Technically, misery index was introduced ro measure the economic health of United Srate in in the 1970s. The components are unemployment and inflation. But today attempt has been made incorporate other measures. What are this measures? Are they relevances as macroeconomic variables in recent times? To what extent is financing this crises crucial to edonomic survival?
Olatunji,
The two main evils in terms of macroeconomics and macro policy making is (1) Unemployment and (2) Inflation. Obviously, if (1) and (2) are both high in an economy, households would be pretty miserable. As such, the purpose of the "Misery Index" (MI) is to capture how bad or good the economy is doing and the impact of the economic performance on the average households and consumers. If the economy is growing and inflation is low, then MI would be low and households would feel good about their current situation and be optimistic about the future. On the other hand, the opposite is true if the economy is not growing or stagnant and inflation is rising and high. The original MI was created by the Yale economist Prof. Arthur Okun. As you might know he's also credited for the "Okun's Law" which establishes an inverse relationship between percentage change in unemployment and GDP growth. Another contributing economist was the Harvard economist Prof. Robert Barro who came up with a modified version of the "MI" dubbed the "Barro Misery Index" or "BMI." Yet, another contribution is by Prof. Steve Hanke of John Hopkins University, who expanded on "BMI" by including interest rates and the growth rate of GDP/capita. There are other contributors but I mostly use Hanke's "MI" or "HMI."
Sure Olatunji. Not sure about the "brilliant" part. :-)
But, it's not a problem.
At best, the misery index appears to be incomplete. At worst, it is redundant or inadequate when compared to other indices used to gauge the well-being of the people.
UNEMPLOYMENT AND INFLATION may be relevant to measure how miserable are the populace. However, other relevant factors seem to be left out: health care, education, living standard, clean environment, etc.---in short, our Millennium Goals:
(i) poverty, (ii) education, (iii) gender equality, (iv) child mortality, (v) maternal health, (vi) diseases, (vii) environmental sustainability, and (viii) global partnership in development. By default, failure to achieve these 8 objectives would indicate misery. The measurement of misery should reflect these factors if it is to be a meaningful measure.
REDUNDANT because if we use the Millennium Goals as the indicator, then 1 - F(Z) of the Millennium Goals is by default equal to misery.
So, what will be our model? To capture Millennium Goals as suggested.
The misery index is an economic indicator, created by economist Arthur Okun. The index helps determine how the average citizen is doing economically and it is calculated by adding the seasonally adjusted unemployment rate to the annual inflation rate.
Misery Index is just a simple sum of a nation’s annual inflation rate and its unemployment rate. The Index has been modified several times, first by Robert Barro of Harvard and then by myself.
The modified Misery Index is the sum of the unemployment, inflation and bank lending rates, minus the percentage change in real GDP per capita. Higher readings on the first three elements are “bad” and make people more miserable. These are offset by a “good” (GDP per capita growth), which is subtracted from the sum of the “bads.” A higher Misery Index score reflects a higher level of “misery,” and it’s a simple enough metric that a busy president, without time for extensive economic briefings, can understand it at a glance.
The human condition inhabits a vast continuum between "miserable" and "happy." In the sphere of economics, misery tends to flow from high inflation, steep borrowing costs and unemployment. The most surefire way to mitigate that misery: economic growth. All else equal, happiness tends to blossom when growth is strong, inflation and interest rates are low, and jobs are plentiful.
Paul: The misery index was a great development by Arthur Okun because it is very easy to compute and understand.
It is the sum of the rate of unemployment and the rate of inflation used as an economic indicator.
It's a measurement of misery because inflation increases the cost of living. Over time, it reduces your standard of living. That's why President Reagan said, "Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man."
But, the index is still unable to measure the misery. This is the reason why the classification of economics still remain microeconomics. The macro and meso economics no longer exists. As far as i know DSGE is a good innovation. But there are more to it than yet discovered. I will unveil some aspect with my research soon.
Hanke Misery Index is the sum of the unemployment, inflation and bank lending rates, minus the percentage change in real GDP per capita. Higher readings on the first three elements are “bad” and make people more miserable. These are offset by a “good” (GDP per capita growth), which is subtracted from the sum of the “bads.” A higher Misery Index score reflects a higher level of “misery,” and it’s a simple enough metric that a busy president, without time for extensive economic briefings, can understand it at a glance.so it can measure the welfare or poverty of a people
But, poverty is truly just a symptom of insufficient jobs, expensive access to funds due to a high lending rate, an increase in the price of goods and services and a reduction in consumption due to low growth rate. Therefore it would be a more formidable venture to force on inflation, unemployment, lending rate, and growth rate rather than poverty because when the causes are addressed the symptoms disappear. The misery index accommodates for the root cause of poverty.
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