With the smoke from the recent recession-defining war still in the air, I would suggest that the US economy is in much worse shape than a recession or even stagflation. America in country economy boy.
I refer to the 1982 classic country movie “A Country Boy Can Survive” by Hank Williams, Jr.
In the first stanza, for those unloving, Hank sings that “interest is up and the stock market is down.” If you’re not in the markets, interest rates are already going up. For example, AAA municipal bond yields increased 177 basis points (1.77%) between late 2021 and mid-2022. Thanks to inflation and the Fisher effect for that.
Moreover, all stock market indices are down, with the Dow Jones down nearly 13 percent between the start of the calendar year and July 27. There, I thank the shareholders who expected lower earnings.
But wait there is more. Hank also sings about supply chain difficulties motivating country boys to make their own whiskey, wine, and cigarettes to go with their catfish, venison, and tomato dinner. While widespread concerns about food supply disruptions have yet to occur in the United States, the mere fact that New York times Recently lauded cannibalism is worrisome, as with recent farmer protests in Sri Lanka, the Netherlands and now Canada, especially with the war in Ukraine still hot. May your Liberty Garden pay off big.
And more ideas! Hank also sings about crime. Specifically, “Don’t get robbed unless you go downtown” and “For $43, my friend lost his life.” Violent property crime and homicide rates have been on the rise since 2020, reversing a long-term downward trend. Although the current crime wave is rooted in the “police defunding” and “bail reform” policies, it is hard to see it waning while the economy remains the most chaotic country.
if it was country economy boy Too primitive for you, look at the Misery Index put forth by economist Arthur Okun. Beloved by financial journalists like Wilma Seuss in the 1970s, he is just the sum of unemployment and inflation. This is a bit primitive, so macroeconomist Robert Barrow developed the Body Mass Index, or Barrow’s Misery Index, in 1999. International economist Steve Hanke modified the index about a decade later. In Hanke’s (HAMI) formulation, economic misery is measured by interest borrowing, inflation, and unemployment rates minus the change in real GDP per capita.
The nice thing about MI, BMI and HAMI is that they are numerical rather than binary, so instead of the economy being miserable or not, the degree of misery is estimated. However, a problem with them is that the way inflation is measured at a technical level has changed, making it disingenuous to compare economic misery over time. Despite this, a new NBER working paper from former Treasury Secretary Larry Summers and two co-authors suggests that some historical inflation numbers could be adjusted to make them comparable to today’s rates.
Another problem is that indicators of misery, such as definitions of stagnation and stagflation, focus on unemployment to the exclusion of real wages. But the real declines in wages are painful, and they have not been fully absorbed by inflation alone. It is clear that 10 per cent inflation with a nominal wage increase of 10 per cent is miserably less for workers than 10 per cent inflation with a five per cent increase after six months.
And while one might think that workers in either case are better off being unemployed, this is not necessarily the case when unemployment insurance pays them a portion of their previous wages. After all, the unemployed have time to adjust trot lines, recruit people in the city center, and engage in other economic activities that do not appear in the official income statistics. I wonder if Hank Williams Jr. or a clever economist could build such insights into the new and improved Economic Misery Index?