It’s now or never, according to the Misery Index
From a young age, we are taught to measure things. To measure is to know, right? Long before my daughters went to school, my wife and I used to ask them how much they loved us. They used to stretch their arms as wide as possible and reply: “This much, Daddy.” In t he same way we can measure love, so too misery can be measured.
Renowned American economist Arthur Orkun discovered i n 1962 that a 1% hike in the unemployment rate negatively affected US GDP by nearly 2%. He created t he Misery Index by simply adding t he USA’s unemployment rate to the country’s inf lation, which in theory meant that the higher this number, the higher t he countr y’s miser y l evel. In t he late 2000s, economist Steven Hanke adapted this index so it could also be applied to countries outside of the US. He added the country’s prime lending rate to Orkun’s calculation, and subtracted the year-on-year per-capita GDP growth percentage. HOW DOES SOUTH AFRICA FARE? So, according to Hanke’s Misery Index, how “happy” are we as a country? In short, very miserable. At the end of 2014 we were 10th out of 108 countries on the Misery Index, with countries such as Greece and Sudan shockingly faring better.
To make things worse, South Africa is expected to experience the worst misery in 2015, shortly after Venezuela and Argentina, according to world economists’ consensus. With several major companies announcing these past two weeks that large numbers of employees will be retrenched, the rand’s constant weakening putting pressure on inf lation, and our f irst interest rate hike for 2015 in June this year, the warning lights are f lashing brightly to alert us that these predictions may very well be true.
It is also interesting to see a direct correlation between the weakening of this index and the weakening of the rand, when comparing the South African Misery Index to our currency. WHERE TO FROM HERE? The solution to our misery is a t woway street: as an investor, you either go left or right. If SA’s stance does not improve on this index over the long term, it will be in the best interest of both local and international investors t o f i nd t hei r s a l v at i on i n ot her countries. To improve these prospects, the government would have to focus on two crucial aspects: urgent job creation and pursuing economic growth close to twice its current growth levels. On t he upside, we have a l r eady identif ied the problems; now it ’s a matter of f i xing them. After all, as 1. It is obvious that a country experiencing a higher unemployment rate than another would be considered more miserable. 2. Inflation is measured by how sharply prices on consumables and services rise. I don’t need to explain why, as an electricity consumer, I am miserable because electricity prices have more than doubled over the past 10 years. 3. In SA, personal debt levels (as a percentage of personal income) are still around 80%. The higher the Reserve Bank pushes our prime rate, the more miserable we become. 4. GDP growth measures our total economic growth as a country. The lower this number, the more we struggle. (This number is mostly affected by points 1 to 3 above.) Mean = 39.80 Std. Dev. = 5.87