The Misery Index – an economic indicator created by American and Yale economist Arthur Okun, was developed to measure the level of economic hardship on average citizens. It combines the current unemployment rate + the current 12 month inflation rate. Arthur is also responsible for Okun’s law that states for every 1% increase in a country’s unemployment rate, that country's GDP will be about an additional 2.5% lower than its potential GDP… but more on that in the future.
It is a difficult (if not impossible) task to try and gauge a society’s unhappiness or struggle. However, the Misery Index marries two factors that truly affect us all in some way. Inflation and high interest rates are not equal to all. For some, spending fifty cents more per gallon to fill up a gas tank or an extra couple bucks on their lunch is an inconvenience. For others, it puts a strain on feeding their family and making ends meet. This is where the misery comes in.
There are a lot of factors that can create economic misery for citizens. Unemployment is a major one. Layer on a higher cost of living on top of it and things get ugly. The Misery Index has a place in history. Political pundits may look at presidential terms to see who ‘created the most misery’ or vice versa. We could compare the index level to times of war and regulation. Heck, you could compare it to just about anything to confirm your bias and to tell a story.
Below is a historical list of US Presidents, the Misery Index when their term began and where it stood at the end of their term. There is plenty of data behind the numbers below. There are wars, tragedy, tax reform, celebrations, natural disasters, innovation, etc. The list goes on. We don’t talk politics here at Mental Cents, but studying the list below and what was going on in each of these time periods could give us all a bit of perspective.
Lyndon Johnson: Vietnam War -> steady Misery Index
Ronald Reagan: Began his term with massive inflation and high Misery Index -> ended his term on a much happier note
Joe Biden: Fighting a quickly rising Misery Index and inflation -> stay tuned
Typically, unemployment is the biggest contributing factor over inflation. I’d put my money on the fact that most folks prefer having a higher lifestyle cost than not having a job to support their lifestyle in the first place.
As quirky and simple as the Misery Index can sound, it does serve as a gauge for two very important aspects of our everyday lives. Two figures that affect every one of our lives. Let’s be real, the fact that Costco’s famous Hot Dog Combo has been $1.50 since 1985 (and they still commit to the price today) could mean two things: 1. you either greatly overpaid for a hot dog in the past or 2. it’s a heck of a deal now. Just a reminder that inflation isn’t fair to all.