Like the wind chill factor, the Misery Index takes unpleasant objective conditions and tries to gauge just how bad they make people feel. But the two factors that go into the Misery Index – unemployment and inflation – affect various subgroups within the U.S. population quite differently. That helps explain why people have such divergent opinions about what sacrifices need to be made to fix the economy.
The Misery Index isn’t a scientific measurement. It was dreamed up in the 1960s as a shorthand way of describing the human impact of economic problems. Just as the wind chill factor combines temperature and wind speed to gauge how cold a person might feel standing outside on a street corner, the Misery Index combines unemployment and inflation to get an idea of how squeezed an American family might feel when the economy is lousy.
Not surprisingly, people feel kind of crummy nowadays. Indeed, the Misery Index has reached 12.6, its highest level in 28 years. It last peaked at the end of the Carter Administration when lax Federal Reserve policies combined with soaring oil prices to create the combination of economic stagnation and inflation known as stagflation.
The trouble with all such benchmarks is that they assume everyone is in the same boat. In reality, though, people may all be sailing the same waters, but their boats are not equally seaworthy. Each of the different strata in the U.S. population really should have its own Misery Index.
For starters, consider the fact that unemployment levels vary enormously by race, sex and age. Men are suffering more than women, blacks more than whites, and the young more than the old. Male black teenagers – who lose on all three counts – have an unemployment rate above 40%, compared with 7.1% for the most favored group, adult white women.
Education counts for a lot, too. For Americans with graduate degrees, unemployment is 4% or less, lower if the degree is in a subject that’s actually useful. For those with no more than a high-school degree, it’s 10% to 14%.
Trying to determine the impact of inflation on people at different income levels is a lot harder, and you might think that workers with inflation-adjusted wages and benefits would be better shielded than people with a lot of savings that would be devalued by inflation. But it turns out that the affluent can find ways to protect their financial assets and are also likely to have job skills that enable them to survive better in tough times.
The bottom line is that although the national Misery Index is 12.6 right now, your own personal Misery Index could be anywhere from 5 to 50. As a result, Americans in different economic strata have conflicting ideas of how urgent problems are and what sacrifices are acceptable to solve them. If you’re in a high-crime city that has had to lay off a large part of its police force, you’re likely to size things up differently from someone who has to wait to see the latest incomprehensible Terence Malick film because the local library has fallen behind on acquiring movie DVDs.
Where all are called on to share in sacrifice, big divergences in misery are likely to require a lengthy tug of war before common national solutions can be agreed upon. That’s why I believe it will be impossible for economic policy makers to sort things out quickly. In my view, investors should plan on following very defensive strategies for several more years.
That doesn’t mean, of course, that a recovery will never come. Even if it takes longer than one would like, the economy will eventually rebound. Stocks will likely advance to new highs – and you want to be invested to profit over the long term.
Wherever you are on the Misery Index – even if you feel like a character in Les Miserables – just remember: For the wretched of the earth, there is a flame that never dies. Even the darkest night will end and the sun will rise.