It is essential for policy-makers to have a read of their constituents’ well-being, as viewed through the lens of economic statistics.
Author’s note: Below is the latest installment of Hanke’s Annual Misery Index (HAMI). What is it — and how should we conceive of man’s well-being? The human condition lies on a vast spectrum between “miserable” and “happy.” In the economic sphere, misery tends to flow from high inflation, steep borrowing costs, and unemployment. The surefire way to mitigate that misery is through economic growth. Comparing countries’ metrics can tell us a lot about where in the world people are sad or happy. HAMI gives us the answers. My version of the misery index is the sum of the year-end unemployment, 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.
As in last year’s HAMI, this year’s includes 156 countries.
In our review of this year’s table, let’s start with the three least-miserable countries. The following three countries (and the United Kingdom) were the only countries whose HAMI score was negative — i.e., real GDP per capita growth was greater than the sum of unemployment, inflation, and bank‐lending rates.
Libya, somewhat surprisingly, takes the prize as the world’s least-miserable country for 2021. Libya’s civil war went from hot in 2020 to simmering in 2021. As a result, Libya’s oil revenues, which were snuffed out in 2020 by port closures and blockades, increased by roughly 3.7 times in 2021. That’s why Libya’s real GDP per capita growth reached a sky-high 62.6 percent.
HAMI = [Unemployment (19.0%) + Inflation (4.6%) + Bank‐Lending Rate (3.0%)] − Real GDP Growth (62.6%) = −36.0.
Malta improved significantly in 2021 and is the second-least-miserable country in the world. If you look at Malta’s arithmetic, that’s no surprise. Low unemployment, negative bank-lending rates, solid real GDP growth, and the lowest inflation rate in Europe equals a lot of happiness.
HAMI = [Unemployment (3.6%) + Inflation (0.7%) + Bank‐Lending Rate (-0.5%)] − Real GDP Growth (5.3%) = −1.5.
Ireland turned in a solid performance in 2021 and is the third-least-miserable country in the world. That’s because Ireland’s “bads” were offset by a very strong “good,” as you can see in Ireland’s arithmetic.
HAMI = [Unemployment (6.2%) + Inflation (4.5%) + Bank‐Lending Rate (2.9%)] − Real GDP Growth (14.0%) = −0.4.
Now, let’s dive down into the pits.
Cuba, with a dramatic plummet compared with last year’s HAMI, now holds the inglorious title of 2021’s most-miserable country. As you can see, Cuba’s HAMI score was driven by a soaring 1,221.8 percent per year inflation. That level of inflation was rather unsurprising, given Cuba’s devaluing of the peso by 95 percent during 2021. Currency devaluations lead to increased inflation rates. Indeed, following a devaluation, inflation will pick up and so will the costs of producing goods and services, including exports, in the country that has devalued its currency. Inflation will steal away any of the potential short‐term, competitive benefits that might initially accompany the devaluation. This is exactly what happened in Cuba. Of course, it’s not so miserable in Cuba if you are favored by the party and receive a loan, which will carry a negative real interest rate of approximately 1,219 percent.
Cuba could easily solve its inflation crisis by installing a currency board, as Dr. Kurt Schuler and I proposed in Currency Reform for a Market Oriented Cuba (1992). A currency board issues notes and coins convertible on demand into a foreign-anchor currency at a fixed rate of exchange. It is required to hold anchor-currency reserves equal to 100 percent of its monetary liabilities. A currency board’s currency is a clone of its anchor currency. Currency boards have existed in some 70 countries. None have failed.
HAMI = [Unemployment (3.7%) + Inflation (1221.8%) + Bank‐Lending Rate (2.3%)] – Real GDP Growth (0.2%) = 1227.6.
Venezuela, another socialist basket case, slips to the second-most-miserable country in the world after six years in the pole position. While inflation came down from 3,713.3 percent in 2020, its rate of 686.4 percent was still the main cause of Venezuela’s misery. Unlike Cuba, however, Venezuela’s unemployment and bank-lending rates, both the highest of any of the 156 countries in this year’s HAMI, contributed to its placement as 2021’s second-most-miserable country. Just take a look at its miserable arithmetic.
HAMI = [Unemployment (45.0%) + Inflation (686.4%) + Bank‐Lending Rate (53.0%)] − Real GDP Growth (10.1%) = 774.3.
Sudan, once again, holds down the spot as the third-most-miserable country in the world in the 2021 HAMI. This year’s big event in Sudan was the military coup d’état, which was inspired, in part, by the civilian government’s inability to rein in Sudan’s inflation. But with Sudan still ranked as the third-most-miserable country in the world, it’s clear that the military junta hasn’t been able to control inflation, either. Just check out Sudan’s miserable arithmetic for 2021. In fact, to repeat myself, the only way to smash Sudan’s inflation is to install a currency board, as Sudan had from 1957–1960 when the Sudanese pound was fixed to the British pound sterling.
HAMI = [Unemployment (17.4%) + Inflation (359.1%) + Bank‐Lending Rate (21.6%)] − Real GDP Growth (0.9%) = 397.2.
Lebanon repeats its 2020 performance as the fourth-most-miserable country in the world. While 2021 did mark the formation of a new Lebanese government, Prime Minister Mikati’s government has operated in a somewhat dysfunctional state, and as a result, has been unable to stabilize the Lebanese pound and rescue the country from the grip of inflation. That’s because the currency-board proposal of Jacques de Larosière, John Greenwood, and me, elaborated in the Wall Street Journal in April 2021 and in Capital Matters in September, has fallen on deaf ears. Until a currency board is installed, inflation will persist, and Lebanon will continue to rank as one of the most-miserable countries in the world.
HAMI = [Unemployment (6.7%) + Inflation (224.4%) + Bank‐Lending Rate (7.1%)] − Real GDP Growth (-10.5%) = 248.7.
It is, of course, better to be “happy” than “miserable.” It’s essential, too, for policy-makers to have a read of their constituents’ well-being, as viewed through the lens of economic statistics. Hence Hanke’s Annual Misery Index. Stay tuned for next year’s.