Relevance: Prelims/mains: G.S paper III: Economy
Why in news?
- According to economists, India’s economy needs to be evaluated in terms of the global misery index (GMI).
What is it?
American economist Steve Hanke of Johns Hopkins University, who is an applied economist has popularised the GMI concept. He has ranked India a measly 44 out of 95 countries on GMI.
The higher the index, the more is the misery felt by average citizens.
The benchmark index measures people’s “misery score” instead of the conventional gross domestic product (GDP). The first such misery index was created by Arthur Okun in the 1960s and was equal to the sum of unemployment rate figures and inflation to provide a snapshot of the US economy.
In recent times, it has broadened to include other economic indicators, such as bank lending rates. A variation of the original misery index is the Bloomberg misery index, which is developed by the online publication. Now used in frequent observations, variations of the original misery index have become popular as a means to gauge the overall health of the global economy.
Methodology followed: The calculation in Global Misery Index is based on the three parameters namely,
- Unemployment rate
- Inflation rate
- Lending rate
In order to calculate misery index, the annualised growth of GDP is subtracted from the sum total of these three rates. That gives a score which really defines how miserable people living in a particular geography are.
In short,
“Misery Index = [(Unemployment Rate + Inflation Rate + Lending Rate) – Annualised Growth of GDP]”
Crucial points to remember:
- The first misery index was created by Arthur Okun in the 1960s and was equal to the sum of inflation and unemployment rate figures to provide a snapshot of the US economy.
- The higher the index, the more is the misery felt by average citizens.
- It has broadened in recent times to include other economic indicators, such as bank lending rates.
- A variation of the original misery index is the Bloomberg misery index, developed by the online publication.
- In recent times, variations of the original misery index have become popular as a means to gauge the overall health of the global economy.