Misery Index predicts Obama will win the electionOctober 17, 2012: 12:08 PM ET
The misery index combines the unemployment rate and the annual inflation rate and has accurately predicted the outcome of nine of the last 12 presidential elections, according to economists at Deutsche Bank.
When it rises, it's considered a sign of a weaker economy and a bad omen for the incumbent president and his political party. When it falls, the outcome has been the opposite, with the incumbent or his party winning re-election.
(In the three cases when the index did not accurately predict the election, it was essentially flat, changing less than one percentage point over a four year period.)
Economist Arthur Okun invented the misery index in the early 1970s, and the indicator became famous when Jimmy Carter used it to criticize incumbent Gerald Ford in the 1976 election. Inflation was soaring during that time, and unemployment rose along with it.
Unfortunately for Carter, that trend continued throughout his own presidency, and four years later, challenger Ronald Reagan used the misery index to defeat him in the 1980 election.
"When he was a candidate in 1976, President Carter invented a thing he called the misery index," Reagan said in a debate a week before the election. "He added the rate of unemployment and the rate of inflation, and it came, at that time, to 12.5% under President Ford. He said that no man with that size misery index has a right to seek reelection to the Presidency. Today, by his own decision, the misery index is in excess of 20%, and I think this must suggest something."
Where does the misery index stand now? As of the third quarter, it was 9.8%, down from 11.3% four years ago.
"Our conclusion is that if voters choose their candidate based on this metric alone, the election will narrowly tilt in favor of the current President," said Carl Riccadonna, a Deutsche Bank economist who recently issued a report on the topic.
Riccadonna also analyzed where the misery index stands in the swing states. The battleground states of Michigan, Ohio, Virginia and Wisconsin have all shown improvement according to the misery index, suggesting Obama will win these states.
But four states -- Colorado, Missouri, Nevada and Pennsylvania -- are worse-off than they were four years ago. Florida is a toss-up.
"If these states go for Romney, his electoral tally will come in at a still-too-low 255," Riccadonna said. (At least 270 votes are needed to win.) He also notes however that Iowa, Minnesota and North Carolina have had very meek improvement in their misery levels. Romney would have to win two of these states, to push him over the edge.
Needless to say, the conclusion remains the same. The election remains a close one, and whomever wins is likely to do so only by a narrow margin.