Misery index (economics)

Misery index (economics)

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The misery index is an economic indicator
Economic indicator
An economic indicator is a statistic about the economy. Economic indicators allow analysis of economic performance and predictions of future performance. One application of economic indicators is the study of business cycles....

, created by economist Arthur Okun, and found by adding the unemployment rate to the inflation rate
Inflation rate
In economics, the inflation rate is a measure of inflation, the rate of increase of a price index . It is the percentage rate of change in price level over time. The rate of decrease in the purchasing power of money is approximately equal.The inflation rate is used to calculate the real interest...

. It is assumed that both a higher rate of unemployment and a worsening of inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

 create economic and social costs for a country. It is often incorrectly attributed to Harvard
Harvard University
Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...

 economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...

 Robert Barro
Robert Barro
Robert Joseph Barro is an American classical macroeconomist and the Paul M. Warburg Professor of Economics at Harvard University. The Research Papers in Economics project ranked him as the 4th most influential economist in the world as of August 2011 based on his academic contributions...

 in the 1970s, due to the Barro Misery Index that additionally includes GDP
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....

 and the bank rate
Bank rate
Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries...

.

A 2001 paper looking at large-scale surveys in Europe and the United States concluded that the basic misery index underweights the unhappiness caused by joblessness: "the estimates suggest that people would trade off a 1-percentage-point increase in the unemployment rate for a 1.7-percentage-point increase in the inflation rate."

U.S. misery index


During the Presidential campaign of 1976, Democratic
Democratic Party (United States)
The Democratic Party is one of two major contemporary political parties in the United States, along with the Republican Party. The party's socially liberal and progressive platform is largely considered center-left in the U.S. political spectrum. The party has the lengthiest record of continuous...

 candidate Jimmy Carter
Jimmy Carter
James Earl "Jimmy" Carter, Jr. is an American politician who served as the 39th President of the United States and was the recipient of the 2002 Nobel Peace Prize, the only U.S. President to have received the Prize after leaving office...

 made frequent references to the Misery Index, which by the summer of 1976 was at 13.57%. Carter stated that no man responsible for giving a country a misery index that high had a right to even ask to be President. Carter won the 1976 election. However, by 1980, when President Carter was running for re-election against Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....

, the Misery Index had reached an all-time high of 21.98%. Carter lost the election to Reagan.

Misery index - era by U.S president

Index = Unemployment rate + Inflation rate
President Time Period Average Low High Start End Change
Harry Truman  1948–1952 7.88 03.45 – Dec 1952 13.63 – Jan 1948 13.63 3.45 -10.18
Dwight D. Eisenhower
Dwight D. Eisenhower
Dwight David "Ike" Eisenhower was the 34th President of the United States, from 1953 until 1961. He was a five-star general in the United States Army...

 
1953–1960 6.26 02.97 – Jul 1953 10.98 – Apr 1958 3.28 7.96 +4.68
John F. Kennedy
John F. Kennedy
John Fitzgerald "Jack" Kennedy , often referred to by his initials JFK, was the 35th President of the United States, serving from 1961 until his assassination in 1963....

 
1961–1962 7.14 06.40 – Jul 1962 08.38 – Jul 1961 8.31 6.82 -1.49
Lyndon B. Johnson
Lyndon B. Johnson
Lyndon Baines Johnson , often referred to as LBJ, was the 36th President of the United States after his service as the 37th Vice President of the United States...

 
1963–1968 6.77 05.70 – Nov 1965 08.19 – Jul 1968 7.02 8.12 +1.10
Richard Nixon
Richard Nixon
Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...

 
1969–1973 10.57 07.80 – Jan 1969 17.01 – Jul 1974 7.80 17.01 +9.21
Gerald Ford
Gerald Ford
Gerald Rudolph "Jerry" Ford, Jr. was the 38th President of the United States, serving from 1974 to 1977, and the 40th Vice President of the United States serving from 1973 to 1974...

 
1974–1976 16.00 12.66 – Dec 1976 19.90 – Jan 1975 16.36 12.66 -3.70
Jimmy Carter
Jimmy Carter
James Earl "Jimmy" Carter, Jr. is an American politician who served as the 39th President of the United States and was the recipient of the 2002 Nobel Peace Prize, the only U.S. President to have received the Prize after leaving office...

 
1977–1980 16.26 12.60 – Apr 1978 21.98 – Jun 1980 12.72 19.72 +7.00
Ronald Reagan
Ronald Reagan
Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....

 
1981–1988 12.19 07.70 – Dec 1986 19.33 – Jan 1981 19.33 9.72 -9.61
George H. W. Bush
George H. W. Bush
George Herbert Walker Bush is an American politician who served as the 41st President of the United States . He had previously served as the 43rd Vice President of the United States , a congressman, an ambassador, and Director of Central Intelligence.Bush was born in Milton, Massachusetts, to...

 
1989–1992 10.68 09.64 – Sep 1989 12.47 – Nov 1990 10.07 10.30 +0.23
Bill Clinton
Bill Clinton
William Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...

 
1993–2000 7.80 05.74 – Apr 1998 10.56 – Jan 1993 10.56 7.29 -3.27
George W. Bush
George W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....

 
2001–2008 8.11 05.71 – Oct 2006 11.47 – Aug 2008 7.93 7.49 -0.44
Barack Obama
Barack Obama
Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...

 
2009–Present
Incomplete data
Data updated through October 2011
10.72 07.30 – July 2009
index offset by negative inflation (-2.10)
12.97 – September 2011 7.73 12.53 +4.70


Using the BMI, the ranks are as follows:


















Term Misery% (less is good)
Reagan I -4.9
Clinton II -3.7
Reagan II -3.1
Kennedy/Johnson -2.5
Clinton I -2.4
GW Bush II -.8
Truman -.8
GW Bush I .2
GHW Bush .5
Johnson 1.3
Nixon 1.6
Eisenhower II 1.9
Eisenhower I 3.1
Nixon/Ford 8.0
Carter 9.4

.

Misery and crime


Some economists posit that the components of the Misery Index drive the crime rate to a degree. Using data from 1960 to 2005, they have found that the Misery Index and the crime rate correlate strongly and that the Misery Index seems to lead the crime rate by a year or so. In fact, the correlation is so strong that the two can be said to be cointegrated
Cointegration
Cointegration is a statistical property of time series variables. Two or more time series are cointegrated if they share a common stochastic drift.-Introduction:...

, and stronger than correlation with either the unemployment rate or inflation rate alone

Data sources


The data for the misery index is obtained from unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

 data published by the U.S. Department of Labor and the Inflation Rate
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

 from Financial Trend Forecaster. The exact methods used for measuring unemployment and inflation have changed over time, although past data is usually normalized so that past and future metrics are comparable.

Recent work


Economist Prof. Steve H. Hanke of The Johns Hopkins University has employed the misery index to analyze contemporary economic conditions in a number of countries outside the United States. Prof. Hanke used a modified form of Barro’s comprehensive index, which includes lending rates and changes in gross domestic product, to evaluate the success or failure of policies in Indonesia
, Iran
, Turkey, New Zealand
, and Jamaica

Hanke has also projected a misery index score for President Barack Obama's first term, based on current trends, and examined the utility of the misery index in forecasting political upheaval in Middle Eastern and North African countries

Related indexes


The Despondency Index, developed by the Bureau of Inverse Technology, correlates, in real time, the suicide rate measured with the Suicide Box at the Golden Gate Bridge, to the Dow Jones Industrial Average.