The return of the misery index

The misery index is a back-of-the-envelope measure of how America is faring economically. It is derived by adding the employment rate and the inflation rate.

The misery index was an oft-cited figure during the 1970s and 1980s. As Issues & Insights reminds us, it spiked during the stagflation presidency of Jimmy Carter, all the way to 21.9 percent. The economy thus accomplished what many economists had thought was impossible in America — high inflation and high unemployment, simultaneously.

Then, under Ronald Reagan, the misery index fell by about one half. It hasn’t been discussed much since.

I never heard it mentioned during the Trump presidency, when the index averaged just 6.9 percent. There was nothing there with which to attack Trump, so why would the media bring it up?

The misery index did spike when the pandemic struck and unemployment surged. However, by the time Trump left office, the index was back down to 7.7 percent.

Since then, under Joe Biden, the misery index has increased every month. According to Issues & Insights:

In February, it ticked up to 7.9, then rose to 8.6 in March. Last month, the misery index hit 11.3, as the monthly inflation rate climbed to 5.4% while the unemployment rate edged up to 5.9%.

If the Democrats are able to pump $4 trillion or so into the economy under the pretext of infrastructure spending, the index will likely spike sharply due to inflation. It’s not unimaginable that the number will approach Carter-administration levels.

What might be the political fallout?

The misery index assumes that a given increase in the inflation rate produces as much “misery” as the same increase in the unemployment rate. That’s not almost certainly not true. How close to true it is can be debated, but it’s close enough to reality that economists developed and used the index back in the day.

What’s clear to me is that unemployment and inflation inflict misery on different sets of people. Unemployment harms those who lose their jobs and can’t find work (and their families). Inflation harms consumers, especially those on fixed incomes. Some who aren’t on fixed incomes gain from inflation — e.g., those whose wages grow faster than the cost of living.

Overall, I think it’s fair to say that increases in the inflation rate inflict harm on a broader range of Americans than increases in the unemployment rate, but inflict the harm more gradually and to a lesser extent per person harmed.

The upshot is that Democrats need to worry about a rising misery index even if the rise is driven by high inflation rates, rather than high unemployment. The chickens may or may not come home to roost in 2022 (and may or may not need to for the GOP to have a big year). But if serious inflation persists until 2024, it will likely be to the Democrats’ serious detriment in that year’s election.

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