Misery index seems set to rise
By Gordon Powers, Sympatico / MSN Finance
The misery index, as the name suggests, is designed to measure the level of wretchedness felt by ordinary people in the economy. Created by Yale economist Arthur Okun some years ago, it’s calculated by adding the U.S. unemployment rate to the prevailing inflation rate.
Since fear of job loss and shrinking purchasing power through inflation have pervasive effects on the lives of most workers, the index is considered to be a good snapshot of the real economy.
In both Canada and the United States, the index peaked well above 20 in the early 1980s, largely due to incredibly high inflation. More recently, the 2008 number spiked to 9.6, the highest annual level since 1993 – up from 7.5 the previous year.
Where are we now? Well, unemployment rates have been climbing, but extremely low inflation means we're hovering around 8. By this standard, we have a long way to go before things feel anywhere near as bad as they did in 1975 or 1980, says the Cato Institute’s Alan Reynolds.
Despite the sharp drop in stock prices, we’re not on the way to the worst postwar recession, he maintains. In fact, things could turn around as early as next year.
Robert Morris University economist feels otherwise though, arguing that what President Obama is delivering – a program for expanded government, more regulations, more mandates and higher tax rates for the nation's key job creators – means things can only get worse.
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