what is the misery index 
the misery index is a measure of economic distress felt by everyday people due to the risk of or actual joblessness combined with an increasing cost of living the misery index is calculated by adding the seasonally adjusted unemployment rate to the inflation rate since unemployment and inflation are both considered detrimental to one s economic well being their combined value is useful as an indicator of overall economic health the original misery index was popularized in the 1970s with the development of stagflation or simultaneously high inflation and unemployment understanding the misery indexthe misery index has two components they are the unemployment rate and the inflation rate u s unemployment is the number of able bodied adults who are actively looking for work as a percentage of the total workforce inflation refers to the rate at which money loses buying power due to the rise of consumer prices in most cases these numbers are inversely correlated when the unemployment rate goes down prices tend to go up and vice versa the misery index is calculated by adding the seasonally adjusted rate of unemployment and the annual inflation rate misery index seasonally adjusted rate of unemployment annual inflation rateeconomists generally consider full employment to mean an unemployment rate of 4 5 the federal reserve fed targets an inflation rate of 2 therefore a satisfactory misery index rating would be in the range of 6 7 components of the misery indexthe unemployment rate is adjusted to remove seasonal employment patterns so that it can provide good insight into the relative level of employment the seasonally adjusted unemployment rate is measured as a percentage it reflects the portion of the workforce that is able to work and seek employment actively but can t find a job workers who are retired but working and those who have stopped trying to find a job are excluded from the seasonally adjusted rate the bureau of labor statistics bls reports unemployment data each month 1the annual inflation rate is the percentage increase in the prices of the goods and services consumed by the buyers in short it measures the prices of all goods and services existing in the economy the bls reports inflation data each month in its consumer price index cpi release 2misery index 9 95unemployment rate 3 5 inflation rate 6 45 3history of the misery indexthe first misery index was created by economist arthur okun in the 1970s when he was a scholar at the brookings institution he had previously served on president lyndon johnson s council of economic advisers 4okun combined the nation s annual inflation rate and unemployment rate to provide an easily understood snapshot of the economy s relative health the higher the index the greater the misery felt by the average citizen 4during the 1970s after president nixon restricted and then severed the final links between the u s dollar and gold the u s experienced several years of simultaneously elevated price inflation and unemployment known as stagflation the american people were caught in a squeeze between the hardships of joblessness as the economy hit a series of recessions and a rising cost of living as the dollar rapidly lost value this phenomenon did not fit with dominant macroeconomic theories at the time based on the phillips curve it led economists to explore alternative ideas to describe and explain what was going on at the time the misery index was novel because mainstream economists had previously believed that inflation and unemployment would offset one another rather than rise at the same time during the 1976 campaign for u s president candidate jimmy carter popularized okun s misery index as a means of criticizing his opponent incumbent gerald ford by the end of ford administration the misery index was a relatively high 12 7 during the 1980 presidential campaign ronald reagan in turn pointed out that the misery index had increased under carter limitations of the misery indexwhile it is a convenient shorthand for economic misfortune the misery index should not be considered a precise metric for economic health for one thing both components of the misery index have inherent blind spots the unemployment rate only counts the unemployed who are actively looking for work it does not include those who have given up looking for work as might be the case for long term stretches of unemployment likewise low inflation can also be accompanied by unexpected misery for example no inflation or even deflation can be signs of a stagnant economy which can be a hardship for many due to the potential for rising unemployment and falling equity and real estate valuations however the low rates would produce a very low misery index in addition the misery index treats unemployment and inflation equally however a 1 increase in unemployment likely causes more misery than a 1 increase in inflation the okun misery index is considered a convenient but highly imprecise metric due to the inherent flaws of inflation and unemployment as measurements of economic health criticisms of the misery indexthe okun misery index has faced some criticism from economists there have been several attempts to modernize the misery index by including other metrics newer versions of the misery indexthe misery index has been modified several times first by harvard economist robert barro in 1999 barro created the barro misery index which adds consumer lending interest rates and the gap between actual and potential gross domestic product gdp growth to evaluate post wwii presidents 5in 2011 johns hopkins economist steve hanke modified barro s misery index and broadened its application to be a cross country index hanke s annual misery index is the sum of unemployment inflation and bank lending rates minus the change in real gdp per capita 6hanke publishes his global list of misery index rankings annually for the countries that report relevant data on a timely basis for 2021 his list included 156 nations with libya being identified as the world s least miserable country and cuba as the world s most miserable country 7the concept of a misery index has also been expanded to asset classes for example tom lee co founder of fundstrat advisors created the bitcoin misery index bmi to measure the average bitcoin investor s misery the index calculates the percentage of winning trades against total trades and adds it to the cryptocurrency s overall volatility the index is considered at misery when its total value is less than 27 8a variation of the original misery index is the bloomberg misery index argentina south africa and venezuela countries beset by widespread inflation and unemployment topped the index in 2020 9on the other end thailand singapore and japan were considered the happiest countries according to economist estimates but low inflation and low unemployment rates can also mask low demand japan is a textbook case of persistently low demand due to an economy that has suffered from stagflation for the last two decades it s smart for investors to build an emergency fund in case of an economic downturn or job loss misery index under different presidentsalthough the misery index was first popularized in the 1970s it is possible to evaluate the economic misfortunes under different presidents by comparing their inflation and unemployment figures unsurprisingly the most miserable year on record occurred during the great depression the misery index reached 25 7 in the first year of franklin roosevelt s presidency 1933 it fell to 3 5 by 1944 likely due to full employment during the second world war richard nixon 1969 1974 and jimmy carter 1977 1980 have the unenviable distinction of presiding over the most miserable economies of the post war period the misery index rose to 20 under nixon and 22 under carter the index fell sharply under ronald reagan and it continued to trend downwards during the george h w bush and clinton presidencies 10during the presidency of george w bush the misery index again trended upwards it reached a peak of 12 7 under president obama due to the ongoing great recession the index fell to a low of 5 06 in 2015 and remained low through most of the trump presidency 2017 2020 however the covid 19 pandemic caused a sharp increase in unemployment pushing the misery index to 15 10source united states misery index11