The misery index was created by economists in an effort to quantify how bad the economy is based on cold hard numbers. In many ways, it can be argued that suffering is not quantifiable, after all how do you measure the pain associated with starvation, sickness, disease, homelessness, war, lawlessness and all the evils of society? But in economic terms economist Arthur Okun developed a simple but brilliant method of determining how miserable people were economically.
The Misery Index and Unemployment
The first component of the misery index is unemployment. Okun reasoned that if a lot of people were unemployed, that would make the country as a whole feel poorer and so they would be less well off. Also a side effect of just knowing that the unemployment rate is increasing is an increase in fear that people might lose their own job as well and this will cause them to cut back on their spending of discretionary items and to save more “just in case”. As a result, more businesses will be hurting from the lack of spending and the misery will compound.
The Misery Index and Inflation
The second component of the misery index is inflation. Inflation is an increase in prices. The primary cause is an increase in the money supply “Printing Money” at a greater pace than the growth of the “GDP” i.e. Gross Domestic Product. If prices increase more rapidly than salaries individuals will have to reduce their consumption resulting in [Read more...]