Measuring Misery around the World….(India ranks 21st in a list of 90)

Steve Hanke of Cato has this interesting article. I was not aware that there is something called misery index which measures economic and social costs of living in a country.

The index is also really simple: Inflation rate + unemp rate . It was developed by Arthur Okun and was further developed by Prof Robert Barro (added interest rate and subtracted per capita GDP growth to the two variables). There is this site which updates the index for US economy regularly (though only for Okun’s formula). It is interesting to note how the index has developed across the regimes of various US Presidents since 1948. Despite the mess US is in, the index is now as high in US (8.21) with most driven by unemployment. It was around 6-7 before the recent crisis.

Prof Hanke puts the list for 90 countries as well along with  the factor responsible for the misery. He uses Barro’s four factor model:

  • India ranks 21st in the list with interest rate as the major reason for the misery.
  • Ahead of India re countries like Venezuela, Iran, Serbia, Argentina and so on. Venezuela, Iran and Argentina all rank high because of inflation.  Prof Hanke suggests misery to be much higher in Venezuela because of under-reported inflation.
  • Unemployment seems to be the main reason for high misery across most developed and even emerging economies.
  • BRICS mainly suffer from misery because of high interest rates. Except China where per capita GDP growth rate seems to be the main factor.
  •  What is interesting is that developed countries rank much lower in the index that one would think. Countries like US rank 71st in the list. Japan ranks last in the list! This is because both inflation and interest rates are really low in these economies.
  • So the misery seems to be much higher in emerging economies despite their much better econ performance.

It seems the index has limitations. One should look at time series of each country to see rise/fall in misery. Cross-country comparisons do not make much sense..

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