Not the misery index is rising again. Why? Inflation, much of it caused by Administration* policies.
Biden’s economy signals return of higher misery index
Surprise! Surprise! Surprise! This past week, the Fed chairman and other Fed governors finally acknowledged what many of us have been writing and saying for months — and that is the rise in inflation may not be all that temporary or mild. The money supply last year grew at record rate — five or six times the normal annual increase. So, what did they think would happen with all of that additional money sloshing around?
Advocates of the New Monetary Theory argued that increases in the money supply no longer mattered, and if inflation did happen to rise, Congress could raise taxes to correct it. Others argued that due to the pandemic, people were not spending very much, and so the increase in the money supply was resulting in an increase in savings, which was not inflationary.
But now, as the economy reopens, people are spending their increased savings, including the government payments that most everyone received. The spending surge, coupled with the reopenings, has resulted in “temporary” surges both in the demand for labor as well as for goods and services.
Those old enough to remember the inflation of the 1970s will recall it as not a pleasant experience. Art Okun (1928-1980), an influential economist at the time, developed the “misery index” which was the sum of the inflation rate and the unemployment rate. Everyone understands the misery that inflation and unemployment cause, whereas numbers like GDP growth rates are often harder to comprehend.
The accompanying table shows the misery index number at the end of each administration. At the end of the Carter administration, the misery index had reached a record high (19.7) which was instrumental in his defeat by Ronald Reagan. By the third year of the Trump administration (just before the pandemic), the misery index had fallen to the lowest level (5.8) in more than a half century, and that was the primary reason most observers thought that former President Trump would be reelected. But then came the pandemic — which caused the misery index to jump to 8.1, higher than when Obama left office (6.8).
Presidents are not held particularly responsible for the level of the misery index, but for the change in it during their time in office. When Ronald Reagan left office, the misery index was high (9.7) by recent standards, but less than half the rate that it had been when he took office from Jimmy Carter. Everyone noticed the improvement. Wages were higher and jobs plentiful, and inflation had been cut by two-thirds.