Sometimes you can ask an economist about misery.
Where are we going? To happy and sad nations.
Created by economist Arthur Okun (1928-1980), 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. I guess it makes sense that when purchasing power dips and joblessness climbs, there are fewer smiles.
Let’s take a look at the Misery Index in the U.S. through two lenses:
The ups and downs of a U.S. Misery Index since 1950 show that we should be pretty happy right now:
Changing our perspective, Harvard economist Robert Barro tweaked Okun’s work with some new math, bond yields and GDP growth. The following graph uses Barro’s approach to compare misery fluctuations during presidential administrations.
As you can see, the graph moves from most to least with Carter at the bottom and Reagan at the top.
Leaving the U.S. we can head towards the misery hall of fame where Venezuela, again, gets the most miserable nation award primarily because of soaring inflation. . On the other hand, we have unemployment elevating the Misery Index numbers for South Africa and Greece.
A top five misery list:
A top ten misery list:
A bottom ten misery list:
Like all statistical yardsticks, the Misery Index can be a handy tool. However, a recent Washington Post Wonkblog summarized its defects:
- With unemployment, we are looking at the tip of the iceberg. Althoiugh we can have too low a participation rate, too many discouraged workers who left the labor force and part timers who want full time jobs, still the unemployment rate can be attractively low.
- As for the inflation rate, the index assumes that low inflation numbers are good, even when they are too low.
- And thinking of unemployment and inflation together, equal weighting could sometimes be misleading.
So, even with the Misery Index approaching its 60 year low, we might be sadder than we think.