Wednesday, September 1, 2010

Misery Loves Company (And Likes 'Em Young)

Most people have heard of a concept called the misery index.  Coined in the 1970s, this index is simply the sum of the unemployment rate and the inflation rate.  It is meant to emphasize that there are often trade-offs between inflation and unemployment, and that both generally increase the level of misery most people.  The misery index for July 2010, for example, is 10.74.  This is unfavorable of course, but it is still only half as large as its record high of 21.98 in June 1980.  That is because overall inflation has been either low or negative for most of the current recession, in contrast to the double-digit inflation of the 1970s and early 1980s.

However, many consider this number to be an underestimate.  The Huffington Post has come up with an alternative measure called the Real Misery Index.  Instead of the "normal" unemployment number, they use U6, which additionally includes discouraged workers and underemployed workers.  Also, instead of general inflation, they focus on the inflation rate of food, gasoline, and medical costs.  In addition, they also add the year-over-year percent changes in credit card delinquencies, housing prices, food stamp participation, and home equity loan deficiencies, giving equal weight to all seven metrics used.  They found that the Real Misery Index in April 2010 was the highest it has been since 1984, and much higher than the 1991 and 2001 recessions, despite the "normal" misery index of those recessions being comparable to the current one.

But even this does not tell the whole story.  Some age groups have fared considerably worse than the rest of the population, most notably young people.  Allow us to coin yet another index, the Youth Misery Index.  We calculate this to be the sum of the age 16-24 unemployment rate (currently at a record high of 19.1%) and the equally-weighted average inflation rate of the following things most relevant to this age group:  food/beverages (0.7%), gasoline (3.9%), medical costs (3.5%), rent (0.0%), and college tuition/fees (6.9%).  The result for June 2010 is a staggering 22.1, twice as high as the general misery index, and that is just using the "normal" unemployment numbers.  Unfortunately, we were unable to find age-specific U6 data.  But if one were to calculate the Youth Misery Index using the 16-19 year old unemployment rate, which is even higher, it would be a whopping 29.1, and a mind-numbing 43.6 for black teens alone.  Clearly, our economy is in bad shape, and the misery is not shared anywhere close to equally.

Some folks (like the restaurant industry, who have a vested interest in keeping wages low) like to claim that the raising of the federal minimum wage in 2007-2009 from $5.15/hr to $7.25/hr caused, or at least exacerbated, the increase in teen unemployment during this period.  However, this assertion is quite specious when one considers that teen unemployment also skyrocketed during the previous recession, and failed to return back to its 2000 level despite several years of the recovery.  During this time, there was no hike in the minimum wage, and the inflation-adjusted minimum wage actually declined, as it had for decades before, reaching a 60-year low in 2007.  The all-time peak was in 1968, when it was about $9.50/hr in today's dollars, and unemployment (for both teens and adults) was very low, essentially "full employment".  A better explanation for the surge in teen unemployment, besides the general effects of the recession, is that the least skilled workers (such as most teens) are always the first on the chopping block when the economy goes sour.  That's simply a given in the dog-eat-dog world of American capitalism.  Also, all those adults who were laid off from better jobs now needed to take the low-wage jobs that teens typically hold, effectively crowding them out.  No surprises there, unfortunately.  As for the apparent secular trend in teen unemployment, this could be due to increased outsourcing/offshoring, as well as rampant illegal immigration--both factors which were much lower just a few decades ago.  Or perhaps it could be due to the wholesale disinvestment in the young by the ruling Baby Boomers, who seem to forget that the same unemployed and underemployed youth they throw under the bus are the ones who will be paying for their retirement in the coming decades.  In any case, it looks like Funkadelic was right after all when he said that America eats its young.

Most interestingly of all, crime rates did not skyrocket during the current recession as would normally be predicted from the misery index, with which crime is highly correlated.  In fact, they plummeted, with the homicide rate reaching a 50-year low in 2009.  Reasons for this are not entirely clear, but it may have something to do with the decline of an old villain that has been notorious in among public health experts for decades.

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