Why Americans are anxious, despite a low 'misery index'

The qualms of many Americans reveal a disconnect between how the economy looks on paper and how it appears to the public.

When Dennis Lees was growing up in Ireland in the 1970s, he learned to live on a shoestring budget. His parents were often unemployed, and there weren’t many opportunities available in their rural corner of a country that was struggling economically anyway.

Growing up as he did means he "developed financial thinking and financial coping skills that were appropriate for" the recent recession, he says. And with both him and his wife earning reasonable incomes – he works in Internet security in Morgantown, W.Va. – he's quite positive about their short-term financial security.

"But I do have this big question mark, a gray area in my thinking – about the future of our money in the long term," he adds.

Many Americans would agree: Gallup polls have found that Americans have had a negative view of the economy since last March. Such views come even as economic reports have been promising – such as about positive gross domestic product rates.

That leads some economic analysts to note something of a disconnect between how the economy looks on paper and what the public is actually feeling.

An example of this disconnect came earlier this week, when the Brookings Institution reported that its economic "misery index" had, from January through November 2015, been at its lowest levels since the 1950s.

"I think it's time for a new index," says Joseph Fuller, a professor at Harvard Business School in Boston.

"If you look at the traditional misery index, it misses the point today," he adds. "I don't think we're looking at the right numbers."

The index, first developed by Brooking economist Arthur Okun in the 1970s, combines the unemployment rate with the inflation rate to try to gauge the economic well-being of the country. But when Mr. Okun formulated the measure, it was in response to intense public anxiety over the unemployment and inflation rates – two measures that have arguably declined in public significance in recent decades.

Gary Burtless, a senior fellow at Brookings who made the misery index calculations for 2015, acknowledges that inflation in particular "has become much, much less of an issue with ordinary people."

"No one came up with the misery index until the late 1970s because that's when inflation began to be a very great concern to ordinary citizens," he adds. "It's not such a hot issue [now], so that part of the misery index probably carries a lot lower weight in the minds of ordinary voters."

The unemployment rate, however, remains a fixture in the public and political discourse about the economy. In his State of the Union address this week, President Obama boasted of an unemployment rate "cut in half" during his presidency, and that rate is a banner figure in each monthly jobs report from the Bureau of Labor Statistics.

Yet even the unemployment rate may not be the best metric to measure the economy with, some say. At least, it's not what the public seems to be most anxious about.

Stagnant wages are weighing more heavily on Americans, and experts say it's the main reason the country still hasn't fully recovered from the recession, which technically ended in June 2009 but in many respects continues to linger, particularly for the middle class.

The wages of middle-wage workers were either flat or in decline from the 1980s through the 2000s (except for a bump in the late ’90s), and wages for low-wage workers fell 5 percent from 1979 to 2013, according to an analysis from the liberal-leaning Economic Policy Institute.

The indicator of wage growth, plus one for persistent underemployment – where a person is "employed" but working a temporary or part-time job, or a job with minimal hours and few benefits – may be a better measure of the economy.

"If you keep looking at the nominal unemployment rate data, that keeps falling, but as it has fallen ... there’s no correlated increase in wages, and there's a big correlation of people treated as employed even though they’re underemployed," Professor Fuller says.

"There are very legitimate reasons for people to feel some anxiety," he adds. "It's not that they’re just missing something."

John Early, an investment adviser in Amarillo, Texas, says many of his clients think the economy may even get worse before it gets better.

"There's apprehension that the economy is not doing well and that the low unemployment rate overstates how well the economy is doing," he says. "I just think workers are feeling more squeezed, and the low unemployment rate doesn't measure their feeling squeezed."

Although there are several encouraging economic indicators, according to Mr. Burtless, some economists believe Americans may now have to adjust their expectations for what "financially secure" means.

The financial security that Americans enjoyed in the postwar era was a relatively novel phenomenon in US history, says Lane Kenworthy, a sociologist who studies the changing fortunes of America’s income groups. The social safety net programs set up in the 1960s in particular helped Americans "feel economically secure in a way their parents and grandparents couldn't even imagine."

"In some ways this is a very modern phenomenon, the idea that we could and should be financially and economically secure," says Dr. Kenworthy, a professor at the University of California, San Diego.

"That people went from having no buffer and that's just the way life was for everybody, to nearly everybody in these rich countries like the United States being able to feel like if something bad happened to them or their family, that they'd be OK, that’s a terrific achievement of humans and society," he adds. "But it's an interesting and worrisome thing that we seem to be moving away from that."

For Mr. Lees, the tech worker in Morgantown, the lessons he learned growing up in tough economic times in Ireland have him prepared for the financial uncertainty that seems to have engulfed many Americans.

"Financial security meant having income. It didn't mean doing anything wise or forward-thinking with it,” he says. “It's such a shortsighted view, but essentially that was the philosophy. If you have money, that's it. Income is security."

While no one expects the US economy to sink to the depths, Lees thinks people may have to adapt to a future where their personal finances are much less secure.

"I think anybody planning on holding onto static expectations about how they feel their future should unfold in terms of earning potential, employment," he adds, “if they hold onto those static expectations, they're setting themselves up for disappointment."