How bad are things, actually? Economist Arthur Okun, advisor to President Lyndon Johnson in the 1960s, created the Misery Index. It is basically the unemployment rate added to the inflation rate.
Unemployment rate (5%) + Inflation rate (3.94%) = Current U.S. Misery Index (8.94%)
Under President Carter in 1980 our country experienced a Misery Index of 20.76, contrasted to the good old days under Eisenhower when the index stood at 3.74 in 1953. A quick look at the Misery Index from 1948 to the present shows that our current Misery Index is no where close to setting off alarm bells. But the real question is: can we trust the government’s numbers?
Keep in mind that if people aren’t looking for work, they aren’t counted in the unemployment numbers. My grandma isn’t counted because my grandma isn’t looking for a job, for example. What about people who tire of looking for a job and give up? They aren’t counted. If you want a job but decide instead to go back to school to get your masters because you can’t find a good job, you aren’t counted in the unemployment numbers even though you would really rather be working.
The best thing that could happen to the unemployment rate would be for millions of people to give up looking for a job and decide instead to live with their parents, take up a life of crime, go back to school, or do anything — so long as they give up looking for a job. The point I am making is that the numbers don’t truly reflect reality. The unemployment numbers also fail to include part-time workers who would actually like to be employed full-time. If you want a full-time job but are forced to settle for a part-time job, you are still employed, so you are factored out of the unemployment rate. The way the government calculates inflation is fishy too.
What, then, is the real misery index? When too many people are unable to afford a middle class lifestyle, we will reach a critical point. Something will have to give. Will the people revolt? I don’t know. What I do know is that the cost of groceries, gas and everything keeps going up. Every day it takes a little more money to maintain the same lifestyle.
A service economy is a dangerous game in which the same paper money is moved around in an effort to make everyone feel prosperous. People have forgotten that wealth is not stocks, cash or equity in your home. Wealth is only that which you can hold in your hand — gold, silver, oil, diamonds, water, etc. The real estate debacle has taught us that home equity isn’t wealth. Your paycheck isn’t wealth either. That too can evaporate.
The Misery Index looks tame because of how the numbers are calculated. To find the real misery index, you have to do it the old fashioned way. Talk to people. I know someone who took their dream job in their dream city, but they might have to go back to the job they hated because their house won’t sell. I have a friend who runs the news for a local TV station. He and his wife and child are living with his folks. Yes, he could afford his own place, but it makes more sense when he evaluates his income and situation. I know a couple in their 50s who lost everything because of an expensive investment property on which they had to do a short sale. They get to start saving for retirement in their mid-50s from square one — and these are intelligent people.
Here is what I know. The real misery index can only be determined by talking to people in the real world. Government numbers cannot be trusted. And most of us were snookered into accepting a false definition of wealth. We all suffer from only having adult experiences to reflect upon that are 1-50 years in length. My own adult experiences are only two decades in total. If we all lived to be 900 years old, we would have people around us with references for things being very different, and we ourselves would have lived through various economic times, teaching us not to fall for the scams that have created the financial mess we are in today. I am still an optimist, however. You just never know what fantastic thing could be right around the corner. We might be a short while away from a newspaper headline that reads, “Free Energy — No More Oil!” Whatever the future holds, I will move forward as a pragmatic optimist.
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{ 7 comments… read them below or add one }
Sudden spurts up and down in the unemployment rate should always be taken with a grain of salt. Especially when it flies against conventional wisdom and sentiment regarding the state of the economy. Besides, nobody remembers these reports the next morning.
I wouldn’t underestimate what’s looming just because the numbers don’t look as bad as they did in the late 70s / early 80s. Current trends reflect changes in culture and money attitudes since the Carter days. For one thing, Americans are spending a lot more (40% vs 33%) on items like food and energy — things we can’t easily cut back on — than we did in 1980. We also save less and have incurred far more debt. So yes we’re maintaining our lifestyle for now but that doesn’t mean we won’t be paying for it — back then we would have just cut back so the impact would have been felt sooner. Now we keep spending — with our government’s encouragement — and are more vulnerable to smaller downturns in employment or upswings in prices. Consumer confidence is low for a reason — we may not be able to quantify the gut feeling but we feel it nonetheless.
Yes unemployment is up but you are not a statistic and there are still thousands of 75K, 100K and 150K jobs out there. try these sites:
http://www.realmatch.com
http://www.monster.com
http://www.hotjobs.com
I believe that if you truly want and try to find a good job, you just will.
Ew. Spammer.
“Consumer confidence is low for a reason — we may not be able to quantify the gut feeling but we feel it nonetheless.”
Well put, Gina.
And to our spammer — only 5% of people make over $100k per year. Those jobs are scarce, not plentiful.
I think market just overreacted to unemployment numbers on Friday. I would wait for at least three consecutive months of higher unemployment before hugging bear for inevitable recession.
I think things are better than what we hear and read in the press, with the exception of oil and food prices. A lot of the negativity I think is because this is an election year. But if we don’t get more oil out of our ground and a few more refineries built, we’re in trouble. With the flooding in the midwest, if we don’t start getting corn back in the food supply instead of going toward ethanol, we are looking at en even higher spike in food prices.
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