Misery Index

Economist Arthur Okun devised the misery index to measure the combination of inflation and unemployment. It presumes that a higher rate of unemployment combined with increasing inflation create economic and social costs for a country. A combination of rising inflation and more people out of work implies deterioration in economic performance and a rise in the misery index. In October 2021, the misery index was 10.82 and it was 12.14 on March 31, 2022. The highest misery index was 21.98 in 1980 under President Carter and the lowest was at 2.97 in 1953 under President Eisenhower.

A high misery index, along with stagnant or negative economic (GDP) growth, results in stagflation.

Stagflation creates a unique challenge for policymakers:

• Tightening monetary policy (raising interest rates) to control inflation can worsen unemployment and slow growth further.

• Stimulative measures (lowering interest rates or increasing government spending) to reduce unemployment and boost growth can exacerbate inflation.

It often leaves central banks and governments in a bind, unable to address both problems simultaneously.