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  The Despair Index: Strange Developments

Agnë Janutytë
2012 03 19

Various methods, indicators and indexes (e.g. GDP per capita, inflation, unemployment rate, Human Development Index etc.) are used to measure the national economic and social performance and welfare of inhabitants, i.e. to define the quality of life in different countries.

One of the indicators measuring the quality of life quality and national economic well-being is the Misery Index which is found by adding the unemployment rate to the inflation rate. But the Misery Index doesn’t really capture a “negative people’s well-being”. In view of this Ben Aris, editor-in-chief of the magazine „Business New Europe“ introduced the Despair Index which adds poverty to inflation and unemployment. The higher the index the lower national social security and welfare.

The aim of economic indicators is to define the prevailing economic and social situation in different world countries and to compare the countries. However, these indicators don’t fully reflect the actual situation of a specific country.

The Despair Index should first of all be considered in relation to the Human Poverty Index which is differently perceived in various world countries. What could be considered poverty by one person may not be considered as such by another. For instance, in 2010 in Lithuania the poverty line (threshold) was LTL 701 per person, in the United States about USD 1000, and about USD 40 per month in Niger, the country with lowest poverty rate.

A similar situation is with inflation, since the inflation rate is measured according to price changes in consumer basket (commodity and service prices); however consumer baskets and prices of goods and services also differ from country to country. The official unemployment rate might also differ from the actual unemployment rate in a country. In view of this, the indicators of the Despair Index should be treated critically – first of all it is necessary to get acquainted with the specific nature of economic life and history of relevant countries.

The interest in the Despair Index increased when Russia’s index become lower (for the first time) than that of the U.S. (November 2011). This could mean that life of the U.S. citizens is worse than that of Russians and that U.S. population is less happy than Russians. Only a few people could agree with the above statements.

In November 2011, Russia’s Despair Index score of 25,5 is lower than that of the U.S. which has a despair level of 28,1. Russia’s leading authorities rejoice. In fact, since the last decade of the 20th century Russian economy has improved. After the collapse of the Soviet Union the Despair Index was 2367 (due to especially high inflation, unemployment rate and poverty). After financial crisis in 1997 Russian economy gradually recovered and the Despair Index dropped down to 45,3; however, during the 1998 economic crisis it has again jumped to 93 together with a sharp rise of inflation and poverty. Since 2000 Russian economy has been slowly increasing and at the end of 2011 the Despair Index dropped to 25,5. Whereas the Despair Index in the United States has recently jumped due to various economic problems.

According to the data of 2011, Lithuania’s Despair Index scores 24,2 and mainly depends on the unemployment rate. Lithuania’s Despair Index is lower than that of the U.S. but only a few people could say that life in Russia or Lithuania is better than in the U.S. That’s why there are so many and funny interpretations of the Despair Index.

The analysis of changes in the global Despair Index revealed that it increases in the developed countries and decreases (or remains stable) in the developing countries. The increase of the index was due to the increasing unemployment rate and inflation in the developed countries, and to the state debt and budget deficit problems (especially after the 2008 financial crisis). The best period for the developed countries was the last decade of the 20th century when new economic opportunities opened after the collapse of the Soviet Union. Then the despair index in the above countries has dropped to 20-25, but today it scores 30 in nearly all Western European countries and is still increasing. The current Euro crisis would also contribute to the increase of the Despair Index in Europe.  These are nearly the main factors determining lower Despair Indexes in the developing and higher in the developed countries.

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