The Misery Index
A little known and often unreported metric of the economy is the misery index. From the website www.miseryindex.us the definition of the metric is given as follows:
The misery index was initiated by economist Arthur Okun, an adviser to President Lyndon Johnson in the 1960′s. It is simply the unemployment rate added to the inflation rate. It is assumed that both a higher rate of unemployment and a worsening of inflation both create economic and social costs for a country. A combination of rising inflation and more people out of work implies a deterioration in economic performance and a rise in the misery index.
With the raw data obtained from this website I ran some of my own analysis. The data is given in a monthly level from the beginning of 1948 to 2012. This is a large amount of data, so I compressed it into annual averages. I found that in 1953 the United States was at its lowest annual percent of misery at 3.7%. The highest level experienced was in 1980 at an annual average of 20.8%. The annual average mean over this 64-year period was at 9.5% and over this long-term period nearly all of the years analyzed fell between the 1953 low of 3.7% and 16.5% of misery. The index over Obama’s tenure in office has been at a low of 8.9% (below the long-term average) in 2009, to a high of 12.1% (above the long-term average) in 2011. The average level of misery over these four years is 10.6%.
As I looked at these numbers, I couldn’t help but think how they don’t fit with reality. I know that the misery index is truly higher than is reported in these data. The Congressional Budget Office (CBO) tells us that we have had the longest period of persistently high unemployment since the Great Depression. Prices on food and energy are increasing at rates far outpacing the general inflation rate which is reported as a number excluding food and energy. People are paying more in taxes, more in education costs, and a lot more for healthcare despite Obama telling us nearly every day that costs are coming down. Houses are still being foreclosed on at high rates and the GDP experienced a contraction in the last quarter of 2012. Americans are definitely miserable, and the numbers do not reflect that.
The reason they don’t reflect reality is simple, they aren’t the real numbers. In the past, say in 1953, we measured inflation and the unemployment rates differently than we do today. Likewise, in 1980 the numbers were more accurately related to the 1953 numbers than they are today. How is it that Americans spend more and more on items each month, yet the inflation rate is reported at less than 2% annually over the past four years? Part of the answer is that, as mentioned above, we exclude food and energy. One reason the government does this is to keep the Cost-of-Living-Adjustment (COLA) rate down in order to not have to increase Social Security benefits more than they have to. Of course, that is not the official reasoning, but is a plausible one. By some estimates, removing food and energy from the inflation rate calculation lowers the actual number by as much as 7%.
With this then we can add to Obama’s misery index 7% for each year giving us a new average over his span to be now 17.6%. This number is getting close to the high reached in 1980 seen immediately after the disastrous presidency of Jimmy Carter.
Along with the false inflation number, comes the equally false unemployment number.
If you have taken any kind of economics class you may remember that full employment is achieved when the unemployment rate is near 5%. This is considered full employment because there are several men and women in situations where they either refuse to work or are incapable of working, so they are not counted. As of recently, the Obama administration has decided that those men and women who are persistently unemployed and have run out of unemployment benefits fall within this category and they remove them from the overall count. So, I took the estimated population for the United States, from the Census Bureau, for the year 2002 – nearly 288 million Americans. With that, I took the estimated number of men and women in the workforce for that year from the Bureau of Labor Statistics – 191 million Americans. I used these numbers as a baseline and applied the Census Bureau’s population growth rate. With that number I found an expected value for the number of people that should be in the workforce today, all other things being equal. The difference between that number and the actual number of people in the workforce in 2012 was nearly 9 million individuals. I then used this number to base my assumption that our true unemployment rate is 4% higher than the number actually recorded of 7.8%, giving us a more reasonable 11.8% unemployment rate. With that then, we can add 4% to Obama’s tally, and we get a misery index of something close to 21.6%. A new high!
I do not know about you, but I think the number stating that 1 in 5 Americans as unhappy is a much more accurate depiction of the current conditions we are all suffering through under this regime. Therefore, I dub our president: Obama the Miserable.