The Misery Index

The Consumer Price Index (CPI) is a statistical estimate arrived at by using the prices of a sample of representative items whose prices are collected periodically. It is one of several price indices employed by most national statistical agencies.
The annual percentage change in a CPI is used as a measure of inflation. Taking into account the effect of inflation, a CPI is used to adjust the real value of wages, salaries, and pensions, for regulating prices and for deflating monetary magnitudes to show changes in real values.
In most countries, as is the case in Taiwan, the CPI is one of the most closely watched national economic statistics.
Just about a year ago, after it repaid the last installment of US$238,238 in debt to the International Development Association (IDA), one of the World Bank’s lending arms, Taiwan joined the select group of countries free of external debt.
Taiwan borrowed US$15.756 million from the IDA in 1961 to finance several development projects, including the procurement of dredging ships, ground water exploration, a tap water supply network and the establishment of a development trust company.
The IDA offered Taiwan a 10-year grace period, allowing the country to start repayment in installments over 40 years. Taiwan began to repay the debt bi-annually in 1972, without the need to pay any interest.
Ever since the Taiwanese economy took off in the 1970s, the government has rarely, if ever, borrowed from abroad thanks to its abundant tax revenues.
One significant difference between Taiwan and other relatively small nations that try to borrow their way out of challenging situations is the size of its tax revenues and the work ethic of the people. Taiwan has experienced remarkable social, economic and industrial changes in the past decades. The country is no longer a producer of cheap, shoddy goods, it is a world leader in innovative technology.
In addition to the above-mentioned loans, Taiwan also borrowed from Saudi Arabia and the United States in the 1960s and 70s to help finance its freeway construction and railway electrification projects. The two loans were fully repaid in December 2003 and June 2004.
Since Taiwan is no longer a member state of the World Bank, the country is unable to obtain interest-free or low-interest loans from world lending organizations. But with the Taiwanese private sector awash with idle capital, the government is under no pressure to borrow from abroad anytime soon.
The Misery Index, as it is called in Taiwan and elsewhere, is the sum of a country’s unemployment figure and the consumer price index. It is not an official statistical instrument, but it indicates the level of the pain and misery felt by the people, especially those in low-income brackets.
Taiwan’s so-called “misery index” for July is generally expected to surpass 6.0 on the back of rising inflation and unemployment figures. The figure for August may rise yet again in the wake of higher consumer prices triggered by typhoons. It is expected to stay high throughout the second half of 2012.
According to data of the Directorate General of Budget, Accounting and Statistics, June’s unemployment figure was 4.21 percent and CPI 1.77 percent, translating into a misery index of 5.98. With July’s CPI at 2.46 percent, unemployment for the previous month needs to be below 3.54 percent to keep the misery index below 6, a highly unlikely scenario, according to experts.
Unemployment tends to rise somewhat in July because many college graduates are still on the lookout for jobs so July’s misery index will almost certainly exceed 6.0. The typhoon season has been very active, which usually leads to surging consumer prices.
Apart from seasonal unemployment and bad weather, there are several external factors that may continue to keep prices at a high in the second half of 2012: These include a rise in grain prices after the droughts in the United States, India and Russia. Increased oil prices as a result of tensions in Syria and frequent hurricanes in the Western Atlantic and Gulf of Mexico.
Although unemployment in the second half of the year is not predicted to rise significantly, more expensive oil and an ensuing wave of power hikes will result in a CPI-induced misery index rise, which will hit low-income brackets of society particularly hard.
An adviser to President Lyndon Johnson, economist Arthur Okun, introduced the concept of the Misery Index in the 1960’s. It is assumed that both a higher rate of unemployment and a worsening of inflation both create economic and social costs for a country. A combination of rising inflation and more people out of work implies a deterioration in economic performance and a rise in the misery index.
While Taiwan agonizes over the “high” misery index of 6.0, most countries in the world would be overjoyed to have such a low level. In the USA, for example, under President Obama, the misery index is presently a staggering 9.71, and that figure is down from August 2011 when it was an almost unimaginable 12.87.
Politicians would do well not to underestimate the unhappiness caused by joblessness. Countries that suffer from high levels of economic misery coupled with economic inequality and with little improvement in sight more and more often find themselves in situations very conducive social upheaval akin to the Arab Spring uprisings.
In recent months, there has been a lot of talk about Greece and its deteriorating economy in which people have grown despondent in the face of a lack of leadership and failed austerity measures. But Greece does not even figure among the world’s worst 50 when it comes to Misery Indices.
The leader in Misery is Zimbabwe with over 100.6. Liberia has 85.0. Burkina Faso, where unemployment hovers around 77 percent and the CPI stands at 3.6, has a Misery Rate of 80.6. Generally speaking, Africa is,
despite its untold human, mineral and other natural resources, a pretty miserable place to be according to the Misery Index. It would appear that the continent lacks leaders with the vision and integrity to lead their people out of misery.