“Misery Indices”

Via Stephen Gandel of The Curious Capitalist, I learn that Kathleen Madigan has thought up a new “Misery Index”, according to which, compared to now, the 1970´s was “bliss”!

So how does the economy measure up to the 1970s based on the misery index. Actually pretty well. The misery index hit 19.3 at the end of 1974, the year I was born. In 1980, the index averaged 21. Compare that to now and the economy looks positively rosy. Today the misery index would stand at 11. Good times, right. Maybe not.

But while the misery index may have been a good gauge of economic health in the 1970s. It isn’t the best measure of economic health at all times and misses the point today. One example, deflation is one of the worse things that can happen to the economy. Wages and income and asset values tumble, while debts stay the same. Bankruptcies galore. Yet, by the misery index, deflation would be a good thing, bringing the index down. And too little inflation, and the fear of deflation, has been one of the things that Bernanke has worried about.

That’s why Kathleen Madigan, over at the Wall Street Journal, has devised a new misery index that may do a better job of actually comparing today’s economic times to back then. While inflation is low, many think it will soon rise, and that along housing prices and the lack of jobs could be what is holding back the economy. So Madigan’s new misery index looks at the one year change in the jobless rate, gas prices and home prices. Based on those calculations, Madigan’s new misery index scores in at 20, up from 8.3 a year ago. She also finds that Phoenix is not the most miserable place, economy-wise, in the nation to live.

So how does our current economic times measure up to the 1970s? The earliest I could find for gas price data was 1979. At the end of that year, the new misery index would actually stand at -8. So a rating of positively groovy. That’s mostly due to the fact that housing prices rose 12 that year. The reading for 1980 would be 13.2%. So now were are talking some economic pain. But still that’s significantly less than Madigan’s misery index reads now. So I guess it’s time for me to recalibrate what I think the worst of economic times are. And I thought it was just the music that was better back then.

“High Misery” is news. So we can always devise indices to show higher present “misery”!

This reminded me of a panel showing rates and volatility I had recently made to illustrate a class I was giving. The first shows the “Inflation Saga” by periods from 1960 to 2010. The second shows the “Route to Nominal Spending Stability” by tenure of Fed Chairmen – from Burns to Bernanke (skipping W. G Miller who didn´t have time to “warm his seat”).

The whole thing is self explanatory, so I worry about feelings such as these described by David  Leonhardt, especially given the fact that NGDP growth is “travelling in the wrong direction” after falling into a “deep hole”:

One group of Fed officials and watchers worries constantly about the prospect of rising inflation, no matter what the economy is doing. Some of them are haunted by the inflation of the 1970s and worry it may return at any time. 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.