Taking A Break and Not Working Makes You Miserable, Actually
Economists aim to explain human action with an increasingly mathematical methodology. Unlike various historians and sociologists, economists spend less time analyzing theories of consumption and behavior that aren’t bound by strictly quantifiable characteristics.
The Misery Index is a way of cobbling together various headline macroeconomic statistics such as inflation and GDP growth in order to evaluate something much more significant: The happiness (or misery) of nations. When Art Okun came up with this theory in the 1960s, he added the inflation rate to the unemployment rate. Since Okun's Misery Index, leading economists Robert Barro and the Hopkins’ own Professor Steve Hanke have developed their own indexes. For example, Hanke takes the sum of the interest, inflation, and unemployment rates, minus the year-over-year percent change in per-capita GDP growth.
It’s not terrible to assume that the right combination of these indicators would suggest a happy populace. Low unemployment levels and good levels of GDP growth would signify increasing wages and give people the ability to provide for their families. There are, however, two distinct sets of problems with this index – one can be adjusted for and corrected, but the other lies in the set of assumptions that lends the index its authority. The latter is a persistent shortfall I see when economists try to prophesize more than what they actually know about human behavior, or society more generally.
The first one is that the last decade has seen a particular set of macroeconomic outcomes that could not have been envisioned in the 1960s, when Art Okun first introduced the concept. There has been unusually low inflation in developed countries like those in Europe, Japan and the United States despite efforts to raise them. This would understate the index in those countries. The unemployment rate also doesn’t tell us much about the quality or type of job. Close to 95% of all new jobs created since the Great Recession in the United States were part-time, and far fewer jobs have come with the benefits and guarantees that existed in the 1960s. This trend is not exclusively American either, as about 40% of the Japanese workforce is now “irregular.” Part-time workers are rightfully more concerned about their futures and earn lower wages, in addition to a lack of benefits.
A second, more pernicious set of issues lie with accepting the authority of the model, even if the indicators used are representative. Steve Hanke wants the index to be a briefing for heads of state; a report card for happiness, if you will. It is telling you to believe that on average, people are better off and “happier” if they all have jobs and see wage growth as a result. Never mind that wage gains could be very unequally distributed such that a large portion of the workforce does not see the growth figures in their own pockets. Any policies that would reduce growth rates or increase unemployment would be seen as unfavorable for the Misery Index – and this could include ostensibly labor-friendly measures such as limits on work, paid leave and other benefits. Increased automation and the resulting unemployment would also be seen as increasing misery – even if the automated jobs are those that humans do not want to take. Sewage workers, for example, have one of the highest death rates while on the job and do a lot of unenviable manual labor. Automation would relieve humans from carrying out such unlikable tasks. Maybe increased unemployment and reduced hours is good and happy, if it means that people can spend their time doing things that they want to do.
A discussion of a livelihood with unemployment is a much-needed one, especially with the looming threat of automation that destroys more jobs than it creates. A basic income would help people survive with reduced employment and may make them happier than working jobs they dislike. However, these subtleties and reinterpretations of the economy are swept under the carpet by explaining it all away with a Misery Index. An index whose macroeconomic aggregates fail to predict happiness when interpreted in ways Professor Hanke would not.
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