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.

[Holmes]

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

[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.

[Lief 🗽]

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.

[King]

According to my misery formula, misery levels have remained constant for the past 481 years.

[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.

[The Vorlon]

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.

OK... I'll bite...

How does inflation create jobs?

I am looking forward to this....

[Link]

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.

OK... I'll bite...

How does inflation create jobs?

I am looking forward to this....

When you say stuff like that you MUST throw in the popcorn GIF.  I took the liberty of adding it to your quote.

[Link]

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?
For some strange reason MY misery index just went up.

[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.

[Lief 🗽]

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.

[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.

[Lief 🗽]

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[Marokai Backbeat]

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.

[The Vorlon]

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Perhaps I am mis-reading the links you provided, but it seems to me they all argue roughly the same point...

Businesses and individuals are afraid to invest and have such a negative outlook that even interest rate that are basically zero (or perhaps even slightly negative when you take into account inflation) are not enough to cause people to invest in the economy.  

Because businesses and people are reluctant to invest, the proposed "solution" is that by increasing the rate of inflation we can make  zero or marginally negative interest rates substantially negative, thus forcing those who have money to invest in other things....

In short, the economic climate is so bad, that that only way to get folks to invest is to punish them (with negative interest rates) if they don't invest?  Rather than the traditional free market "carrot" of potential profit and growth, we are reversing the equation to force investment through  the "stick" of defacto confiscation of your money through government instigated inflation if you don't invest...  

Maybe we'll all get an personal "investment mandate" to go along with the personal healthcare mandate?

Here is a radical alternative approach: - Would it not be better to improve the business climate so that businesses and people would think that starting a business, expanding a company, or building a new factory was a better choice than a zero % T-Bill...?

Excuse me if I am wrong, but does this proposed inflation policy not amount to an admission that the current economy offers such poor rates of return, such bleak out year prospects,  that they need to artificially make them even worse so as to force economic activity from a business community that has utterly lost faith in the current economic stewardship of the County?

Is not the fact that T-Bills are offering 0% return amount to the marketplace judgment that a 0% rate of return is a better choice than investing in an economy run by the current Washington crowd?

Or have I missed something?

Finally, if there is a real threat of inflation, if there is a sense the government might debase the currency, one could view a situation where money might flee out of the economy into some asset or commodity that was perceived as being safe from the government sponsored assault of the value of people's savings... thus reducing, rather than increasing the liquidity of the economy...

Hypothetically speaking of course..

[Gustaf]

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.

The truth is that the link is between unexpected increases in inflation and lower unemployment. The problem is that exploiting this link drives up inflation expectations to a point where you simply end up with high inflation and unemployment. So the long-term relationship between unemployment and inflation is probably weakly positive. This is what Friedman proved back in the late 60s and is rather old news in economics. Pushing the idea that unemployment can be tackled by increasing inflation is sort of like believing in Newtonian physics.

[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.

[Brittain33]

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.

[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.

[Brittain33]

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."

[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.

[The Vorlon]

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.

Yes, but using inflation as a tool to reduce the cost of debt servicing simply begets more inflation..

If I am a bank or other financial institution I need to lend money at "X" percent to make it worthwhile to do so.  If the expectation of future inflation goes up, "X" has to increase to match this expectation of future inflation.

Right now, as a personal example, I am lucky enough to have a 5 year mortgage at 2.85% that I took out at the height of the meltdown. - If public policy pushes the inflation expectation to say 4%, I can guarantee with metaphysical certainty that when I renew, the rate will not be 2.85%, it will be well above that...

So yes, in the short term, yes indeed my mortgage cost would be "sticky" for the remainder of the term, but after that it would inevitably rise to incorporate the rise in inflation...

Inflation comes from three sources...

The first is when companies or individuals achieve pricing power in the marketplace - Sometimes this is "good" because it reflects a strong economy.  For example when there is a shortage of workers due to low unemployment, workers can demand higher wages.

The second is when demand for a product exceeds supply, or the supply can be manipulated (think OPEC or Enron) or if there is a new "monopoly" temporarily achieved due to a technological breakthrough (for example, if some drug company tomorrow invented a cure for cancer, they could charge absurd sums of money for it until such time as their competitors reverse engineered and equivalent product)

The final source of inflation is the destruction of the value of the currency through "printing money" or otherwise dramatically loosening the money supply.

But my point is that inflation, in and of it's self, does not create jobs of economic growth... The arguments presented by others are simply that inflation could be used as a tool to facilitate the use of other tools.. (ie effectively negative interest rates, etc...)

The final source of inflation

[Brittain33]

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.

Right now, we are nowhere near supply constraints. There are many, many people with valuable skills who are sitting on the sidelines because there is not enough work. If creating money leads to more of these people being brought into the workforce because of increased demand and velocity of money and they create products or services of value, we all become richer. I would find it hard to believe that the work they would add would not be of value.

[Small Business Owner of Any Repute]

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

[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.