How Miserable Are We?

By TAN Kee Wee

(MediaCorp 938LIVE’s Money Talks, Thursday, 21 August 2008, 7.50 am and 7.20 pm)

1. The economic outlook is negative. Slower growth means less bonuses and less shopping for many of us. But for others, there could be real pain.

2. The issue is how do we measure the overall state of the economy? Calculating the Gross Domestic Product is one method. Today I shall introduce another method which was fairly popular in the US in the 1970s.

3. This is the Misery Index. It measures how miserable we feel. It was first coined in the 1970s by the late economist Arthur Okun of Yale University. This index is calculated simply by adding the unemployment rate to the inflation rate for any given period of time.

4. For instance, if the unemployment rate is 4% and the inflation rate is 2%, then the Misery Index would be 4 plus 2 equals 6 points. When the Misery Index goes up, it indicates that the economic climate is worsening. When it goes down, it indicates that the economic climate is improving.

5. Taking the US data for the month of June 2008, the US Misery Index currently works out to 10.5 points. Is this high? Looking back over the past 50 years for the US economy, the Misery Index was at its lowest of around 3 points in 1953. That’s because those were the prosperous years.

6. But in 1980, the US Misery Index shot up to 22 points. That followed almost a decade of high inflation and unemployment. Relatively speaking, it appears that US consumers today are not as miserable as they were in 1980, at least not yet.

7. How do Singaporeans fare on this index? Let’s look at the data. For the second quarter of this year, our Misery Index works out to 10.4 points. This is just below the 12 points recorded in 1980, during the last oil crisis. So it appears that Singaporeans too are not as miserable today as we were in 1980, at least not yet.

8. But can we compare the Misery Index like this? The answer is “no”. This is because, due to changes in calculating inflation and unemployment over the past two decades, these numbers are not very meaningful when we try and compare them this way.

9. Take it as just a guide. But it’s a good guide if you use it on yourself and try and compare yourself one year ago and today. Try this.

10. Look at how much your cost of living is today compared to a year ago. Take into account all your shopping bills and taxi fares. If your cost of living has gone up 20% compared to last year, then you must add 20 points to your personal Misery Index.

11. Next, look at your business. If your business is down 10%, then it’s like your unemployment rate has gone up 10%. In total, your Misery Index today would be 20 points for inflation and 10 points for unemployment which equals 30 points.

12. Of course, if your business has failed completely, or you have just been retrenched, or you have just retired, then your unemployment rate shoots up 100%. Your new Misery Index would be 20 points for inflation and 100 points for unemployment which equals 120 points.

13. That would make you very miserable indeed. But don’t worry. Help is at hand. The government has come out with numerous financial schemes to help miserable Singaporeans.

14. And since children are always a blessing and a joy to any household, there are many incentives to help us bring up more children to brighten up our lives.

15. Unfortunately, the government can only do so much. The rest is really up to us.

16. Three women have raised Singapore’s honour in the Olympics. Now women, you need to play your part. Because after the credit crunch has brought the cash balance of your man right down, it’s going to be very difficult for him to individually stir up any interest to make babies.