finance

The Potential for Real Misery

Source: Bloomberg Business

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What Joe is thinking about today

I forgot all about the Misery Index. It's that simple measure of the economy which just adds inflation to the unemployment rate, that gained popularity during the oil and inflation shock of the 1970s. It looks like this:

It's pretty low, and yet I don't get the sense that it's a useful guide to much at this point, because economic sentiment remains pretty dire. But, as I said, I had forgotten all about it until I saw in my inbox a note from from Payden & Regal, which said this:

Elevated oil prices and talk of a recession have many colleagues and clients uttering the word 'stagflation" and wondering if we should worry about a "repeat of the 1970s." We think such prognostications are premature. First, as a refresher, stagflation is a portmanteau of a stagnant economy beset by inflationary impulses. So far, the current period pales in comparison to the poster child of stagflation, the 1970s, when the misery index, the sum of inflation and unemployment, was in the double digits worldwide. Second, the circumstances that provided the kindling for the 1970s were a series of shocks and poor monetary policy responses over the course of a decade, not a one-time spike in oil prices.

It definitely seems right and correct that a one-off oil jump, even a historic one, won't create stagflation per se. Markets do adapt and so forth. However I get a little bit more anxious about the highlighted part, talking about the series of bad decisions.

The question to my mind is not whether the economy can adapt to high oil prices, but rather whether the political system can adapt to a series of shocks without compounding them by making worse decisions. If inflation picks up again, for example, will our elected leaders respond to that by pushing for even more tax cuts? That seems very plausible. If oil stays elevated, will we see export controls or further curbs on trade? Again, plausible. If a series of counter-productive policy choices are a crucial ingredient for stagflation, then I'm not feeling very re-assured.

On the podcast

We've been getting a lot of requests for this, and now here it is: the helium episode. It turns out that helium has lots of industrial applications, well beyond what most people think (balloons). There's been very little new mining or exploration, for some interesting reasons), and now consumers are looking at a severe shortage due to the closure of the Strait of Hormuz. On this episode we speak with Nicholas Snyder, the CEO of North American Helium about what makes this gas distinct, and how the market for it works.

Listen: Apple / Spotify

The Potential for Real Misery

What Joe is thinking about today

On the podcast

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