The New Misery Index

Professors Steven A. Solieri, CPA (Queens College, C.U.N.Y.) and Petros E. Ioannatos (Kettering University, Flint, MI) are working on a paper to develop a New Misery Index similar to the one proposed by Former President Reagan. The New Misery Index is a three-tiered economic measure with one component measuring the state of the “Financial Crisis” (The Loan Delinquency Rate). The other two measures focus on one traditional measure (Unemployment) and the last measure focuses upon the inter-generational wealth transfer occurring from current fiscal policies (The Government Budget Deficit as a Percentage of Gross Domestic Product (GDP)). Simply the formula is:

Misery Index =
Unemployment Rate + Loan Delinquency Rate + Government Budget Deficit as a % of GDP

History of the Misery Index
Former President Reagan devised the “Misery Index” in 1980 that was a combination of the Unemployment Rate and the Inflation Rate added together. Candidate Reagan demonstrated that during the watch of his opponent, President Carter, the index was rising indicating that the measure of misery for the American people was rising.
During President Carter’s time in office the average Misery Index was 20.27 and the increase between the start and end of his time in office was 7.00 (see Appendix A). While President Carter did have the highest average, by far (over five points), of any president he did not have the highest increase in the Misery Index over his time in office. This dubious distinction goes to President Nixon.
            The Misery Index was a convenient political tool that was easily calculated and eventually became a well-known and quoted formula to most astute American and political junkies. The impact on the Carter-Reagan 1980 election was substantial. It lead to then Candidate Reagan’s well known question: “Are you better off than you were four years ago”. Candidate Reagan answered his own question with the Misery Index.
            While the Misery index was a simple tool and served the need to easily communicate the state of the economy to the American People, it was not a broad measure of economic activity, although it met the political expediency for which it was created. 
In an effort to develop a better measure of the items important to Americans today and fitting the economic climate in which we find ourselves today, Professors Solieri & Ioannatos have developed this new index. This index is supposed to capture and communicate a modern-day economic snapshot of the economy and the potential hardships placed on the U.S. economy by expansionary fiscal policy in terms of the recent increases in government spending.  

The New Misery Index
The new index proposed by Dr. Solieri and Dr. Ioannatos is composed of three components:

Misery Index =
   Unemployment Rate + Loan Delinquency Rate + Government Budget Deficit as a % GDP

1. The Average of the Monthly Unemployment Rate (there are two often quoted measures of labor underutilization published by the BLS the U-3 “Total Unemployed” (Appendix C-1) and U-6 “Total Unemployed, Underemployed and Discouraged Workers” Appendix C-2));
2. The Average of the Quarterly Loan Delinquency Rate of All Borrowings in the Economy (all delinquencies include those on Residential and Commercial Real Estate, Consumer Loans including Credit Cards, Leases, Commercial and Industrial Loans, and Agricultural Loans-Appendix D). Delinquencies are a better measure than foreclosures because their data is provided in real-time with little to no lag time and are netted against recoveries to ensure that such amounts are not overstated. The data is published by the Federal Reserve Bank quarterly and includes data from all banks. Using the delinquency rates instead of foreclosures removes the skewing of statistics as a result of legislation designed to delay the foreclosure processes of the banks other lenders; 
3. The Government Annual Budget Deficit as a Percentage of Gross Domestic Product (GDP) as published by the U.S. Treasury (Appendix B).

 

The Average of the Monthly Unemployment Rate (Appendix C-1 and C-2) is a measure of current economic activity that directly affects all Americans with the exception of the very old (retired senior citizens) and the very young (children and children in school through college age) and is critical to most voting Americans. The Average of the Quarterly Delinquency Rate of All Borrowings in the Economy (Appendix D) represents a broad measure of the state of the Financial Crisis in the U.S. economy today and is a much broader measury of economic misery and hardship than just foreclosures. The Government Annual Budget Deficit as a Percentage of the Gross Domestic Product (Appendix B) is a measure of the inter-generational wealth transfers occurring as a result of fiscal policies of the Federal Government.

Examples of the New Misery Index
For example the New Misery Index for the period 2001 through 2009 is calculated as follows:

Year	Description	Unemployment Rate1	Delinquency Rate2	Deficit as a % of GDP3	New Misery Index
2009	Using Unemployment U-3	9.2750	6.3400a	12.9300	22.2050
2009	Using Unemployment U-6	16.3000	6.3400a	12.9300	35.5700
2008	Using Unemployment U-3	5.8167	3.6500	3.2400	12.7067
2008	Using Unemployment U-6	10.6000	3.6500	3.2400	17.4900
2007	Using Unemployment U-3	4.6083	2.0600	1.1700	7.8383
2007	Using Unemployment U-6	8.3000	2.0600	1.1700	11.5300
2006	Using Unemployment U-3	4.6083	1.5700	1.9000	8.0783
2006	Using Unemployment U-6	8.2000	1.5700	1.9000	11.6700
2005	Using Unemployment U-3	5.0833	1.5700	2.5800	9.2333
2005	Using Unemployment U-6	8.9000	1.5700	2.5800	13.0500
2004	Using Unemployment U-3	5.5417	1.8000	3.5600	10.9017
2004	Using Unemployment U-6	9.6000	1.8000	3.5600	14.9600
2003	Using Unemployment U-3	5.9917	2.3300	3.4700	11.7917
2003	Using Unemployment U-6	10.1000	2.3300	3.4700	15.9000
2002	Using Unemployment U-3	5.7833	2.6900	1.5200	9.9933
2002	Using Unemployment U-6	9.6000	2.6900	1.5200	13.8100
2001	Using Unemployment U-3	4.7417	2.6100	-1.2700	6.0817
2001	Using Unemployment U-6	8.1000	2.6100	-1.2700	9.4400

Notes:
1 The Average of the Monthly Unemployment Rates used are the U3 and U6 Unemployment Rates as published by the Bureau of Labor Statistics (http://www.bls.gov/news.release/empsit.t12.htm), these are the most quoted rates in the popular media and are defined below:
U-3 is the Total unemployed, as a percent of the civilian labor force (official unemployment rate)
U-6 Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.

2 The Delinquency Rates are published by the Federal Reserve Bank and represent the Average of the Quarterly Total Loans and Leases Column (extreme right) for the year. The source can be found at:  http://www.federalreserve.gov/releases/chargeoff/delallsa.htm
3 The Deficit as a percentage of GDP represents the inter-generational commitments on future generation based on current policy and action and is taken from the site: http://www.usgovernmentspending.com/federal_deficit_chart.html

a The Delinquency Rate for the Year 2009 includes data only from the first three quarters as published and available on 01/15/2010.  

Conclusion
It is clear from examining the New Misery Index that the rate of financial misery has nearly doubled as measured by the U-3 Unemployment Statistic in 2009 and it has more than doubled in 2009 utilizing the U-6 broader statistic. Since these measures represent fiscal actions in real-time, the expansionary fiscal policy of the Federal Government does not appear to have impacted the economy in a favorable manner. The same applies for the policies of the Federal Reserve System which has been implementing expansionary monetary policy for quite some time.
            This New Misery Index will be kept up during the ensuing quarters and years and will be directly tied to the actions of the Federal Government as well as to the policies of the Federal Reserve.  

APPENDIX A - THE “ORIGINAL” MISERY INDEX OVER TIME

Misery index - era by U.S president

Index = Unemployment rate + Inflation rate
Rank	President	Time Period	Average	Low	High	Start	End	Change
5	Harry Truman	1948–1952	7.88	Dec 1952 = 3.45	Jan 1948 = 13.63	13.63	3.45	-10.28
1	Dwight D. Eisenhower Dwight D. Eisenhower Dwight David "Ike" Eisenhower was a five-star general in the United States Army and the 34th President of the United States, from 1953 until 1961. During the Second World War, he served as Supreme Commander of the Allied forces in Europe, with responsibility for planning and supervising the...	1953–1960	6.26	Jul 1953 = 2.97	Apr 1958 = 10.98	3.28	7.96	4.68
3	John F. Kennedy John F. Kennedy John Fitzgerald "Jack" Kennedy , often referred to by his initials JFK, was the 35th President of the United States, serving from 1961 until his assassination in 1963....	1961–1962	7.14	Jul 1962 = 6.40	Jul 1961 = 8.38	8.31	6.82	-1.49
2	Lyndon B. Johnson Lyndon B. Johnson Lyndon Baines Johnson , served as the 36th President of the United States from 1963 to 1969 after his service as the Vice President of the United States from 1961 to 1963...	1963–1968	6.77	Nov 1965 = 5.70	Jul 1968 = 8.19	7.02	8.12	1.10
7	Richard Nixon Richard Nixon Richard Milhous Nixon was the 37th President of the United States and is the only president to resign the office. He was also the 36th Vice President of the United States ....	1969–1973	10.57	Jan 1968 = 7.80	Dec 1973 = 13.61	7.80	17.01	9.21
10	Gerald Ford Gerald Ford Gerald Rudolph Ford, Jr. was the 38th President of the United States, serving from 1974 to 1977, and the 40th Vice President of the United States serving from 1973 to 1974...	1974–1976	14.93	Dec 1976 = 12.66	Jan 1975 = 19.90	16.36	12.66	-3.70

Source: http://www.absoluteastronomy.com/topics/Misery_index_(economics)

Rank	President	Time Period	Average	Low	High	Start	End	Change
11	Jimmy Carter Jimmy Carter James Earl "Jimmy" Carter, Jr. served as the 39th President of the United States from 1977 to 1981 and was the recipient of the 2002 Nobel Peace Prize, the only U.S. President to have received the Prize after leaving office...	1977–1980	20.27	Apr 1978 = 12.60	Jun 1980 = 21.98	12.72	19.72	7.00
9	Ronald Reagan Ronald Reagan Ronald Wilson Reagan was the 40th President of the United States and the 33rd Governor of California .Born in Tampico, Illinois, Reagan moved to Los Angeles, California in the 1930s...	1981–1988	11.19	Dec 1986 = 7.70	Sep 1981 = 19.33	19.99	9.72	-10.27
8	George H. W. Bush George H. W. Bush George Herbert Walker Bush was the 41st President of the United States . He was also Ronald Reagan's Vice President , a congressman, an ambassador, and Director of Central Intelligence....	1989–1992	9.68	Sep 1989 = 9.64	Nov 1990 = 12.47	10.07	10.30	+0.23
4	Bill Clinton Bill Clinton William Jefferson "Bill" Clinton was the 42nd President of the United States from 1993 to 2001. He was the third-youngest president; only Theodore Roosevelt and John F. Kennedy were younger when entering office...	1993–2000	8.80	Apr 1998 = 5.74	Jan 1993 = 10.56	10.56	7.29	-3.27
6	George W. Bush George W. Bush George Walker Bush was the 43rd President of the United States from 2001 to 2009 and the 46th Governor of Texas from 1995 to 2000....	2001–2008	8.10	Oct 2006 = 5.71	Aug 2008 = 11.47	7.93	7.29	-0.64
N/A	Barack Obama Barack Obama Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office, as well as the first president born in Hawaii...	2009–Present	8.00 Incomplete data	July 2009 = 7.30	Feb 2009 = 8.34	7.63	N/A (8.22 Aug 2009)	0.59

Source: http://www.absoluteastronomy.com/topics/Misery_index_(economics)

 

APPENDIX B – THE DEFICIT as a PERCENTAGE of GROSS DOMESTIC PRODUCT

 

 

Deficit as a % GDP

 

 

Source: http://www.usgovernmentspending.com/federal_deficit_chart.html

 

 

 

APPENDIX C-1 - BUREAU OF LABOR STATISTICS

LABOR FORCE STATISTICS FROM THE CURRENT POPULATION SURVEY

 

AVERAGE MONTHLY UNEMPLOYMENT RATE BY YEAR – “U-3” DEFINITION - SEASONALLY ADJUSTED

 

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Average Monthly
1999	4.3	4.4	4.2	4.3	4.2	4.3	4.3	4.2	4.2	4.1	4.1	4.0	4.2167
2000	4.0	4.1	4.0	3.8	4.0	4.0	4.0	4.1	3.9	3.9	3.9	3.9	3.9667
2001	4.2	4.2	4.3	4.4	4.3	4.5	4.6	4.9	5.0	5.3	5.5	5.7	4.7417
2002	5.7	5.7	5.7	5.9	5.8	5.8	5.8	5.7	5.7	5.7	5.9	6.0	5.7833
2003	5.8	5.9	5.9	6.0	6.1	6.3	6.2	6.1	6.1	6.0	5.8	5.7	5.9917
2004	5.7	5.6	5.8	5.6	5.6	5.6	5.5	5.4	5.4	5.5	5.4	5.4	5.5417
2005	5.3	5.4	5.2	5.2	5.1	5.0	5.0	4.9	5.0	5.0	5.0	4.9	5.0833
2006	4.7	4.8	4.7	4.7	4.6	4.6	4.7	4.7	4.5	4.4	4.5	4.4	4.6083
2007	4.6	4.5	4.4	4.5	4.4	4.6	4.6	4.6	4.7	4.7	4.7	5.0	4.6083
2008	5.0	4.8	5.1	5.0	5.4	5.5	5.8	6.1	6.2	6.6	6.9	7.4	5.8167
2009	7.7	8.2	8.6	8.9	9.4	9.5	9.4	9.7	9.8	10.1	10.0	10.0	9.2750

 

Source:

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS14000000

 

 

U-3 Definition: Total unemployed, as a percent of the civilian labor force (official unemployment rate) [BLS]

 

APPENDIX C-2 - BUREAU OF LABOR STATISTICS

LABOR FORCE STATISTICS FROM THE CURRENT POPULATION SURVEY

 

AVERAGE MONTHLY UNEMPLOYMENT RATE BY YEAR – “U-6” DEFINITION - SEASONALLY ADJUSTED

 

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Average Monthly
1999	7.7	7.7	7.6	7.6	7.4	7.5	7.5	7.3	7.4	7.2	7.1	7.1	7.4
2000	7.1	7.2	7.1	6.9	7.1	7.0	7.0	7.1	7.0	6.8	7.1	6.9	7.0
2001	7.3	7.4	7.3	7.4	7.5	7.9	7.8	8.1	8.7	9.3	9.4	9.6	8.1
2002	9.5	9.5	9.4	9.7	9.5	9.5	9.6	9.6	9.6	9.6	9.7	9.8	9.6
2003	10.0	10.2	10.0	10.2	10.1	10.3	10.3	10.1	10.4	10.2	10.0	9.8	10.1
2004	9.9	9.7	10.0	9.6	9.6	9.5	9.5	9.4	9.4	9.7	9.4	9.2	9.6
2005	9.3	9.3	9.1	8.9	8.9	9.0	8.8	8.9	9.0	8.7	8.7	8.6	8.9
2006	8.4	8.4	8.2	8.1	8.2	8.4	8.5	8.4	8.0	8.2	8.1	8.0	8.2
2007	8.3	8.1	8.0	8.2	8.2	8.2	8.3	8.5	8.4	8.4	8.5	8.8	8.3
2008	9.1	8.9	9.0	9.2	9.7	10.0	10.5	10.9	11.2	11.9	12.8	13.7	10.6
2009	14.0	15.0	15.6	15.8	16.4	16.5	16.4	16.8	17.0	17.4	17.2	17.3	16.3

 

 

Source: http://data.bls.gov/PDQ/servlet/SurveyOutputServlet

 

 

APPENDIX D-CHARGE-OFF and DELINQUENCY RATES – FEDERAL RESERVE BANK – SEASONALLY ADJUSTED