Misery Index
Quick Definition
An economic metric calculated by adding the unemployment rate to the inflation rate, indicating the overall economic discomfort felt by citizens.
Key Takeaways
- Simple formula: Unemployment Rate + Inflation Rate
- Higher values indicate greater economic pain for citizens
- Peaked above 20 during 1970s-80s stagflation in the U.S.
- Historically correlates with incumbent party election losses
What Is Misery Index?
The Misery Index, created by economist Arthur Okun in the 1960s and later modified by Robert Barro, is a simple measure of economic pain experienced by the average citizen. The original Okun version adds the seasonally adjusted unemployment rate to the annual inflation rate. A higher misery index indicates worse economic conditions. During the 1970s stagflation, the U.S. Misery Index exceeded 20 (with unemployment above 7% and inflation above 13%). Barro's enhanced version also incorporates GDP growth shortfalls, interest rate changes, and the gap between actual and trend output. While simplistic, the Misery Index has proven to be a surprisingly effective predictor of political outcomes — incumbent parties tend to lose elections when the index is high.
Misery Index Example
- 1The U.S. Misery Index peaked at 21.98 in June 1980 (7.6% unemployment + 14.4% inflation).
- 2In 2022, the Misery Index rose sharply as inflation surged to 9.1%, even though unemployment remained low at 3.6%.
- 3Jimmy Carter lost the 1980 election partly due to a Misery Index that had doubled during his presidency.
Related Terms
Unemployment Rate
The percentage of the labor force that is jobless and actively seeking employment, a key indicator of economic health.
CPI (Consumer Price Index)
A measure of the average change in prices paid by urban consumers for a basket of goods and services, used as the primary gauge of inflation.
Stagflation
An economic condition combining stagnant growth, high unemployment, and high inflation simultaneously.
Phillips Curve
An economic model showing an inverse relationship between unemployment and inflation, suggesting policymakers face a trade-off between the two.
Okun's Law
An empirical relationship stating that for every 1% increase in unemployment above the natural rate, GDP falls approximately 2% below its potential.
GDP (Gross Domestic Product)
The total monetary value of all finished goods and services produced within a country's borders in a specific time period.
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