What is the Misery Index?
Since both high unemployment and high inflation are major factors to the average wage earner, it’s a quick and dirty metric to gauge the health of the economy because as inflation rises the cost of living increases and as unemployment rises more people cross the economic line into poverty.
Unfortunately, although data for the annual inflation rate is available back to 1914 (the CPI index began in 1913) data for the misery index is only available back to 1948 due to the lack of unemployment numbers prior to 1948.
The original Misery index was created by economist Arthur Okun during the Johnson administration in the 1960’s, not by Robert Barro as some people mistakenly believe. Barro created the “Barro Misery Index” (BMI) in 1999, which also includes interest rates and GDP trend into the mix.
Approximately ten years later Steve Hanke updated Barro’s work by applying it to other countries outside the United States. Hanke’s modified misery index uses unemployment, plus inflation as Okun did but then adds interest rates, and then subtracts the year-over-year percent change in per-capita GDP growth. Assuming that high interest rates also add to the “Misery” but growth in GDP reduces the misery.
Interestingly, when the original misery index was conceived by Okun it was actually quite low by recent standards.
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|The Misery Index and the Stock Market||Definition of Misery Index||Recent Misery Index Numbers in Table Form|
Surveying Happiness and Weighting the Misery Index
According to a paper in the American Economic Review called “Preferences over Inflation and Unemployment: Evidence from Surveys of Happiness unemployment causes 1.7 times as much misery as inflation and so the misery index should probably be calculated by multiplying unemployment by 1.7 and then adding it to inflation.
Misery Index Current Commentary:
Misery Index in 2014:
The misery index as of December 2014 (based on the most recent official government data for November 2014) is at 7.12% (5.8% unemployment and 1.32% inflation) down from a peak of 12.87% in both October and November 2011 which was pretty miserable. With inflation at historically low levels the major component of the Misery index is unemployment. The average inflation rate since the beginning of the Misery Index in January 1948 is 3.63% which is 2.3% higher than current inflation levels so if inflation were “average” the misery index would be much higher.
In addition, the Seasonally Unadjusted Gallup numbers for unemployment differ drastically from the government numbers (6.2% Gallup vs. 5.5% BLS) after being identical in August for the first time since September 2011. Typically MIT’s Billion Price Project inflation index is about 1% higher for inflation so using non-government numbers the Misery index would also result in a much higher misery index.
Misery Index in 2013:
In 2013 the Misery index was still in the moderately miserable range . It was slightly below the position at the end of the Bush 1 term and similar to the middle of both of Bush 2 terms. The misery index began the year at 9.49% and finished the year at 8.20%. Although government numbers indicate that both unemployment and inflation are falling non-government numbers indicate both inflation and unemployment are higher than reported by the government.
During 2012 crude oil prices and gasoline prices fell and the average inflation rate for the year was a relatively painless 2.07% but Unemployment fell only slightly from 8.3% in January to 7.8% in December although there is some question about the accuracy of those numbers. See: Is the Government Fudging Unemployment Numbers? .
Misery Index Chart
Click for Larger Image
During the Bush 2 term, the misery index started at 7.93% then peaked at 11.40% and then went back to 7.39% averaging 8.11% over 8 years. Obama’s first term began at 7.83% (almost identical to where Bush began) and then peaked at 12.62% before declining to current levels, averaging 10.13% so far. However, an argument can be made that the initial 7.83% was artificially low due to the collapsing stock market and related deflation. Perhaps a more representative number of actual misery would be between 10% and 11%. But the misery number is still historically high.
The Misery Index and Politics
Historically, a high (or climbing) misery index has been a political football resulting in a change of Presidents while a low (or falling) misery index resulted in reelection. Eisenhower (R) was reelected in November 1956 with a misery index of 6.53%. Johnson (D) ended with a misery index of 8.13 in November of 1968 and Humphrey (the Democratic candidate replacing Johnson) lost to Nixon. Early in the Nixon (R) administration the misery index climbed to a high of 11.67% in December 1970. From there through the election in November 1972 the index was falling and Nixon was re-elected. As a matter of fact, according to Wikipedia, “Emphasizing a good economy and his successes in foreign affairs, such as ending American involvement in Vietnam and establishing relations with China, Nixon won the election in a landslide.”
However, the Misery Index bottomed two months later at 8.55% and from there the misery index climbed drastically. Finally, Nixon resigned when his misery index climbed to 17.01% in July of 1974. Although Watergate was the trigger one has to wonder if the economy was doing well would Watergate have been such an issue?
Gerald Ford (R) took office in September 1974 with a misery index of 17.85%. It peaked at 19.9% a few months later and then fell steadily as his term progressed to 12.66% in December 1976 but he still lost. Perhaps if his term had been slightly longer (i.e. he had a full term) he might have been reelected. Jimmy Carter (D) quoted the misery index extensively during his 1976 Presidential campaign to unseat Ford, even though Ford actually presided over a declining Misery index. Carter on the other hand presided over an increasing misery index of his own, starting his term at 12.72% and increasing to levels well above Ford’s highs.
Carter’s misery index peaked at 21.98% in June of 1980. His misery index was still above 20% come November 1980, so Reagan (R) was able to use Carter’s own words and the misery index against him in the following election and make Carter a rare one-term President.
Reagan took office in January 1981 with a misery index of 19.33%. By November of 1984 the misery index had fallen steadily to 11.25% and Reagan was reelected. By November 1988 the misery index was 9.55% and so the Republicans were able to elect Bush 1 (R) in the hopes of more prosperity to come. But four years later (November 1992) the misery index was higher at 10.45% and Clinton was elected.
In January the index stood at 10.56%. By November 1996 the misery index had fallen to 8.66% and Clinton (D) was reelected. By November 2000, the misery index still stood at 7.35% and Bush 2 (R) was elected. This election and the Nixon win over Johnson are the only two elections in the history of the misery index where the misery index was relatively low when parties changed. But in both cases the misery index was climbing fairly steeply prior to the election. So it is possible that people felt they were becoming worse off. During Bush 2’s first term, the misery index rose slightly to 8.92% by November 2004 and the election was very close. Resulting in Bush 2 barely getting re-elected.
In July of 2008, toward the end of Bush’s 2nd term the misery index climbed to 11.40% and by September of 2008 it was still 11.14%. Even though it had fallen to 7.87% by November the public mood was still miserable due to the stock market crash and unemployment continued to rise. The deflationary collapse was due to a massive contraction in the money supply due to a stock market crash rather than any positive economic factors.
In effect the crashing stock market led everyone to feel poorer (and most were poorer as the value of their house and any investments had declined precipitously) thus the market trumped the Misery index itself. So the social mood was ready for a change in political parties. Worldwide this same phenomenon appears to hold as well, this seems to be confirmed by the elections in both France and Greece where their economies were faltering and the seated Presidents were both voted out.
In the most recent 2012 election apparently Obama was seen as presiding over a falling Misery index and so he was reelected. For more information on how Social Mood affects politics and the economy See: Social Mood Resources at your Fingertips.
Which Party Has a Better Misery Index Record?
With all the talk about the misery index in politics it begs the question: Which party has performed better? Simply looking at the chart it is possible for both parties to say they have done better, each party has had it’s good times and bad times. Looking at the overall numbers however, Democratic Presidents have done slightly better with an average overall misery index of 9.1% while Republicans have had an average overall misery index of 9.8%. But if we look only at more recent history i.e. Carter through Obama we get the opposite picture.
Here we see Democrats with an average of 10.44% and Republicans at 10.25%. Also since Congress actually makes the laws, it may be more accurate to include the political make up of congress to get a more accurate indication. Or perhaps looking at the last 3 years of each presidency would be more representative of a particular president’s policies.
Since individual states’ political parties have a more direct influence on their economics… See Unemployment Rates by State to see which political party has had the best effect on each state’s unemployment rate.
The Misery Index and the Stock Market
The stock market has climbed pretty steadily during the January through May 2013 period. If you look at the Inflation Adjusted NYSE Stock Market you will see that in inflation adjusted terms the previous market peak was in February 2011 at 8831 which was just surpassed. But the real inflation adjusted peak occurred in July 2007 at 11373, while in inflation adjusted terms the NYSE was at 9118 back in August 2000. In March 2013, the market was at 9117 So in 13 years in inflation adjusted terms the market went exactly nowhere. Currently the market is up a bit with the NYSE at 9551 as of this writing. But most people do not look at the market in inflation adjusted terms thus being fooled into thinking it is actually up.
Unemployment (if you believe the Government “adjusted” numbers) has been falling, so the masses are being led to believe that the situation is improving. Although the number of people actually employed is roughly the same in November 2011, May 2012, September 2012, and February 2013 at 133+ Million. And just like adjusting the stock market for price inflation you need to adjust employment for “population inflation” if you count in the increase in population over that time period, the situation is actually getting worse.
In April 2013 the Official Employment number was 135.494 million. There is also some evidence that the net gain in employment came from employers reducing hours for part-time workers and hiring others to make up the hours. See: Unemployment, Part-time Workers and Obamacare According to the U.S. Bureau of Labor Statistics Employment numbers, in November 2011 there were 133.172 million employed. In June 2012 there were 134.057 million employed and in September 2012 there were 133.797 million employed. But the “Adjusted” Unemployment rate went from 8.7% in November 2011 to 7.8% in September 2012.
In November 2012 the total employed was 135.069 million and the adjusted unemployment rate was 7.7%. According to the BLS the Civilian noninstitutional population increased by 3.7 million over the last year. So population is up 3.7 million, and employment is up only 1.9 million but somehow unemployment is down? How can the population increase, the number of people employed increased by a smaller amount, but unemployment still falls by 1%? It shouldn’t work that way! Recently the Bureau of Labor Statistics adjusted the “unadjusted” Employment numbers from July 1991 forward.
|Date||Employed||New Employment #s||Adjusted Unemployment Rate||U6 Unemployment Rate|
|November 2011||133.172 Million||133.456 Million||8.7%||15%|
|June 2012||134.057 Million||134.556 Million||8.2%||15.1%|
|September 2012||133.866 Million||134.374 Million||7.8%||14.2%|
|November 2012||135.069 Million||135.636 Million||7.7%||13.9%|
|January 2013||NA||132.705 Million||8.5%||15.4%|
See Is the Government Fudging Unemployment Numbers? for more information. See: Current U.S. Employment Data.
During the same period the U-6 unadjusted unemployment rate (including those who have given up looking for work) was at 15% in November, 15.1% in June and supposedly 14.2% in September. If we had 134 million employed in June and 200,000 less people employed in September how could the U-6 fall almost a full percentage point? Even with the magic “new” employment numbers the number of people employed still fell by 200,000. Yes 200,000 fewer people employed somehow translated into a falling unemployment rate both on the U3 and U6. It shouldn’t work that way! And that doesn’t even take the increasing population into consideration. See: U-6 Unemployment Rate for more information.
Definition of Misery Index
The misery index is defined as, a measure of the economic well-being of the country, which is calculated by taking adding the unemployment rate and the inflation rate.
Recent Misery Index Numbers
|Date||U-3 Unemployment||CPI-U Inflation||Misery Index|
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