Befuddled Paul Krugman should study Hanke's Annual Misery Index (HAMI)

Paul Krugman is befuddled.

The vaunted New York Times economist has no idea why Americans are so negative about the U.S. economy.

He laid it out pretty laughably in his column like this:

Almost a year has passed since the Bureau of Economic Analysis announced that the U.S. economy had contracted for two quarters in a row. Some people believe, wrongly, that two quarters of falling G.D.P. is the official definition of a recession. Economic negativity ran rampant, especially but not only on the political right.

The interesting question now is why, at least according to some surveys, the public remains very negative on the economy — as negative as it has been in the past amid severe economic downturns — even though those recession calls were clearly a false alarm, and the economy is actually looking remarkably strong. Or maybe the question should be why people say that they’re very negative on the economy.

This is a touchy subject, albeit one I’ve commented on before. You don’t want to say that Americans are stupid; you certainly don’t want to sound like that John McCain adviser who insisted that America was a “nation of whiners” who were experiencing only a “mental recession.”

On the other hand, there are now huge gaps between what people say about the economy and both what the data says and what they say about their own experience. And we have some new information on what lies behind these gaps.

 Let's see, the economy contracted and Americans are very negative on the economy ... and he doesn't see any connection.

What a genius.

His column gets no better as he futzes around trying to figure out why Americans are negative on the economy. His judgment is clouded by his urge to boost Democrats and Joe Biden in particular. But as an economist, he seem to know that that 'methodology' doesn't work. 

His problem is that he doesn't have a system for measuring economic negativity, and well, his smarter colleague at Johns Hopkins University actually does.

Steve Hanke came out with his annual misery index, called "Hanke's Annual Misery Index" for the year 2022 which tells us a heckuva lot more about what' bothering voters about the economy and why they actually would say that the Biden economy is a disaster. It's a system, not a feeling, not a bunch of random indicators but a systemized method for looking at things that affect consumers (that's voters, Paul) which is what the Krugster seems to be focused on.

Hanke published this one in National Review, explaining that:

Hanke’s Annual Misery Index (HAMI) gives us the answers. My version of the misery index is the sum of the year-end unemployment (multiplied by two), inflation, and bank-lending rates, minus the annual percentage change in real GDP per capita. Higher readings on the first three elements are “bad” and make people more miserable. These “bads” are offset by a “good” (real GDP per capita growth), which is subtracted from the sum of the bads to yield a HAMI score. For more on this index, please see here.

That's unemployment times two, then inflation, then bank lending rates, then subtract the annual percentage change in real GDP per capita.

Every element in it is geared to the little guy, not the big random macroeconomic numbers that are befuddling Krugman. Notice that Hanke says 'bank lending rates' instead of interest rates from the Fed or something, which to the little guy is abstract nonsense, while the cost of taking out a home loan or a gander at the old credit card bill is not. Notice that Hanke uses GDP per capita rather than the broader averages in GDP that don't quite describe how the individual is affected. So it's a good system, and in his piece, Hanke describes how he came to develop this system, polishing it with this deet or that tweak, in response to other distinguished economists' research.

So how does the U.S. look on this year's misery index?

It ranks 134 out of 157 countries with a misery score of 16.882, driven by unemployment, which is a big one if you are unemployed. It's hard to compare this number to previous year based on the changing number of countries ranked and slight changes in methodology (you can if you want, 2021, 2020), but suffice to say, that 16.882 score for 2022 is quite a bit lousier than 2018's figure released in 2019 during the Trump years, which clocked in at 8.7 with the driving misery factor interest rates, or now, bank lending rates. 

Basically, Joe Biden has doubled the amount of economic misery in the U.S. even as he insists that the economy is going swimmingly and he presents this or that number as his proof of it. Like Krugman, Joe has no methodology, so any old number will do provided it helps his political cause. Then like Krugman, he whines that he doesn't understand what is going on, why consumers don't quite view the economy the way he wants them to view it.

There are lots of other uses for the index as well -- if we look at it in terms of migration from various countries, we can see where the real misery is (Venezuela) and where it isn't  -- Central America, and certainly China, which outranks the U.S. on this scale. That does a lot to tell us where the economic migrants are coming from and where the true political asylum cases might be coming from.

In any case, Krugman could benefit from this index in understanding why the American people don't share Joe Biden's view that the economy is glorious, and why he himself doesn't see the connection between whatever his numbers are, and Americans' own views on the economy.

Check it out here.

Image: Pixabay / Pixabay License



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