Today's (Real) U.S. Misery Index :: Political News and commentaries

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April 16, 2011

Today's (Real) U.S. Misery Index

The misery index was initiated by economist Arthur Okun, an adviser to President Lyndon Johnson in the 1960's. It is simply the unemployment rate added to the inflation rate. It 'correctly' (in the opinion of many) assumed that both a higher rate of unemployment and a worsening of inflation both create economic and social costs for a country, and that a combination of rising inflation and more people out of work implies a deterioration in economic performance and a rise in the misery index.

Jimmy Carter rode into the White House by hammering Gerald Ford on the "Misery Index" -- the combination of the unemployment rate and the rate of inflation, which in 1976 was 13.57%. However, Carter himself was ousted by Ronald Reagan when it hit 21.98% in 1980. As Riley pointed out at Virginia Virtucon, back in March of this year we don't hear much about this combination anymore, but we should take a hard look at it as well as the ways in which both the unemployment rate and the rate of inflation are being calculated today.

CNBC has revealed that the "actual cost of living for Americans hit a record high in February" topping its previous high in July 2008. Several financial analysts slam the Federal Reserve and Chairman Ben Bernanke in that article for masking the true rate of inflation by excluding increases in the cost of food and fuel from the inflation rate. This is done because of fluctuations in the costs for both, but as a result it leaves out two of the most major necessities that people must spend money on. According to Bernanke & Co, inflation was up 0.2% in Feb., while the actual cost of living was up 0.5% to an annual rate of 2.1%.

Then there's the story of the unemployment rate. Not only are we rarely getting the full story on inflation, the way the government is calculating unemployment is even more laughable.

While the inflation rate is being kept low by excluding food and fuel, the unemployment rate is being reduced not by creating new jobs, but by excluding people from the work force because they've given up trying to find work.

The Bureau of Labor Statistics said that the unemployment rate for Feb. 2011 had fallen to 8.9% from a recent high of 9.8% in Nov. 2010 -- nearly a full point. The problem is, the number of jobs created in those months wouldn't have been enough to keep the unemployment rate flat much less reduce it. According to the WashPo, 6.4 million people are part of a "hidden workforce" -- people who want to work, but have given up trying to find a job. (The official government designation for these workers is "discouraged.") So, how does that impact the actual unemployment rate?
"Adding these workers to February's jobless rate pushes it up to 10.5 percent, well above the more commonly cited 8.9 percent rate.An even broader measure of unemployment, which includes people forced to work part time, stands at nearly 16 percent.
And it is only under 16 percent if you use the "seasonally adjusted" numbers. According to the Bureau of Labor Statistics, the "Not Seasonably Adjusted" unemployment rate is 9.5%, not 8.9%. Looking at the "hidden workforce" or what is referred to as the U-6 unemployment rate, the 15.9% cited by the WashPo is seasonably adjusted. Without the government making this adjustment (put more simply, masking the data to make it look better), the rate is 16.7%.

All of which brings us to today's misery index number.

The "real" US unemployment rate in March was 10.3% (jobs situation about the same as it was a year ago -- no improvement).
The "real" US inflation in March was 6%.

Which by my calculation (liberals, feel free to do your own calculation - calculus is not necessary, a simple calculator will do) - today's "real" misery index is 16.3% ... not the rosy 11% reported by CNBC.

Remember, Carter ousted Ford from office in 1976 by hammering Ford on a misery index of 13.57%. That's 2.73% less miserable than Barack Obama's policies have got us to.

Related: Calculating Inflation (Video)

Image credit - Virginia Virtucon

Posted by Richard at April 16, 2011 2:55 PM

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