Misery Index
The Misery Index is an economic indicator calculated by adding the unemployment rate to the inflation rate, providing a quick summary of the combined economic burden felt by ordinary households from job insecurity and rising prices at any given time.
Economist Arthur Okun developed the Misery Index in the 1970s as a summary statistic to capture the economic hardship facing households. The logic is intuitive: both unemployment (lost income and economic insecurity) and inflation (eroding purchasing power) reduce living standards in distinct but equally real ways. Adding them together creates a single number that tracks the aggregate economic misery of the moment.
The index gained political salience during the 1976 and 1980 US presidential elections. In 1976, Jimmy Carter used a high Misery Index — unemployment plus inflation under President Ford — as a campaign argument. Four years later, Ronald Reagan turned the same logic against Carter, noting that the Misery Index had risen substantially during the Carter administration, driven largely by the second OPEC shock and the Iranian Revolution. Reagan famously asked voters if they were better off than four years prior.
The Misery Index reached its modern peak in the early 1980s, exceeding 20 at times when both inflation (driven by oil shocks) and unemployment (driven by the Fed's aggressive tightening under Paul Volcker) were simultaneously elevated. The subsequent decade brought both numbers down sharply as the Volcker disinflation succeeded and the economy recovered.
Economist Robert Barro later proposed an extended Misery Index that added changes in interest rates and the deviation of GDP growth from potential to the original two components. This more comprehensive version attempts to capture financial conditions and economic momentum that the simple Okun index misses.
The index has limitations as an analytical tool. It weighs unemployment and inflation equally, though their economic effects and policy remedies are quite different. It also ignores underemployment, wage growth relative to inflation, or other dimensions of household financial health. Nevertheless, as a communication tool and historical reference point, the Misery Index remains useful. Investors sometimes track it to gauge consumer sentiment and political risk, both of which can affect equity market performance and policy uncertainty.