the misery index
The misery index was initiated by Chicago Economist Robert Barro in the 1970's. It is (was) simply the unemployment rate added to the inflation rate. It is assumed that both a higher rate of unemployment and a worsening of inflation both create economic and social costs for a country.
A combination of rising inflation and more people of out of work (so called "stagflation") implies a deterioration in economic performance and a rise in the misery index.
Some economists now add the
rate of interest to the index.
Normal Misery Index = Unemployment rate + Inflation rate
The American Misery Index = Inflation rate + Unemployment rate + Interest rate
What has happened to the Misery Index for the UK over recent years?
High interest rates and an acceleration in inflation pushed the misery index up to nearly 30% in the autumn of 1990 and unemployment (measured in the chart using the claimant count) continued rising until the summer of 1993. By this stage inflationary fears in the economy had receded and official interest rates were on their way down after sterling's departure from the exchange rate mechanism.
Over the last six years there has been a gradual improvement in the misery index - not least because of the sustained fall in unemployment (down to 3.1% of the labour force in July 2001) and a further decline in inflation (the chart uses the underlying measure of inflation, RPIX).
Adding in interest rates
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