When unemployment and inflation both rose sharply during the \”stagflation\” of the 1970s, Arthur Okun came up with the \”misery index,\” which is simply calculated by adding the unemployment rate and the inflation rate. (Okun was then at the Brookings Institution, and had previously been Chair of the Council of Economic Advisers at the tail end of the Johnson administration and a professor at Yale before that.) Okun certainly didn\’t view this little idea as any conceptual breakthrough, but it seemed a useful shorthand in his writing and speeches for characterizing some of what was happening in the 1970s.
But the \”misery index\” came to broader prominence during the 1976 and 1980 presidential campaign, when it was first used by Jimmy Carter to criticize the state of the US economy under Gerald Ford, and then in turn used by Ronald Reagan to criticize the state of the US economy under Carter (here\’s a clip of Reagan making this point from the 1980 presidential debates). To see why it was an issue, here are three graphs: the annual unemployment rate over time, the annual inflation rate over time, and the \”misery index\” adding the two.
You can see the spikes in 1976 and 1980. But you can also see that the misery index–which was a major factor in the 1976 and 1980 presidential elections–is at historically low levels. So why do so many people talk about the US economy in such near-apocalyptic terms? How did historically low rates of unemployment and inflation become seemingly irrelevant? I don\’t have a clear answer to this question, and indeed, the answer probably involves a cluster of factors.