Created by Arthur Okun, the misery index is a yardstick of economic distress. By adding together the inflation rate and the unemployment rate, we can measure the extent to which prices and unemployment have risen. You can imagine that when purchasing power dips and lots of people are jobless, there are fewer smiles.
High and Low Misery Indices
Curious about the world’s misery indices, I went into ieconomics to access my data and calculated an index for 40 randomly selected countries. Using the most recent annual inflation and unemployment rates as of September 2014, I discovered that Venezuela had the highest misery numbers and Switzerland, the lowest.
While the misery index weights unemployment and inflation equally, scholars have suggested that unemployment has a much greater impact on our happiness–precisely 2.5%. Yes, in a Boston Federal Reserve paper, scholars hypothesized that unemployment causes 2.5 times as much misery as rising prices. (Interesting because inflation could be even more worrisome but, unless out of control, is less noticeable.)
If the Boston Fed paper is right, then Venezuelans (inflation rate 63.42%; unemployment rate 6.7%) are not as unhappy as their misery index indicates. Meanwhile, eurozone countries have misleadingly low misery indices that, based on unemployment, could be higher.
Eurozone Unemployment Rates:
We should note that using MIT’s billion price project, all misery indices would be higher.
Our Bottom Line: Eurozone Problems
With the misery index elevated by different levels of eurozone unemployment, we are returning to questions about the efficacy of a common monetary policy without centralized fiscal (taxing, spending, borrowing) power.