Why Politicians Use The Misery Index To Track Your Financial Woes

Why are politicians and pollsters tracking how upset people are with their current economic status?

Since the 1960s, through what economist Arthur Okun dubbed “the misery index,” politicians have been using a formula to track just how miserable–or from a lighter perspective, happy–citizens are with their current economic situations.

What is the misery index?

Just as the name entails, the misery index is a formula used to track, not emotional well-being, but economic satisfaction.

In order to calculate a citizenry’s current misery index one must follow a very basic formula by which the current unemployment rate plus the current rate of inflation equals the misery index.

Rate of unemployment + rate of inflation = Misery index

The misery index, though it may sound more like a tool for a therapist as opposed to politicians and economists, is used as an indicator of just how troubled the economy–and the people it encompasses–are.

Its rise to popularity in the 1970s was no coincidence. During this period the U.S. experienced both high unemployment and high rate of inflation–a combination that economists call stagflation (a synthesization of stagnation and inflation).

As a result, the misery index became a legitimate method of keeping an eye on just how bad things got–in fact, it’s still being tracked albeit less religiously.

The current misery index is measured at around 6.

Why do U.S. politicians follow it?

The misery index has no doubt gained legitimacy as a tool for assessing economic well-being, but in reality, its primary usage lies more within the realm of politics than economics.

Throughout history, pollsters have found that–unsurprisingly–the misery index is linked very closely to a politician’s approval ratings (i.g. if the misery rating is high, the president’s approval rating has an increased likelihood of being low).

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As a result, the misery index has become an excellent compass for assessing not just economic trouble, but forecasting voter decisions and evaluating political climates.

Some presidents who have experienced the worst misery indexes throughout U.S. history are:

  • Jimmy Carter – 16.26 average
  • Gerald Ford – 16.00 average
  • Ronald Reagan – 12.19 average
  • Richard Nixon – 10.57 average

Though the misery index is used quite frequently to measure economic woes in the U.S.–it experienced a resurgence in 2008 when the great recession began, for example–it can also be applied to worldwide conditions as well.

The Cato Institute compiled a list of the worst misery index rated countries in the world using a formula that uses inflation, lending rates, and unemployment rates, while subtracting GDP growth.

2014 Misery Index

  • Venezuela – 106
  • Argentina – 68
  • Syria – 63
  • Ukraine – 51
  • Iran – 49

Some of the least miserable countries include Switzerland, China, Japan, Norway, Germany, Thailand and Sweden.

The takeaway

While the misery index can be a good way to view an overall well-being of a country, its granularity is often limited.

For instance, in 2009 when California’s unemployment rate was 10 percent, the city of El Centro California’s unemployment was a nation-high 22 percent, meaning the misery index on a city level could be far worse than the national average.

Though we tend not to hear about the misery index as much as we used to, economists are still improving upon how to measure people’s economic woes.

Despite some varying versions of how to measure misery, one thing rings clear: when funds are bad, so too are people’s outlooks.

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James Pero