The return of the ‘Misery Index’

The United States is currently experiencing its fastest rate of inflation, year over year, since mid-1982. Those of you who are old enough to remember that might also remember the so-called ‘Misery Index. ‘

This was a concept coined by the economist Arthur Okun as a rough attempt to summarize how the average citizen is doing economically. It’s pretty simple; you just add together the inflation rate and the unemployment rate.

The Misery Index was initially used by Jimmy Carter in the 1976 presidential election to assail Gerald Ford’s record. At the time, the economy was mired in stagflation, a combination of high inflation and low — or no — economic growth (and rising unemployment), which the Keynesian orthodoxy said was impossible. On Election Day 1976, the Misery Index stood at 12.9 percent, an improvement on the January 1975 peak of 19.8 percent, but still pretty bad compared to the historic record. Sadly for Carter, things got worse under his presidency and the Misery Index reached 20.1 percent on Election Day 1980, when voters turfed him out of the White House in favor of Ronald Reagan.

The Misery Index is spiking again, as Figure 1 shows. It hit a peak of 15.0 percent in April 2020, its highest level since November 1982, as COVID-19 hit and unemployment skyrocketed. Since then the Misery Index has tumbled to 7.8 percent in January 2021 before rebounding to 11.0 percent in December.

Figure 1: The Misery Index

Source: Bureau of Labor Statistics

What is going on? Figure 2 breaks down the components of the Misery Index since January 2020. From its peak in April 2020, the unemployment rate has drifted down to its current 3.9 percent — which may not mean quite what you think — but the inflation rate has surged from 1.1 percent in November 2020 to 7.1 percent in December 2021. To the extent that the Misery Index does quantify economic hardship, its is clear that inflation is the main culprit of late.

Figure 2: Components of the Misery Index

Source: Bureau of Labor Statistics

Ronald Reagan noted that during the 1980 presidential campaign Jimmy Carter “didn’t mention the misery index,” and who could blame him? We might hear a lot more about it this year.