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Misery Index





The misery index is an economic indicator designed to help determine how the average citizen is doing economically. It is calculated by simply adding the inflation rate to the unemployment rate. This is a quick and dirty way to gauge how the average person is doing as both high unemployment and high inflation are major factors to the average wage earner.

Economist Arthur Okun created the misery index during the Johnson administration. Interestingly, during this time the index was actually quite low by historical standards. Although data for the inflation rate  is available back to 1914 (CPI began in 1913) data for the misery index is only available back to 1948 due to the lack of unemployment numbers prior to 1948.

The Misery Index and Politics

Historically, a high (or climbing) misery index has resulted in a change of Presidents while a low (or falling) misery index resulted in reelection. Eisenhower was reelected in November 1956 with a misery index of  6.53%. Johnson lost to Nixon with a misery index of 8.13 in November of 1968.

Early in the Nixon administration the misery index climbed to a high of  11.67% in December 1970. From there through the election in November 1972 the index was falling. However, it bottomed two months later at 8.55% and from there  the  misery index climbed drastically. Finally, Nixon resigned when his misery index climbed to 17.01% in July of 1974.

Gerald Ford took office in September 1974 with a misery index of 17.85%. It peaked at 19.9% a few months later and then fell steadily as his term progressed to 12.66% in December 1976 but he still lost. Perhaps if his term had been slightly longer he might have been reelected.

Jimmy Carter quoted the misery index extensively during his 1976 Presidential campaign to unseat Ford, even though Ford actually presided over a declining Misery index. Carter on the other hand presided over an increasing misery index of his own, starting his term at 12.72% and increasing to levels well above Ford’s highs. Carter’s misery index peaked at 21.98% in June of 1980.  His misery index was still above 20% come November 1980, so Reagan was able to use Carter’s own words and the misery index against him in the following election and make Carter a one-term President.

Reagan took office in January 1981 with a misery index of 19.33%. By November of 1984 the misery index had fallen steadily to 11.25% and Reagan was reelected. By November 1988 the misery index was 9.55% and so the Republicans were able to elect Bush 1 in the hopes of more prosperity to come. But four years later  (November 1992) the misery index was higher at 10.45% and Clinton was elected. In January the index stood at 10.56%.

By November 1996 the misery index had fallen to 8.66% and Clinton was reelected. By November 2000, the misery index still stood at 7.35% and Bush 2 was elected.  This election and the Nixon win over Johnson are the only two elections in the history of the misery index where the misery index was relatively low when parties changed. But in both cases the misery index was climbing fairly steeply prior to the election. So it is possible that people felt they were getting worse off.

During Bush’s first term, the misery index rose slightly to 8.92% by November 2004 and the election was very close. Resulting in Bush barely getting re-elected. In July 2008 the Republicans were in trouble with the misery index at 11.4%  and a banking crisis at hand. By November the misery index had fallen to 7.87% but that was primarily due to a collapse in inflation even though unemployment continued to rise. The inflationary collapse was due to a massive contraction in the money supply due to a stock market crash rather than a any positive economic factors. So the social mood was ready for a change in political parties.



Misery Index Chart



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Misery Index Current Commentary:

The misery index as of  January 2012 is at 11.23% down from November’s 12.09% which is pretty miserable. In May of 2008, toward the end of Bush’s 2nd term the misery index climbed to 11.14% by September of 2008.  It had fallen to 7.87% by November but the mood was still pretty nasty. Although inflation was falling to deflation the unemployment rate was rising.

So if the history of the misery index is any indicator… with the misery index currently at above 11% unless it falls drastically between now and the election, Obama doesn’t stand a chance. During his term, the misery index went from 7.83% to 12.87% to the current levels. However, an argument can be made that the initial 7.83% was artificially low due to the collapsing stock market and related deflation. Perhaps a better number might be between 10% and 11%. But  the misery number is still historically high and in terms of re-election I think Obama’s chances are slim. Unless it continues to fall sharply. If it does the electorate may feel that the economy is recovering and their lot is improving giving Obama a second term in much the opposite of the increasing misery index at the end of Clinton’s 2nd term.

Looking strictly at misery index numbers Hillary Clinton might have a better chance because Bill’s misery index numbers were so good and Obama’s numbers are so bad, the misery index might cast her in a better light than Obama. But the Misery Index has fallen 1.5 percentage points in the last three months. So it is possible, if it continues at that pace, that by election time the Misery Index will be in a low enough for it to not be a major factor in the Ballot box.