Remember the Misery Index?

The Misery Index, created by economist Arthur Okun, was invented back in the 1970s when things were pretty miserable. It was a simple calculation that added together inflation and unemployment and presented the results on a graph. With the comparatively robust economies of the 1980s and 1990s, this measure fell out of fashion somewhat, but we at the American Monetary Association wonder if it’s time to resurrect Okun’s brainchild?

Why? Well, the obvious reason is that, even in light of a few glimmers of hope claimed by the current administration, the economy is pretty miserable for a lot of people. Gas prices are bumping against $4 a gallon, the foreclosure mess continues to act as a drag on the housing market, and lots of people have had their one, good-paying job replaced with a variety of part-time work just to put food on the table.

Put like that, today’s economic reality does sound sort of miserable.

But back to Okun’s index. Adding together inflation and unemployment answered two very serious questions:

Q: Are my job prospects improving?

Q: Where is the purchasing power of my money headed?

These are worries that affect the vast majority of Americans.

US News & World Report recently updated the Misery Index through the year 2011. Current unemployment in America is 8.3% and inflation at a reported 2.9% (though this government number is greatly understated), levels far below the high point on the Misery Index which was achieved in the late 1970s and early 1980s. Still, we’re past the recent high of the late 1980’s / early 1990’s and have been on a steep trajectory upwards for a while.

While we’ve got plenty of economic indicators and reports to keep an eye on, it seems to us that too few of them cut right to the point and tell us exactly how miserable we are or aren’t. Rising oil prices, a “recovering” economy, and easy monetary policy all point toward higher inflation in the future. With a presidential election just around the corner, maybe it’s time for voters to consider whether a particular candidate’s policies will move the Misery Index up or down (Top photo: Flickr | peretzpup).

The American Monetary Association Team


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