Where the Misery Index Makes Us Most Miserable

Axios suggests that the Misery Index could help us with some political prognostication:

During September, the U.S. Misery Index was a rather low 7.489.

The Misery Index

Economist Arthur Okun (1928-1980) created the first (country) misery index. By adding together the inflation rate and unemployment rates, he had a measure of economic distress. I guess it makes sense that when purchasing power dips and joblessness climbs, there are fewer smiles. Then, during 1980, with an election to win, Ronald Reagan (reputedly) gave Okun’s Economic Discomfort Index a new name. Seeing it soar, he called it the Misery Index. He won the election against Jimmy Carter and the Misery Index was born.

To calculate the simplest version of the Misery Index, we just add together the annual inflation rate and the unemployment rate. Below, you can see its peaks from 1960 to November 2022. Showing inflation, the darker peach shading soared during most of the 1970s, 1980/81, and 2021/22:

The World’s Misery

Taking the idea a step further, Johns Hopkins Professor Steve Hanke tells us that we should add interest rates and growth to the equation. More precisely, he totaled the unemployment, inflation, and bank lending rates. Then, from that number, he subtracted the percent change in per capita GDP growth. When the first three rise, they are the “bads.” But if the last one goes up, it is a “good.” However, last year, his index changed a bit when he decided to double the unemployment rate component. In the Hanke Index, called HAMI, high numbers are alarming.

The Most and Least Miserable

Topped by Zimbabwe (414.7) and Venezuela (330.8), these 20 nations with the highest numbers are exceedingly miserable. While hyperinflation fueled most countries’ unhappiness, for some like Syria, it was unemployment:

In Dr. Hanke’s HAMI list of 157 nations, Switzerland, #157 (8.5) was happiest with the U.K. at #129 (17.6) and the U.S.#134 (16.8):

To see the vast difference in the numbers we can compare the calculations for Venezuela and Switzerland. Venezuela’s inflation rate was a whopping 266.9 while for Switzerland, we move the decimal point two digits to the left:

                                       Venezuela

Our Bottom Line: Inflation or Unemployment?

Dr. Hanke doubled his HAMI unemployment component because it made us unhappier. More precisely, a one percent increase in unemployment depressed us as much as a 1.97 pop in inflation.

So, we can wonder, with U.S. unemployment so low, why aren’t we happier?

My sources and more: Returning to the Misery Index, this Axios article and some recent WSJ analysis were especially helpful.  Next, for more data,  Focus Economics, and the St. Louis Fed came in handy. Then, the National Review had the Steve Hanke numbers.

Please note that several sentences from today were in a previous econlife post.