It's Official: Venezuela, World's Most Miserable Country

Talk about clever marketing. This feature was originally the answer to a question nobody asked. What if you took American economist Arthur Okun's "Misery Index," as expanded by Robert Barro, and applied it to the rest of the world? As originally formulated, this index was made up of two macroeconomic indicators, the rates of consumer price inflation and unemployment. Subsequently, Barro threw in the prevailing long-term interest rate and Δ in GDP.

Johns Hopkins University's Steve Hanke should be familiar to Asia followers as the would-be Svengali of the late Indonesian President Suharto. A colorful fellow as far as economists go, he recently applied the Misery Index globally and finds that (surprise!) economies run by the enemies of freedom generally score lowest on this compound measure (see table above). Actually, Hanke suggests, their actual performance could be worse since they often fudge their inflation figures (see Argentina). Using the black market exchange rate--the fourth of Venezuela's four-tiered rates and that which is not massaged by the government--things actually look even worse in Venezuela:

One way to estimate the rate of true, open inflation, in cases such as Venezuela’s, would be to track down the free-market prices — including the black-market prices — for all goods in the official basket. But such a procedure would be very difficult, if not virtually impossible, to implement. That is why no country has ever accomplished such a herculean task.

As an alternative, I have developed a procedure for estimating the true, open inflation rate for an economy in the grip of high inflation and price controls. While it is impractical to determine the free-market (read: black-market) prices for all items in an official basket, it is often quite easy to observe the free, black-market exchange rate. Since this is the most important price in the economy, changes in the free, black-market exchange rate can be used to estimate the true, open inflation rate for an economy.

By using the most important free-market price in Venezuela — the black — market bolivar / U. S. dollar rate — we can accurately estimate Venezuela’s annual open inflation rate (see the accompanying chart). At the end of 2013, this true, open inflation rate was five times higher than the official rate. And the associated true misery index was 301, not 79.

I do not necessarily believe that anti-Americanism is responsible for scoring high on this index since regimes friendly to the US fare pretty poorly too. Rather, the regimes that use the United States as a scapegoat for domestic ills use it as an excuse for their economic mismanagement. Simply put, they are poorly run, that's all. Maybe the death metal band Misery Index should visit Caracas soon.