	7.80	05.74 – Apr 1998	10.56 – Jan 1993	10.56	7.29	-3.27
George W. Bush	2001–2008	8.11	05.71 – Oct 2006	11.47 – Aug 2008	7.93	7.49	-0.44
Barack Obama	2009–Present Incomplete data Data updated through September 2011	10.66	07.30 – July 2009 index offset by negative inflation (-2.10)	12.97 – September 2011	7.73	12.97	+5.14

^[4]

Using the BMI, the ranks are as follows:

Term	Misery% (less is good)
Reagan I	-4.9
Clinton II	-3.7
Reagan II	-3.1
Kennedy/Johnson	-2.5
Clinton I	-2.4
GW Bush II	-.8
Truman	-.8
GW Bush I	.2
GHW Bush	.5
Johnson	1.3
Nixon	1.6
Eisenhower II	1.9
Eisenhower I	3.1
Nixon/Ford	8.0
Carter	9.4

.^[5]

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.^[6] 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 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.

Recent work

Economist Prof. Steve H. Hanke of The Johns Hopkins University has employed the misery index to analyze contemporary economic conditions in a number of countries outside the United States. Prof. Hanke used a modified form of Barro’s comprehensive index, which includes lending rates and changes in gross domestic product, to evaluate the success or failure of policies in Indonesia ,^[7] Iran ,^[8] Turkey, New Zealand ,^[9] and Jamaica ^[5]

Hanke has also projected a misery index score for President Barack Obama's first term, based on current trends, and examined the utility of the misery index in forecasting political upheaval in Middle Eastern and North African countries^[10]

Related indexes

The Despondency Index, developed by the Bureau of Inverse Technology, correlates, in real time, the suicide rate measured with the Suicide Box at the Golden Gate Bridge, to the Dow Jones Industrial Average.

References

1. ^ The US Misery Index
2. ^ "REAGAN VS. CLINTON: WHO'S THE ECONOMIC CHAMP?", Robert J. Barro
3. ^ 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
4. ^ "US Misery Index by President". http://www.miseryindex.us/indexbypresident.asp. 
5. ^ ^{a b} The Misery Index: A Reality Check for the US and Jamaica, Steve H. Hanke
6. ^ 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
7. ^ "The Misery Index: A Reality Check", Steve H. Hanke
8. ^ "Iran's Death Spiral", Steve H. Hanke
9. ^ "Hu versus Sarkozy", Steve H. Hanke
10. ^ "Misery in MENA", Steve H. Hanke

External links

• The current and historical Misery Index