Bruce Yandle is an economist at the Mercatus Center at George Mason University and the dean emeritus of the Clemson College of Business and Behavioral Sciences.
With Super Tuesday just around the corner, voters are looking for the candidate who will not just improve the economy but their everyday lives too. After all, things are pretty tough for lots of people right now. But in spite of high unemployment that seemingly won't go away, there are some pretty stout economic indicators that tell us the economy is definitely on its legs and running. Retail sales are now at a higher level than when the economy started down the great sliding board in 2008. Industrial production is almost fully recovered. Real fourth quarter GDP growth came in at 3 percent. And new jobs are being added in the economy, though not fast enough to hammer down the unemployment rate.
Still, with these rays of economic sunshine breaking through the clouds, there are plenty of things bugging the typical family. People are holding down several jobs when they can find them and are pinching pennies to pay for gasoline that is bumping against $4.00 a gallon. Food prices are rising. This isn't exactly the best of times and the worst of times by a long shot, but there does seem to be more than enough misery to go around. This is all the more reason to dust off economist Arthur Okun's "Misery Index" and see what it may be telling us.
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Arthur Okun invented his "Misery Index" in the 1970s when inflation was headed to the heavens along with unemployment. He added these two together—the unemployment rate and the inflation rate—and generated a new compact measure to look at the health of the economy.
Okun's index spoke to two very serious questions. Are my job prospects improving? And if I have a job, what's happening to the purchasing power of my money?
Okun's idea makes it easy to see why the index was so compelling in the 1970s when it was hovering above 21 percent. But with the current 8.3 percent unemployment rate and Consumer Price Index inflation running 2.9 percent a year, we seem to be headed in a miserable direction.
Consider the boomerang kids, the offspring who leave college and can't find a job or others who are simply out of work. In January, the unemployment rate for those kids in their 20s stood at 13.3 percent. That's really high. And guess what? In 2011, some 9.3 million young people in that age group were living at home with family. I have the distinct feeling that many of those kids are miserable, and perhaps their parents are even more so.
Then there are couples who are split because of the tough housing market. Some unhappy families are divided because one spouse has taken a job in another city to make ends meet while the rest of the family waits to sell the house and move. The most recent census report indicates the moving rate has fallen to the lowest level since 1948. The divorce rate falls during hard times, and the marriage rate, too. There are folks who can't wait to get unhitched but just can't pay the cost, and there are other folks who want to tie the knot and have to wait.
Adding in some of these factors may give a better reading on our average well-being, but in general, the Misery Index should be watched more closely. We still have a high unemployment rate. Rising oil prices, a recovering economy, and easy monetary policy offer the prospect of higher future inflation. Put them all together and they spell trouble.
While candidates should consider how their proposals may move the Misery Index down instead of up, voters should consider favoring a candidate who:
- Shows a clear understanding that real jobs, the kind that can endure, are generated by firms and organizations that are satisfying wants and needs that people are willing to pay for, and not from temporary government programs and tax gimmicks that create a flash in the pan that disappears in six months
- Indicates an appreciation for the fact that too much money chasing too few goods is the root cause of disappearing purchasing power, and that someone best be watching the folks at the Federal Reserve as they open and close the money valves
- Shows some real awareness of what it's like to go grocery shopping with a limited budget, to pay $4.00 a gallon to fill up the tank on Monday for a week's commute, and to be filling out tax forms this April and seeing the size of the tax bite that eats away at what was earned last year.
Corrected on 3/06/2012: A previous version of this article mischaracterized the level of employment.