Alternative Indicator: The Misery Index

Want to see just how half-empty your country's economic glass is? It's as simple as calculating the Misery Index.

What is it?

As of August 2010, the U.S. Misery Index was at 10.75. It reached its highest level in June 1980, when it was at 21.98, and its lowest was way back in July 1953 when it reached 2.97. Visit the Misery Index website for lots of data on the MI for different countries over time.

What does it measure?

The MI was invented in the 1960s by economist Arthur Okun to determine a measure of a country's deteriorating economic performance. Okun simply added the unemployment rate to the inflation rate. It hasn't been used much since the end of the Carter administration, but there have been more recent attempts to bring the MI up to date. Moody's economist Pierre Cailleteau devised a formula to calculate a new version of the Misery Index wherein he added the unemployment rate to a country's deficit as a percentage of its GDP.

How do they get there?

The traditional Misery Index is just the sum of the unemployment rate (from data published by the U.S. Department of Labor) and the inflation rate (from Financial Trend Forecaster).

What does this tell us (really)?

Basically, the Misery Index tells us the sum of the unemployment rate and the inflation rate. What can be inferred is that higher rates of unemployment and increasing inflation mean deteriorating economic prosperity. Also, some economists have tied the Misery Index to crime rates; there is said to be a fairly strong correlation between the Misery Index and crime rates within a country.

But nobody's perfect

There hasn't been a lot of criticism of this fairly straightforward measurement tool, though a 2001 report from American Economic Review suggested that inflation should be given less weight in the equation than unemployment, as people tend to be more unhappy when they're unemployed than they are when inflation rates rise.

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As with most "uncommon economic indicators" the misery index appears at first glance to be simple and straightforward. The obvious weakness of this indicator is the use of the unemployment rate - long known to be an overly optimistic tool that fails to take into account anyone who is no longer receiving an unemployment check. The second weakness is the use of the Inflation rate, since anyone in Nebraska will tell you, that prices there are not even close to what they are in New Jersey.

That aside, I suppose you can use this indicator to measure the overall economic mood in the country, but again it falls short because it fails to take into account a host of other indicators that do a better job.

The idea of adding the National Debt as a percentage of GDP will again miss the point. If all we want to do is to measure how unhappy people are, just ask them. Or better yet, see what happens during a midterm election!

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