Friday, May 2, 2008

Not Really That Miserable

I know that its very chic right now to be miserable. The news is full of stories about how bad the economy is performing. You've heard it uttered, and maybe even said it, "the worst economy since the great depression." Amazingly, during the last presidential cycle, I seem to remember the same worst economy claims.

While fuel and food prices are certainly up, I think an objective look at the numbers will give people some perspective of how the economy is performing.

One such measure is the misery index. This index consists of the sum of the interest rate and the unemployment rate. The higher the number, the more miserable. A high number means a lot of people out of work and a high cost to borrow money.

The misery index for 2007 was 7.46. This was achieved by low interest rates and pretty low unemployment rates. Well how does 7.46 stack up historically. The actual number for each year is listed here. As a summary, the lowest misery index since 1948 was 3.47. The highest was 20.76. The average for the sixty years was 9.42. One third of the years had a better misery index than 2007, while a full 2/3 had a worse misery index.

The consumer price index is another indicator. Last year's 2.8 percent increase is below the historic 3.8 average since 1948.

There is no doubt that government spending is out of control. Unfortunately, I'm not optimistic that this will satisfactorily addressed by any of the candidates for the Presidency. Indeed, as all bills of spending originate in the House of Representatives, even willing President might be hard pressed to exercised real fiscal restraint.

So what does this all mean? Relax a bit, I say. Yes, gas and food are a bit more expensive at the moment. Will the stay that way? Maybe, maybe not. But one component of economic performance is consumer confidence. If people become overly worried to the point where they are afraid to spend money, then what they fear will come to fruition. People stop buying things, so companies stop making them. And when they stop making things, manufacturers, retailers and others have to lay people off. These unemployed individuals now have less money to spend.

A gloomy economic outlook can be a self-fulfilling prophecy. Cheer up.

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