Misery index is a simple sum of a nation’s annual inflation rate and its unemployment rate.
The higher the index, the more the misery felt by average citizens.
The first Misery Index was constructed by economist Art Okun in the 1960s.
The Index has been modified several times, first by Robert Barro of Harvard and then by Prof. Steve Hanke of Johns Hopkins University
Hanke’s Misery Index is the sum of the unemployment, inflation and bank lending rates, minus the percentage change in real GDP per capita.
Misery Index: Current Status
- Misery is highest in the countries known for economic mismanagement and/or congenital problems: Turkey, Argentina, South Africa.
- War effected countries like Russia, one of the BRICS economy Brazil and Pakistan, Egypt come next.
- India with 49th rank (2022) is doing better than US and UK.
Misery Index: Modified
Two modifications were made to the misery index.
- One was to add the prevailing rate of interest. That makes the picture much worse for poorly-placed countries like Turkey, Brazil, Russia, and Pakistan since high inflation usually brings with it high interest rates.
- Second is to include per capita income growth rates, since these reduce economic hardship.
Misery Index: Criticism
- Though it is easy to calculate but it is an imprecise reflection of the economy.
- It treats rise of unemployment and inflation equally. However, a 1% rise in unemployment is likely to cause more misery than 1% rise in inflation.
- It does not include key indicators of economy like economic growth.
Misery Index measurements capture only part of the full reality. Therefore other measures, like absolute income levels, inequality and poverty since that determines one’s capacity to deal with difficult times.