A Dip in Discomfort Favors Bush

With both major political parties having chosen their candidates, the 1988 presidential election campaign is getting into high gear. If the past two contests are any guide, you will hear more and more about a measure of economic well-being that could have a major influence on voters’ preferences. This is known as the “discomfort index.”

As its name implies, the discomfort index measures how uncomfortable people are. Although there might be many different ways to indicate discomfort, economists generally agree that, from an economic standpoint, people’s discomfort can best be measured by the speed at which prices are going up and by the rate of unemployment.

Plainly, everyone is uncomfortable when the rate of inflation is high, as was the case in the early years of this decade. In addition, people sense that there is something wrong when the unemployment rate is high--even if they themselves are not directly affected by the loss of a job.

In times past, there appeared to be a trade-off between inflation and unemployment. To get the jobless rate down, we had to accept a more rapid rate of price increases. Thus, while some people were more uncomfortable because of rapid inflation, it was offset by the more ebullient feeling that comes from lower unemployment. At other times, principally during recessions, unemployment would rise--but the rate of inflation would cool off.

All this began to change as the economy entered the 1973-75 recession. The unemployment rate rose--but the rate of inflation did not slow down.

By the time that recession was over, the discomfort index (produced by adding the 12-month rise in consumer prices to the latest unemployment rate) hit a postwar record of 20.1%. It subsequently retreated--but only to 12.6% in early 1978.

Later that year, the index began rising--reflecting a renewed acceleration of inflation. The index did not stop until it established a new postwar peak of 22%--just at the height of the 1980 presidential election campaign.

Needless to say, Ronald Reagan used this development to his advantage. He suggested that, by this measure, the American people were worse off at the end of the Carter Administration than they were at the beginning, when the discomfort index stood around 13%.

Four years later, Reagan again was able to employ the discomfort index to his benefit. In one of his debates with Democratic challenger Walter F. Mondale, the President pointed to the marked reduction in the index during his term in office.

Thanks largely to the slowing in the rate of inflation that occurred in the wake of the 1981-82 recession, the discomfort index in the autumn of 1984 was even lower than it was when President Gerald R. Ford left the White House in January, 1977. At 11.3%, the index was flashing its lowest reading since 1973.

Of course, Reagan was reelected and during his second term the discomfort index declined further. On the heels of an inflation rate of only 1%, the index reached an 18-year low of 7.8% in 1986 before increasing to 9.5% this summer.

To be sure, this index has been lower. In 1965--under a Democratic president--it was only half as large as this summer’s figure. That reading occurred in the middle of a wartime-based expansion. George Bush inherits a peacetime expansion that has lasted longer than any other in history and is exceeded in length only by the upswings that occurred in wartime.

Thus, from the standpoint of discomfort, at least, it would appear that the Republicans once again will have the advantage--unless something happens elsewhere in the economy between now and Election Day that takes precedence in the voters’ minds.