Misery Index High

[J. J.]

Has anyone been watching the Misery Index?  It is a combination of inflation and enemployment, and is more of a political indicator that an economic one.

In July 2011, it peaked at its highest since June of 1983. 

http://www.miseryindex.us/customindexbymonth.asp

It is higher than at any point during the G H W Bush, Clinton, or G W Bush. 

When Reagan took office it was 19.33, though off its all time high under Carter, just a few months before.  It had dropped rather substantially by June of 1983.

When Obama took office, it was 7.82, and relatively steady.  It began increasing in November 2009.

[J. J.]

Cool. It's at its highest since the year before Reagan was re-elected. People are unemployed. What's the story here?

It was higher the Reagan got elected.  It is not just unemployment, but inflation.

From the site:

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It also relates to how people, consumers, produces, and, of course, voters, perceive the economy.

[J. J.]

Well that's a stupid assumption. Inflation fights unemployment, and if we had a modest amount right now (4% or so yearly) we'd be on the path to getting back to full employment, despite having a higher "misery index" score.

You don't really believe that, do you?

We have had periods where both have occurred, in my lifetime; we've had periods low inflation and low unemployment.  Further is a measure of overall economic health.

Just because you don't like the numbers has no bearing on the numbers.

BTW:  The man who first came up with worked for LBJ.

[J. J.]

Cool. It's at its highest since the year before Reagan was re-elected. People are unemployed. What's the story here?

It was higher the Reagan got elected.  It is not just unemployment, but inflation.

From the site:

You must be logged in to read this quote.

It also relates to how people, consumers, produces, and, of course, voters, perceive the economy.

The economy sucks.  Thanks for the update.  Isn't their a gold thread that needs you to post some replies to yourself?

Welcome to 1979. 

The Misery Index also can be reflected in peoples political attitudes.

This about if the economy sucks, but how much it sucks.

If you don't the news, I suggest you [back?] into a cave.  You'll read it here and everyplace else.

[J. J.]

I could explain the answer to your question, or I could let economists from both sides of the political spectrum explain for me:

http://krugman.blogs.nytimes.com/2010/08/11/why-we-need-an-inflation-target/

http://www.nytimes.com/2009/04/19/business/economy/19view.html

http://online.wsj.com/article/SB10001424052748704337004575059542325748142.html

http://www.nytimes.com/2010/09/19/business/economy/19view.html?_r=1&ref=business

Even Bernanke agrees that such a policy would work to reduce unemployment rates, but he refuses to enact it for some reason.

Blanchard said that in hard times, you shouldn't worry about inflation; that's a lot different from saying inflation fights unemployment.

Klugman, a liberal, is saying, "more spending, even if it is inflationary."  That is not saying inflation fights unemployment.

Here is what Benranke really Said:

The anchoring of inflation expectations is a hard-won success that has been achieved over the course of three decades, and this stability cannot be taken for granted.

He is saying, correctly, that the loss of stability with higher inflation, will be worse.

Of the three I quoted, none are saying inflation fights unemployment.

[J. J.]

Some people don't seem to understand the notion that gradual sustained inflation is beneficial to the economy, since every time I've seen someone respond to Lief's argument they act like you're supporting hyperinflationary policies.

Gradual inflation, at a very low rate, is not a negative and is often a result of an expanding economy.  It is arguable better than deflation (which we had for part of 2009).

You don't want a situation where a guy says, "I have $1,000,000 in the bank.  Next year I'll be able to buy $1,050,000 worth of stuff with it, because prices will drop.  I'll wait until next year to buy stuff."  We are not in that situation (though we were closer to it when several of those things were written).

A low rate of inflation is often a sign of an expanding economy.  It doesn't cause the economy to grow, and at higher levels, can actually hurt the economy.  It doesn't cause unemployment to fall.

[J. J.]

Vorlon, many people don't understand the link between mild inflation and increasing the velocity of money, especially because our national memory is of inflation linked with stagnation in the 1970s. But one way that inflation can improve economic growth, other than by providing an incentive to invest rather than sit on cash, is that it will help with our massive overhang of consumer debt and mortgage debt which right now inhibits people from spending and creating demand.

Prices are sticky, especially house prices. Inflation is a way around that.

I agree with what others say about the danger of getting the genie back in the bottle after it's out. No one likes runaway inflation. But in the 1980s, we had inflation rates of 4%, and it was "morning in America." Now 2% inflation is considered too high.

I don't think it a question of inflation being too high.  It is a question of inflation growing and the economy not growing.

[J. J.]

Vorlon, many people don't understand the link between mild inflation and increasing the velocity of money, especially because our national memory is of inflation linked with stagnation in the 1970s. But one way that inflation can improve economic growth, other than by providing an incentive to invest rather than sit on cash, is that it will help with our massive overhang of consumer debt and mortgage debt which right now inhibits people from spending and creating demand.

Prices are sticky, especially house prices. Inflation is a way around that.

I agree with what others say about the danger of getting the genie back in the bottle after it's out. No one likes runaway inflation. But in the 1980s, we had inflation rates of 4%, and it was "morning in America." Now 2% inflation is considered too high.

I don't think it a question of inflation being too high.  It is a question of inflation growing and the economy not growing.

That is not a response.

Right now, we have inflation not growing and the economy not growing. We are positing that increasing inflation can get the economy growing. You're saying, "but if it doesn't work, then it won't work."

Actually, I'm positing that inflation can be a result of a growing economy, and that the befits of a growing economy comes at a cost of increasing inflation, usually low inflation, in theory.  It does not cause the economy to grow.

The numbers show that we have that low inflation.  In 2007-08 but prior to the crash, inflation was higher, but it obviously did not expand the economy.  Same 1974-5, 1979-80, even 1957-8.  Inflation often increased as unemployment rose.

You also had the economy expand during the low inflation periods, marked by low unemployment, after 1960-63, 1983-87 and 1997-99.

http://www.miseryindex.us/irbymonth.asp

If you recall who the presidents were in this time frame, you'll that there is not a partisan relationship.

[J. J.]

I'm less worried about the rates at which people get new mortgages in the future... they can decide for themselves what they can afford. There is a systematic benefit to reducing the number of mortgage-owners today, and most people have fixed mortgages, who are underwater because it leads to more sales, more freedom of movement, and a healthier economy. The surest way to do that is to raise the general level or prices in the economy to catch up a bit with the rampant housing price inflation that preceded our current crisis, so housing prices, and consequently housing debt, can diminish by comparison.

Don't confuse interest rates with inflation.  They just dropped again.

[J. J.]

That sure puts the screws on retirees, though. And a bunch of them already got bent over by the market turmoil.

Many of them are invested in bonds which are paying absurdly low interest rates that don't support them. Social Security is indexed to inflation. I think what we have now for economic policy is overwhelmingly tilted toward seniors. Seniors benefit from economic growth.

With a long delay.  Also, many pensions are not.