February 12, 2021
Biden's Misery Index
By Michael Busler
In the late 1970s, the U.S. experienced an economic condition known as stagflation. This meant the economy was not growing, yet prices were rapidly rising. One measure of just how bad things were was the Misery Index. This was found by adding the inflation rate to the unemployment rate.
Biden’s stated economic policies will significantly raise the Misery Index.
Most economists would probably say that a misery index of 7 or less is desirable. During the late 70s it hit nearly 20. That meant there were years when the inflation rate or the unemployment rate exceeded 10%.
Before the pandemic, the prior administration’s policies had the number down to 5.
The 1970s stagflation occurred because rising wages and commodity prices significantly increased the cost to produce goods and services. At the same time, the market could not respond to the resulting higher price by expanding output. That meant higher prices and no growth or stagflation.
The response that solved the problem was simply to create policies that enabled business to respond to market conditions by increasing their output. That would put downward pressure on prices, increase competition and increase growth. Significantly reduced tax rates for all income earners and corporations set the stage. Monetary policy was accommodating, resulting in low interest rates.
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