Politics & Policy

Obama’s Magical Misery Tour

High unemployment plus high inflation will be a tough sell for the president.

As President Obama steps up his rhetorical attempts to take credit for an improving economy, it seems proper for BuzzCharts to take a moment to review the data — and a little history.

Back on the campaign trail, when Obama first made the case for his economic-stimulus plan, he argued that Wall Street had received enough favorable treatment over the prior eight years and that it was time for the folks on Main Street to get their due. His plan would focus not on building an environment for greater profits in the private sector, but on creating jobs, which his spending agenda would produce by the millions.

His plan also would address the wages of regular working Americans, which he said were not keeping up with inflation. The candidate asked the good people of Iowa, “Did you see the price of arugula down at the Whole Foods store?” (I happen to grow quite a lot of arugula in my backyard, so I’ll skip over the elitism of this comment.) Obama’s economic message was clear: Just as middle-class people need gainful employment, they can ill afford price inflation.

It quickly became evident that an Obama stimulus plan would not be geared to help the stock market, or to increase some theoretical GDP calculation, or to tighten the TED spread. It would be set up to create jobs and to provide improved purchasing power to those who had them. And that’s Misery Index territory. 

The Misery Index, which very simply is the unemployment rate added to the inflation rate, was popular with the media in the 1970s and fell out of fashion in the 1980s when Ronald Reagan broke the back of both the inflation rate and the unemployment rate. But like so many other infamies of the 1970s, the Misery Index appears destined for resurrection in the Obama years.

Unemployment is high today, and it is likely to remain so for a long time. As BuzzCharts has argued, Obamanomics, like traditional Euronomics, features the job-killing combination of massively higher government spending and tax increases. Capital will flee this environment along with new jobs.

As for inflation, price levels have turned upward of late — an expected trajectory as we move away from the deflationary risks of this recession. But higher future inflation remains a serious risk due to a dramatic expansion of the monetary base by the Federal Reserve. Thus, any near-term price-level increase demands close inspection.

For this reason, we chose to use annualized monthly changes in inflation when compiling the above chart. Bloggers on the angry left might argue that year-over-year inflation is the more conventional, and superior, measure. Let them. We’re looking for turning points in the data, and magnifying down to monthly changes in inflation sure seems to reveal one.

Taken together, higher unemployment and inflation are producing today’s rising Misery Index. Which leads to the big political question: If this trend continues into next year, can Obama and the Democrats seriously argue that, “Yes, unemployment is high, and yes, food and gas prices are rising, but look at that 10,000 Dow!”?  And can they say all this with a straight face? I think not.

Obama chose the measures by which his economic plan is to be judged, at least in the political arena. And those measures say misery is back in town.

Jerry Bowyer is an economist, CNBC contributor, and author of the upcoming Free Market Capitalist’s Survival Guide.

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