A new take on the misery index | tutor2u Economics

The original misery index compiled by economist Arthur Okun added together a country’s unemployment and inflation rates to derive a simple measure of ‘economic misery’. The idea was popular at times of stagflation - a combination of stagnant growth, rising unemployment and accelerating consumer prices. Various reincarnations of the Misery Index have been developed over the years - Harvard’s Robert Barro, for instance, made one that includes interest rates and GDP

Now we have new one created by Pierre Cailleteau, an economist and sovereign risk analyst at Moody’s. The index adds together a country’s budget deficit, as a percentage of gross domestic product, and its unemployment rate. It captures the current conundrum for many countries: their economies need stimulus, but their budgets may not be able to afford it. It reflects the realisation of a new age of fiscal austerity as governments across the world battle to control their ballooning fiscal deficits and accumulating national debt. Floyd Norris writes about this new version of the index in this piece in the New York Times.

Spain is at the top of the Misery Index, Latvia places second and Lithuania third, followed by Ireland, Greece and the UK. The US places eighth after Iceland. This makes the Uk the lousiest economy among the Group of 7! Of the 16 economies studied by Moody’s, the Czech Republic, Italy and Germany were forecast to be the least miserable.

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