Misery Index Points to Trouble, Just Not For Obama
CNBC EMEA Head of News
The Misery Index is a simple calculation that became a political hot potato in the late 1970s and early 1980s.
By adding the unemployment rate and inflation together, the index gave policy makers a tool by which to measure economic misery and ultimately helped Jimmy Carter to the White House in 1976 and then helped Ronald Reagan evict him in 1980.
Carter rode to power claiming that a 'Misery Index' of 13.5 percent was far to high for a country of America's dominance before watching in horror as the very same index jumped to over 20 percent during his one, and only term in office.
"As a glance at US history shows, the Misery Index is a good predictor for political change," Guy Monson, a fund manager at Sarasin, told CNBC.com in an interview.
"Typically, the social challenges imposed by a higher cost of living and/or unemployment often prove a catalyst for change in leadership, and even more dramatic political turbulence," Monson said. "The underlying assumption here is that a rising combination of prices and joblessness will have economic and social consequences."
Venezuelaand South Africacurrently have the highest Misery Index ratings on the planet with both countries ranking well over the 20 percent which is seen as the harbinger of bad news.
Close behind are countries like Egypt, which just had a revolution, Latvia, where austerity measures have been forced on the population in ways those in Western Europe would never accept and, crucially for the euro zone, Spain.
The European Union is predicting no more bailouts but the Misery Index is clearly pointing to trouble for Spain, according to Monson. "Unemployment makes people far more likely to take to the streets," he said.
There are different factors driving the Misery Index in the developing and developed world. In the emerging world it is inflation that is the problem, in the developed world, unemployment.
"In any case, the result is increasing social discontent," Monson said.
Those running close to 20 percent are countries like Tunisia, Pakistan, Argentina and Russia.
As President Barack Obama prepares for his re-election run, the US Misery Index stands at just 11 percent, some 10 percent lower than Carter faced 31 years ago.