‘Misery index’ high in Middle East, North Africa

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Nobody should be surprised at the violent uprisings in the Middle East and Northern Africa (MENA). As Steve Hanke, a Johns Hopkins professor of Applied Economics, notes in the March issue of Globe Asia magazine, with the exception of Lebanon and Kuwait, “a large swath of MENA countries suffer from a high level of economic misery and remain ripe for upheaval.”

As Prof. Hanke notes, the original “misery index” – the sum of the current inflation and unemployment rates – was invented by the late Prof. Arthur Okun, chairman of President Lyndon Johnson’s Council of Economic Advisers.

In 1996, Harvard Prof. Robert Barro refined Okun’s idea to include more dynamic measurements, including “the difference between the average inflation rate over a president’s term and the average inflation rate during the last year of the previous president’s term.” Same for unemployment, the 30-year bond yield, and the real rate of growth of the Gross Domestic Product.

“The data in the misery index chart speak loudly,” Hanke writes. “The Reagan ‘free-market years’ were very good ones. And the Clinton years of Victorian fiscal virtues – when President Clinton proclaimed in his January 1996 State of the Union address: ‘The era of big government is over.” – were also very good ones.”

The projected U.S. “misery index” in 2012 at the end of President Obama’s first term – which Hanke says is “already baked in the cake” –  is projected to be the worst since the presidency of Richard Nixon, and “can be laid squarely at the feet of President Obama’s own policy errors and the notion that a big
interventionist government alleviates misery.”

Using the same analysis for MENA countries, where economic and political freedom is severely restricted, and the same solution applies. For MENA countries, Hanke says, “The only way out is to introduce dramatic free-market reforms…[that] reduce the cost of doing business and restrict the corruptive power of governments.”

But that’s unlikely given the fact that these power-hungry despots would rather kill their own people than let them make their own economic decisions.

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