At least for my generation, born in the mid-1970s, that decade still stands as the worst of times. Perhaps because we were only babies when it was happening. And didn’t experience it for ourselves, truly. But souring prices and gas lines and growing crime as told to us by our parents and through gritty world of Taxi Driver still stands out to me as what true economic calamity is all about.
But are today’s economic times actually worse? One way to measure that is the misery index. That was a gauge of economic trouble developed in the late 1970s and 1980s that was supposed to be a more accurate measure of how bad the economy was for the average Joe. The misery index combines the inflation rate with the unemployment rate to come. And indeed those twin fears of joblessness and souring food and gas prices are what seems to be sapping confidence in the economy these days as well.
So how does the economy measure up to the 1970s based on the misery index. Actually pretty well. The misery index hit 19.3 at the end of 1974, the year I was born. In 1980, the index averaged 21. Compare that to now and the economy looks positively rosy. Today the misery index would stand at 11. Good times, right. Maybe not.
But while the misery index may have been a good gauge of economic health in the 1970s. It isn’t the best measure of economic health at all times and misses the point today. One example, deflation is one of the worse things that can happen to the economy. Wages and income and asset values tumble, while debts stay the same. Bankruptcies galore. Yet, by the misery index, deflation would be a good thing, bringing the index down. And too little inflation, and the fear of deflation, has been one of the things that Bernanke has worried about.
That’s why Kathleen Madigan, over at the Wall Street Journal, has devised a new misery index that may do a better job of actually comparing today’s economic times to back then. While inflation is low, many think it will soon rise, and that along housing prices and the lack of jobs could be what is holding back the economy. So Madigan’s new misery index looks at the one year change in the jobless rate, gas prices and home prices. Based on those calculations, Madigan’s new misery index scores in at 20, up from 8.3 a year ago. She also finds that Phoenix is not the most miserable place, economy-wise, in the nation to live.
So how does our current economic times measure up to the 1970s? The earliest I could find for gas price data was 1979. At the end of that year, the new misery index would actually stand at -8. So a rating of positively groovy. That’s mostly due to the fact that housing prices rose 12 that year. The reading for 1980 would be 13.2%. So now were are talking some economic pain. But still that’s significantly less than Madigan’s misery index reads now. So I guess it’s time for me to recalibrate what I think the worst of economic times are. And I thought it was just the music that was better back then.