Misery Index Explained: What Is the Misery Index?

The misery index is a touchstone economists use to measure the economic suffering or well-being of a society in regard specifically to the inflation and unemployment rates.

For example, a high inflation and high unemployment rate would lead to a high misery index, whereas a low inflation rate and low unemployment rate would lead to a low misery index. A combination of high and low rates—as in, high inflation and low unemployment—would lead to a more moderate misery index in most instances.

The reasoning behind this relies on the fact greater unemployment leads to less income overall and higher inflation leads to a higher cost of living. When societies have high unemployment rates and high inflation, people are not bringing in as much income and having a harder time paying for basic essentials. This contributes to a greater degree of economic misery.

To calculate the misery index for a specific year, simply add the annual inflation rate to the annual unemployment rate. The same applies to a smaller or larger period—just utilize the same amount of time for both variables.

For example, suppose the unemployment rate is 7.2 percent, and the inflation rate is 10.4 percent. In this case, the misery index would clock in at 17.6.

The misery index became influential in the 1960s and ubiquitous in the 1970s. It has been less prevalent as a go-to metric since the 1980s. Follow along with this brief history of the metric:

• Arthur Okun’s idea: President Lyndon Johnson enlisted economist Arthur Okun to chair his Council of Economic Advisors from 1968 to the early days of 1969. Okun created his misery index calculations due, in part, to the worsening inflation and unemployment starting to take root in the United States at the end of the 1960s.
• Political repercussions: Throughout the 1970s, high stagflation (i.e., high unemployment, high inflation, and low economic growth) became a constant source of political controversy. After the resignation of Richard Nixon, Gerald Ford became president at the same time the US economy began to experience even higher unemployment and inflation.
• Presidential popularization: Ford’s 1976 competitor, Jimmy Carter, routinely cited the high misery index to criticize Ford’s policies. The misery index reached even greater heights under Carter as president, and Ronald Reagan latched onto this to eventually win the presidency himself. The misery index reached an apex during Reagan’s first term and then plummeted sharply for the next several decades under multiple presidents.
• Variations arise: Economist Steve Hanke expanded the original misery index to reflect the economies for multiple countries based partly on gross domestic product (GDP) per capita, noting Guyana as the best off and Venezuela as the most miserable economically. Another economist, Robert Barro, created the Barro misery index (BMI), which factors in the gap between real and potential GDP as well as interest rates alongside inflation and unemployment data.

While economists still use and experiment with the misery index, some find it outmoded and simplistic. Consider these three critiques:

1. 1. The misery index has too few inputs. The misery index misses out on several factors important to determining a society’s overall well-being. For example, where the US Federal Reserve sets interest rates can greatly influence both inflation and unemployment. Similarly, a stock market crash might occur, bank lending rates might skyrocket, or an external event like a pandemic might happen. The misery index has no way of factoring in negative outcomes like these directly. On a more positive note, high GDP growth can help mitigate the effects of high unemployment and inflation, yet the calculations don’t take this into account.
2. 2. The misery index uses imprecise data. While the Bureau of Labor Statistics (BLS) and Consumer Price Index (CPI) both publish fairly reliable data about inflation and unemployment, respectively, it’s impossible for either to be completely precise. For instance, unemployment rates only consider the people actively seeking work, not those who have given up after being unable to find a job for a long time. It can also be hard to pin down inflation figures precisely.
3. 3. The misery index compares apples to oranges. Economists largely believe high unemployment has a worse effect on people economically than high inflation. While a higher cost of living can cause economic pain, it’s not a one-to-one correlation with losing all income in the event of job loss. This leads some to assert that the misery index inappropriately weighs inflation as highly as unemployment in its formula.

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