Designated the "Misery Index", the sum of two adverse indicators of the nations' economic well-being - unemployment plus inflation - it was developed by economist Arthur Okun, to give a simple comparative snapshot of the national economy.
Before the recent financial debacle, the unemployment rate, per the LA Times of Nov.
08, was reported at 6.
5 %, projected to rise to 8.
4 % in early 2009; inflation was at 5.
5 % in July 08, but has now dropped to negative values, and is projected to be about - 3 % in mid-year.
Thus, the U.
S.
misery index was around 8.
9 % (unemployment at a 5 % rate, inflation at 3.
9 %) in November, and is lower now.
However, the index measured almost twice that (15 % combined rates) in the 1970s, and reached a record high of 20.
6 % in 1980.
Therefore, this so-called, "misery" indicator, seems hardly to be reflective of the country's present attitude about our economic situation.
Certainly no one would say that America is in better economic health today than three months ago, even if a misery index seems to so indicate.
Economist comments include dismissals of such an indicator as being too simplistic for the over-all financial well-being of our highly diversified nation, the complexity of our numerous industries covering the complete spectrum of manufacturing technologies, from the most mundane to the ultimate in scientific and technical production; to all varieties of food, its growth, processing and transportation; to commerce and trade, international and regional; to the complete gamut of professional and personal services and entertainment.
The two-dimensional misery index is based on the Consumer Price Index (CPI) - which, by expert analyses, may perhaps be too unsophisticated - also, various assumptions built into the CPI raise questions and eyebrows of some economists.
Possible deficiencies or inadequacies in some assumptions incorporated in this economic forecasting parameter are pointed out by economists.
Not simply a totalizing of national cash register figures, the CPI has assumptions built into it, which some analysts feel may affect its projected accuracy for certain applications.
These include adjustments of actual to theoretical price numbers by considerations of technical improvements in a given industry - features incorporated which provide increased value (called "hedonic regression"), e.
g.
adding a value for air-bags to autos; product substitution - if prices rise in some cost-of-living aspect, individuals will voluntarily exercise options for reductions to lower-costs; taxes, federal, state and local are excluded; housing prices - an Owner's Equivalent Rent (OER), what a homeowner thinks he could rent his house for - is incorporated.
In addition, the unemployment part of the misery index, can also cause flawed projections, for example, the unemployment figures used do not include people who have not sought work in a past month.
In addition to all the above, our country's economy is extremely complex, with many factors affecting monetary health - plus intangible considerations such as national confidence or fear.
No-one knows for sure how long the financial debacle will last, fear can be contagious, magnifying problems of credit and liquidity - as in the recent housing debacle where a trickle of foreclosures caused by a few high-risk, "no-down-payment" home purchases - guaranteed against loss by the government-backed Fannie Mae and Freddie Mac corporations - caused by an initial softened market - triggered an economic avalanche, which toppling giant corporations (see Ezine article "How America Shot Itself In Its Economic Foot!") So what is the present economic health of the US? Is it closer to a temperature rise from a bad cold or flu - or to metastasized cancer - or somewhere between? With the experience of past financial debacles, the intelligent usage of the massive "bail-out" moneys, with renewed loan and banking liquidity, confidence in investments again plus a new administration's self-assurance and the natural buoyancy of the American spirit, this certainly should not be like the great depression of seventy-five years ago - as our situation has been politically described.
Despite this however, everyone does know that a non-insignificant percentage of America is truly hurting - low comparative "misery index" or not.
Some comforting comparative figures in seeming consonance with the optimistic low misery index, seem to be encouraging: in 1946, the national debt was 130% of GDP (Gross Domestic Product), today it is below 75%, while Japan's is 170% of their GDP.
Before the recent financial debacle, the unemployment rate, per the LA Times of Nov.
08, was reported at 6.
5 %, projected to rise to 8.
4 % in early 2009; inflation was at 5.
5 % in July 08, but has now dropped to negative values, and is projected to be about - 3 % in mid-year.
Thus, the U.
S.
misery index was around 8.
9 % (unemployment at a 5 % rate, inflation at 3.
9 %) in November, and is lower now.
However, the index measured almost twice that (15 % combined rates) in the 1970s, and reached a record high of 20.
6 % in 1980.
Therefore, this so-called, "misery" indicator, seems hardly to be reflective of the country's present attitude about our economic situation.
Certainly no one would say that America is in better economic health today than three months ago, even if a misery index seems to so indicate.
Economist comments include dismissals of such an indicator as being too simplistic for the over-all financial well-being of our highly diversified nation, the complexity of our numerous industries covering the complete spectrum of manufacturing technologies, from the most mundane to the ultimate in scientific and technical production; to all varieties of food, its growth, processing and transportation; to commerce and trade, international and regional; to the complete gamut of professional and personal services and entertainment.
The two-dimensional misery index is based on the Consumer Price Index (CPI) - which, by expert analyses, may perhaps be too unsophisticated - also, various assumptions built into the CPI raise questions and eyebrows of some economists.
Possible deficiencies or inadequacies in some assumptions incorporated in this economic forecasting parameter are pointed out by economists.
Not simply a totalizing of national cash register figures, the CPI has assumptions built into it, which some analysts feel may affect its projected accuracy for certain applications.
These include adjustments of actual to theoretical price numbers by considerations of technical improvements in a given industry - features incorporated which provide increased value (called "hedonic regression"), e.
g.
adding a value for air-bags to autos; product substitution - if prices rise in some cost-of-living aspect, individuals will voluntarily exercise options for reductions to lower-costs; taxes, federal, state and local are excluded; housing prices - an Owner's Equivalent Rent (OER), what a homeowner thinks he could rent his house for - is incorporated.
In addition, the unemployment part of the misery index, can also cause flawed projections, for example, the unemployment figures used do not include people who have not sought work in a past month.
In addition to all the above, our country's economy is extremely complex, with many factors affecting monetary health - plus intangible considerations such as national confidence or fear.
No-one knows for sure how long the financial debacle will last, fear can be contagious, magnifying problems of credit and liquidity - as in the recent housing debacle where a trickle of foreclosures caused by a few high-risk, "no-down-payment" home purchases - guaranteed against loss by the government-backed Fannie Mae and Freddie Mac corporations - caused by an initial softened market - triggered an economic avalanche, which toppling giant corporations (see Ezine article "How America Shot Itself In Its Economic Foot!") So what is the present economic health of the US? Is it closer to a temperature rise from a bad cold or flu - or to metastasized cancer - or somewhere between? With the experience of past financial debacles, the intelligent usage of the massive "bail-out" moneys, with renewed loan and banking liquidity, confidence in investments again plus a new administration's self-assurance and the natural buoyancy of the American spirit, this certainly should not be like the great depression of seventy-five years ago - as our situation has been politically described.
Despite this however, everyone does know that a non-insignificant percentage of America is truly hurting - low comparative "misery index" or not.
Some comforting comparative figures in seeming consonance with the optimistic low misery index, seem to be encouraging: in 1946, the national debt was 130% of GDP (Gross Domestic Product), today it is below 75%, while Japan's is 170% of their GDP.
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