Tag: misery index

Africa: the Good, the Bad and the Ugly

Last week, President Obama hosted the U.S.-Africa Leaders Summit in Washington, D.C. He welcomed over 40 African heads of state and their outsized entourages to what was a festive affair. Indeed, even the Ebola virus in West Africa failed to dampen spirits in the nation’s capital. Perhaps it was the billions of dollars in African investment, announced by America’s great private companies, that was so uplifting.

Good cheer was also observed in the advertising departments of major newspapers. Yes, many of the guest countries paid for lengthy advertisements–page turners–in the newspapers of record. That said, the substantive coverage of this gathering was thin. Neither the good, the bad, nor the ugly, received much ink.

What about the good? Private business creates prosperity, and prosperity is literally good for your health. My friend, the late Peter T. Bauer, documented the benefits of private trade in his classic 1954 book West African Trade. In many subsequent studies, Lord Bauer refuted conventional wisdom with detailed case studies and sharp economic reasoning. He concluded that the only precondition for private trade and prosperity to flourish was individual freedom reinforced by security for person and property.

More recently, Ann Bernstein, a South African, makes clear that the establishment and operation of private businesses does a lot of economic good (see: The Case for Business in Developing Countries, 2010). Yes, businesses create jobs, supply goods and services, spread knowledge, pay taxes, and so forth. Alas, in the Leaders Summit reportage that covered the multi-billion dollar investments by the likes of Coca-Cola, General Electric, and Ford Motor Co., the benefits of the humdrum activity of business and trade were nowhere to be found. But, as they say, “that’s not the president’s thing.”

Let’s move from the good to the bad and the ugly, and focus on the profound misery in Sub-Saharan Africa. I measure misery with a misery index. It is the simple sum of inflation, unemployment, and the bank lending interest rate, minus year on year GDP per capita growth. Using this metric, the countries for Sub-Saharan Africa are ranked in the accompanying table for 2012.

Bulgaria Wins Balkan Prize

Every country aims to lower inflation, unemployment, and lending rates, while increasing gross domestic product (GDP) per capita. Through a simple sum of the former three rates, minus year-on-year per capita GDP growth, I constructed a misery index that comprehensively ranks 89 countries based on misery. The table below is a sub-ranking of all Balkan states presented in the full index.

 

All of the Balkan states in my index suffer from high unemployment and relatively high levels of misery.

That said, the least miserable Balkan country is Bulgaria. For all of its problems, including a recent bank run, the country’s currency board system - which I, as President Stoyanov’s adviser, helped design and install in 1997 - provides monetary and fiscal discipline, and produces positive results in a region plagued with problems. 

Measuring Misery in Latin America: More Dollarization, Please

In my misery index, I calculate a ranking for all countries where suitable data from the Economist Intelligence Unit exist. My misery index — a simple sum of inflation, lending rates, and unemployment rates, minus year-on-year per capita GDP growth — is used to construct a ranking for 89 countries. The table below is a sub-index of all Latin American countries presented in the world misery index.

A higher score in the misery index means that the country, and its constituents, are more miserable. Indeed, this is a table where you do not want to be first.

Venezuela and Argentina, armed with aggressive socialist policies, end up the most miserable in the region. On the other hand, Panama, El Salvador, and Ecuador score the best on the misery index for Latin America. Panama, with roughly one tenth the misery index score of Venezuela, has used the USD as legal tender since 1904. Ecuador and El Salvador are also both dollarized (Ecuador since 2000 and El Salvador since 2001) – they use the greenback, and it is clear that the embrace of the USD trumps all other economic policies.

The lesson to be learned is clear: the tactics which socialist governments like Venezuela and Argentina employ yield miserable results, whereas dollarization is associated with less misery.

Iran, Stable but Miserable

Since Hassan Rouhani assumed the presidency of the Islamic Republic of Iran in August of last year, the economic outlook for Iran has improved. When Rouhani took office, he promised three things: to curb the inflation which had become rampant under Mahmoud Ahmadinejad, to stabilize Iran’s currency (the Rial), and to start talks to potentially end the sanctions which have battered Iran since 2010. Rouhani has delivered on each of these promises. From this, one might assume that the Iranian economy, and the Iranian people, are headed towards better times.

Unfortunately, the Misery Index paints a different picture. The Misery Index is the sum of the inflation, interest, and unemployment rates, minus the annual percentage change in per capita GDP. It provides a clear picture of the economic conditions facing Iranians.

Iran’s Search for a “Master of the Economy”

Iran’s Guardian Council announced yesterday that former president Ali Akbar Hashemi Rafsanjani has been barred from Iran’s presidency poll—reportedly due to his old age and debilitating health. In recent weeks, speculation over a Rafsanjani comeback bid had spurred some optimism among Iranians who recognize that their broken economy desperately needed a jolt. Some Iranian voters have described him as a “master of the economy” and the solution to their economic woes. However, a closer look at Iran’s misery index shows just how fatally flawed this perception is.

There is little doubt that the economic policies of current president Mahmoud Ahmadenijad have been a disaster. Even before the United States and European Union imposed economic sanctions over Iran’s nuclear program, Iran’s economy was hardly in good shape.

For decades, the Iranian economy has been cobbled together by a coalition of conservative clerics and Revolutionary Guard commanders. The resulting bureaucratic monstrosity has employed mandates, regulations, price controls, subsidies, a great deal of red tape, and a wide variety of other interventionist devices. Not surprisingly, Iran ranks near the bottom—145th out of 183 countries—in the World Bank’s Doing Business 2013 Ranking, which measures the vitality of free markets and the ease of doing business.

You might wonder, with all this sand in the gears, how has the Iranian economy been able to sustain itself and grow (until recently)?  The answer is—you guessed it—oil.

The Misery Index: A Look Back at Bulgaria’s Elections

With Bulgaria’s May 12th election fast approaching, it is useful to reflect on past elections and the resulting economic performance of each elected government. To do this, I have developed a Misery Index inspired by the late Prof. Arthur Okun, a distinguished economist who served as an adviser to U.S. President Lyndon Johnson.

The Misery Index measures the level of “misery” in the economy. My modified Misery Index is equal to the inflation rate, plus the bank lending rate, plus the unemployment rate, minus the annual percent change in GDP.

An increase in the Misery Index indicates that things are getting worse: misery is increasing. A decrease in the Misery Index indicates that things are improving: misery is decreasing. The accompanying chart shows the evolution of Bulgaria’s Misery Index over time.  

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The Socialist Party government of Prime Minister Zhan Videnov created hyperinflation and a lot of misery. The Misery Index under the Videnov government’s watch peaked at 2138 in the first quarter of 1997. That number isn’t shown on the accompanying chart—if it was, the chart would take up an entire page of Trud.

So, the chart starts in the second quarter of 1997, with the Kostov government. Shortly after Kostov took power, Bulgaria installed a Currency Board System, based on a draft Currency Board Law, which I authored at the request of President Petar Stoyanov. The Currency Board brought an end to Bulgaria’s hyperinflation, which peaked with a monthly inflation rate of 242%, in February 1997.

Obama’s Economic Policies Create Misery

The public has finally started to give President Obama’s economic policies a big “thumbs down”.  This shouldn’t surprise anyone who is familiar with the Misery Index.

While President Obama sings the glories of big government, it is ironic that he has been marked by the curse of government failure.  One metric that measures how this curse will affect the President’s performance is the Misery Index (see the accompanying chart).

The Index is calculated by adding the difference between the average inflation rate over a president’s term and the average inflation rate during the last year of the previous president’s term; the difference between the average unemployment rate over a president’s term and the unemployment rate during the last month of the previous president’s term; the change in the 30-year government bond yield during a president’s term; and the difference between the long-term, trend rate of real GDP growth (3.25%) and the real rate of growth during a president’s term.

I have forecast what President Obama’s most likely Misery Index score will be at the end of his current term.  This miserable score – one that is relative to George W. Bush’s very weak performance in his second term – is already baked in the cake and can be laid squarely at the feet of President Obama’s own policy errors and government failure.  For a president whose agenda is designed to overthrow the Reagan Revolution, the Misery Index should be a sobering reminder that free markets, not big government, generate prosperity.