What is the misery index?

The misery index, created by economist Arthur Okun in the 1960s, is simply the sum of the unemployment rate and the annual inflation rate. The logic is intuitive: both high unemployment and high inflation cause economic hardship for ordinary people, and the combination of both (stagflation) is the worst possible economic environment. A lower misery index indicates better economic conditions.

The index has notable historical peaks and troughs. During the stagflation of 1980, the misery index reached approximately 22 (unemployment near 7.5% plus inflation near 14.5%), the highest level in the post-war era. It contributed to Jimmy Carter's defeat in the 1980 presidential election, as Ronald Reagan famously asked voters, "Are you better off than you were four years ago?" The index reached a post-2008 low of about 7-8 during the mid-2010s (low unemployment and low inflation), then spiked back to 12-13 during the 2022 inflation surge.

The misery index captures a fundamental tradeoff that policymakers face. The Phillips Curve suggests an inverse relationship between unemployment and inflation: reducing one tends to increase the other. The ideal economic outcome is low on both dimensions (a misery index near 5-7), but this "goldilocks" zone is difficult to maintain. The Fed's dual mandate of maximum employment and stable prices is essentially a mandate to minimize the misery index.

Modified versions of the misery index have been proposed. Economist Robert Barro's "Barro Misery Index" adds changes in interest rates and GDP growth to the original formula. Others have suggested weighting inflation more heavily than unemployment (since inflation affects everyone while unemployment affects a subset of the population) or using broader measures like the U-6 underemployment rate. Despite its simplicity, the original Okun formulation remains popular because it captures the two most salient economic concerns for most households in a single, easily communicated number. Its correlation with presidential approval ratings and election outcomes underscores its relevance as a measure of economic satisfaction.