Remember the “Misery Index?”
If, like me, you are a “child of the 70’s and 80’s,” then you probably have some acquaintance with the term.
Yet we don’t hear much about the Misery Index anymore. And given all that is and is not happening economically in our country right now, it seems like an appropriate time to bring back the index, although we’ll need to amend it just a bit.
Let me explain.
Back in 2009 when my co-author and I were doing research for our new book “The Virtues Of Capitalism,” I came across some background information about the Misery Index. We ultimately decided not to include it in the book (it is a bit “off topic” from what we were writing), but what I read about it did nonetheless get me thinking.
Many Americans, if they’re familiar with the index at all, are quick to associate it with President Jimmy Carter. This is because President Carter, in some strange ways, “popularized” the Misery Index, or at least got people in the habit of thinking about it and referencing it. This increased familiarity with the Misery Index ultimately ended-up hurting Carter politically (I’ll explain that in a bit), and as a result, Carter’s name has become synonymous with the Misery Index in the minds of some.
However, the Misery Index actually predates the “Carter era” by several years, as it was first proffered by American economist Arthur Okun earlier last century (Okun died eight months before Carter was elected President). Eventually, during Okun’s lifetime, the index was utilized to evaluate various period in U.S. and world history.
Okun calculated the Misery Index by adding the unemployment rate and the inflation rate, as they existed simultaneously at any given point in time. In his view, rising unemployment combined with an increase in the prices for goods and services brought about both economic, and social costs for a country, and the Misery Index was formulated to try and quantify those consequences in one accessible, easy-to-reference statistic.
Jimmy Carter became associated with the Misery Index by his own doing. In 1976, as the former Georgia Governor was campaigning for the presidency against incumbent President Gerald Ford, Carter began complaining publicly about the Misery Index which, by the summer of that year, had reached a high of 13.57.
Carter claimed that no man responsible for producing a Misery Index that high had the right to even ask to be President, let alone remain the President. Carter successfully used this rhetoric to engender resentment towards President Ford among the American electorate, which was part of what cost Ford the election in that year and ushered Carter into the White House in January of 1977.
But unfortunately for President Carter, Gerald Ford’s problem became an even bigger problem for himself as the Misery Index skyrocketed during his tenure at the White House. While the index dropped slightly from 12.66 at the time of Ford’s departure down to 12.60 in Carter’s second year as President, the index reached an all-time high of 21.98 just five months before Carter faced Ronald Reagan in the November 1980 presidential election. Thus, the economic indicator that Carter used to his favor to win the White House ended up being a statistic that helped make the case for his dismissal – and left Carter branded as the “Misery President” among many Americans.
Today, information about the Misery Index is still available (and it’s easy enough to calculate on one’s own), but it receives very little attention in the media. This is probably because many Americans (including myself) understand that, while Okun was correct in surmising that there are social costs incurred when unemployment rates and consumer prices rise all at the same time, there are a lot of other economic factors in addition to unemployment and inflation that can cause “misery.”
For example, the loss of personal net worth brings about a huge “social cost,” and is a major source of anxiety and “misery” in today’s economy. Yet a decline in personal net worth doesn’t even factor in to Okun’s formula.
It may very well be that Oklun never could have imagined that personal net worth would ever become so great for so many individuals, as it did after he had died and prior to the big financial system collapse of 2008. But the dissipation of personal assets has been a big part of the tragic story about the American economy over the past two years, and it has certainly added to the nation’s level of misery.
Another matter that the Misery Index doesn’t contemplate is the impact of “deflation” on individuals, and thus on an entire nation. While dramatic inflation causes real human suffering, especially when it corresponds with rising unemployment, deflation can also hint at a general decline in the value of assets, which correlates with the drop in personal net worth.
And what are we to make of the devaluation of our currency, the skyrocketing national debt, and the fact that every taxpaying American owns over $150,000 of that debt, whether they realize it or not? All these things are creating “misery” for America, and for the world – yet they don’t factor in to Professor Okun’s formula.
Is there any statistic, any “index” that can capture America’s fiscal misery today?