Latest Situation in the Misery Index

The misery index was first introduced by Arthur Okun as an indicator consisting of the unemployment rate plus the inflation rate. The rise in unemployment indicates that the number of people without income increases, and the rise in inflation indicates that life becomes more expensive. 

Over time, the index was reformulated by Robert Barro and Steve Hanke. In its reformulated form, it is possible to express the index with the following equation: 

Misery Index = (Inflation Rate + Unemployment Rate + Interest Rate) – Growth Rate 

Ten-year government bond rates are taken as the interest rate here. If the growth rate is positive, that is, if the economy has grown, this rate needs to be decreased, because economic growth reduces misery. On the contrary, if the growth rate is negative, that is, if the economy has shrunk, then this rate should be added to the total, because negative growth brings an increase in misery. The table below presents the development of the poverty index in Turkey over the years (Inflation, unemployment and growth rates in the table are taken from the TurkStat website, and the 10-year bond interest rates are taken from the Bloomberg HT website.) 

The latest available data for 2022 are used. According to the table, the poverty index in Turkey has increased exponentially in the last two years. The index, which was 23.5 in 2015, has reached 99.5 as of today, in other words, it has increased by 4.2 times in 6 years. Now let's compare similar economies with Turkey using the current 2022 data on the misery index (Inflation, unemployment and growth rates in the table are taken from www.tradingeconomics.com, and 10-year bond interest rates are taken from http://www.worldgovernmentbonds.com/).

When the misery index is compared, it is seen that Turkey doubled South Africa and tripled Brazil. Among the six countries, Indonesia is in the best position in terms of this assessment. On the other hand, it is seen that Greece, which came out of a severe economic crisis, is in a serious recovery. 

There are two interconnected indicators that carry Turkey to the top of the league of misery index: Inflation and interest. Since interest is the result of inflation, the way for Turkey to get out of this situation is to reduce inflation. Since it will be necessary to increase the interest rate in the first stage to reduce inflation, it is inevitable that the growth will remain low for a while and the economy will experience the contradiction between inflation and growth. Turkish politicians have always preferred high growth to low inflation. 

Therefore, it does not seem realistic to expect the government to sacrifice growth and increase interest rates to reduce inflation before the election. In this case, it seems that Turkey will continue to live with a higher poverty index for a while.