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The Misery Index

Almost a half-century ago, an economist named Arthur Okun developed the Misery Index.  It’s a simple calculation – just add the unemployment rate to the inflation rate, and you have the Misery Index.  He also came up with Okun’s law – which is online, but I think it would be better termed Okun’s estimate.

At any rate the Misery Index has been going up lately.  But it’s kind of a funk index, so I’ll pick a few years before and after Okun invented the index to give perspective:

YearMisery Index
193325.7
194119.8
19443.5
194622.0
19567.2
19676.8
197011.7
197419.5
198019.7
198510.6
20007.3
200912.6
20195.8

I read that it started at 7.9 when Biden was inaugurated, and that the Misery index stood at 11.3 in June. 

A much more complete description of the Misery Index is available here, where Kimberly Amadeo provides a timeline by years and by presidents.  Probably her most significant description is of a “Goldilocks Economy where the ideal rate of growth is 2%-3%. To achieve this level of economic efficiency, employers need to find workers. There needs to exist a natural rate of unemployment of between 4% and 5%. When the rate is lower than that, companies can’t find enough good workers to maximize production.”

I remember the high inflation as part of the Carter years, yet the chart tells me that we only returned to the “Goldilocks Economy” for the last three years of Reagan’s administration. 

Amadeo points out “Lyndon B. Johnson (1963-1969) . . .reduced the index to 5.9% in 1965 with spending on the Great Society and the Vietnam War.”  I had thought that the inflation went up with Nixon when the country changed from silver certificates to federal reserve notes – but perhaps his greater contribution to the increased Misery Index was ending the Vietnam War and the draft.  Kind of strange to think that ending the draft would increase the Misery Index.

Steve Hanke has calculated a series of Misery Indices for the different nations of the world, and his analysis of the situation is here.

A glance at this compilation showed that Venezuela was harder hit than Zimbabwe – and that Suriname, a country that I enjoyed visiting, was fifth on the chart.

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