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Misery Index

Reviewed by Anjaneyulu | Updated on Sep 30, 2020

Catalogue

Introduction

The Misery Index is an economic indicator which is created by economist, Arthur Okun. The measure helps determine how the average citizen performs economically and is calculated by applying the annual inflation rate to the seasonally adjusted unemployment rate. Both a higher unemployment rate and the worsening of inflation are presumed to generate economic and social costs for a country.

The indices of suffering (sometimes called the Economic Discomfort Index EDI) is essentially the rate of inflation plus the rate of unemployment.

Understanding Misery Index

The index was developed at the time as a pure amount of yearly inflation and unemployment. Since then other economists have updated it. Steve Hanke's popularly used version measures the index using the percentage change in real GDP per capita, together with inflation, unemployment, and lending rates.

Hanke has expanded this index to countries other than the U.S. and publishes an annual list of 95 countries for which data is available with relative rankings.

While being a rather blunt and simplistic device, the Misery Index was used to forecast social issues, such as violence, poverty, suicide rates, and even election results. Since the initial index of misery, other economists have tried to develop the index of misery by incorporating more economic data indicators, such as economic growth, interest rates and government debt.

A more sophisticated approach has been to look at cyclical production gap-related unemployment and unanticipated inflation, which causes higher costs than expected inflation.

Misery Index in India

India is at 44th rank in Hanke's Annual Misery Index 2018 with an index rate of 13.2%, lending rate as a major contributing factor.

India's misery index shows an increase in FY 2017, the year of Demonetisation, as measured annually. This index dropped in the following year but again rose in FY 2019. Early patterns for all four measures indicate that suffering would have increased further in FY 2020, owing to lower per capita real GDP, higher unemployment, and rising inflation.

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