Economics journalist Suzanne Garland tells a story about six blind reporters and an elephant. In this adaptation of a folk tale, the six reporters examine an elephant and come to completely different conclusions about it by concentrating on different parts of the animal. The raja, who owns the elephant, breaks up the ensuing argument by explaining that you can’t judge an elephant based on any single measurement of it. The raja goes on to show the reporters how to combine their various observations to create an index (the Raja Index of Elephant Indicators, they call it), which is still a single number, but provides a more complete picture of how the elephant is doing.
Indexes are a part of daily life if you follow economics. They are especially valuable when you want to compare one time period with another. They can show you what direction the economy is moving in.
There are hundreds of indexes that economists look at in the United States alone. There are several to measure various kinds of wholesale energy prices, others to measure how optimistic home builders and real estate brokers feel. But you never seem to hear about indexes that set out to measure the broader impact of the economy on people.
That’s why I’m so excited by the announcement of the Huffington Post Real Misery Index. It started out as an attempt to create a more sophisticated version of the Misery Index, which became famous in Ronald Reagan’s presidential campaign in 1980. Despite its name, though, the Misery Index does not provide much of an indication of people’s economic miseries. Instead, it is more of a simple measure of how badly the economy is being mismanaged according to a popular but fundamentally flawed model of economic management.
The Huffington Post put together a more complete index by asking what well-measured economic events actually make people miserable. The resulting index is still not really a measure of economic misery, but it comes much closer to that than the original Misery Index. The Huffington Post index is a pretty good indication of the economic stress people are experiencing because of economic changes beyond their control. It is based on eight measures, but half of the index is a broad measure of unemployment. The other seven measures are yearly changes in prices, credit card delinquencies, food stamps, and similar measures related to financial distress.
It is important because it is the most prominent single measure to date of what the U.S. economy is doing to people. The purpose of the economy, of course, is not just to make as much stuff as we possibly can, but to take care of people. The Huffington Post Real Misery Index will provide some indication of whether we are doing better or worse at that from one month to the next.
Sadly, an index that tracks actual economic misery is impossible at this point. The government does not collect accurate data on how many people have homes to live in or food to eat. We do not know how many of us fall ill in a month, nor how many of those are able to get medical care for their illnesses. The reason this kind of data is not collected is that traditional economic thinking does not consider them important in managing the economy. They are not considered important because most of the people directly affected do not have much money, or the amount of money they have is rapidly declining. If the wheels of commerce are made of money, as traditional economic thinking supposes, then pictures of the wheels of commerce need only include the people who have their hands on the money at the moment. The drawback of this approach, of course, is that it is impossible to determine whether the economy is doing better or worse by the people it is supposed to serve. This is nevertheless something we have to try to measure, and the Huffington Post Real Misery Index is probably about as good a measure as you can get from the data that is available now.
One reason I take the Huffington Post Real Misery Index seriously is that it looks like it will have some power to predict the difficulties that banks will be facing over the next couple of years. When people are miserable, economically speaking, their banks tend to become miserable a few months later. If my hunch is correct, this will be an index that the banking industry will want to keep track of.
As of June, the Huffington Post Real Misery Index stood at 29.9. The number doesn’t mean anything by itself, but a month from now, when we can compare July to June, the index will give an indication of which way the economy is moving — are economic changes causing people more distress, or less?