The Misery Index: A Look Back at Bulgaria’s Elections

With Bulgaria’s May 12^th election fast approaching, it is useful to reflect on past elections and the resulting economic performance of each elected government. To do this, I have developed a Misery Index inspired by the late Prof. Arthur Okun, a distinguished economist who served as an adviser to U.S. President Lyndon Johnson.

The Misery Index measures the level of “misery” in the economy. My modified Misery Index is equal to the inflation rate, plus the bank lending rate, plus the unemployment rate, minus the annual percent change in GDP.

An increase in the Misery Index indicates that things are getting worse: misery is increasing. A decrease in the Misery Index indicates that things are improving: misery is decreasing. The accompanying chart shows the evolution of Bulgaria’s Misery Index over time.

The Socialist Party government of Prime Minister Zhan Videnov created hyperinflation and a lot of misery. The Misery Index under the Videnov government’s watch peaked at 2138 in the first quarter of 1997. That number isn’t shown on the accompanying chart—if it was, the chart would take up an entire page of Trud.

So, the chart starts in the second quarter of 1997, with the Kostov government. Shortly after Kostov took power, Bulgaria installed a Currency Board System, based on a draft Currency Board Law, which I authored at the request of President Petar Stoyanov. The Currency Board brought an end to Bulgaria’s hyperinflation, which peaked with a monthly inflation rate of 242%, in February 1997.

Armed with the Currency Board, the Kostov government made a huge improvement over the Videnov government in Bulgaria’s Misery Index. From the second quarter of 1997 to the second quarter of 2001, the Misery Index dropped like a stone, falling by 1908.9 percentage points.

The National Movement Simeon II replaced the Kostov government and made further progress in bringing down Bulgaria’s Misery Index score.

Then, Sergei Stanishev’s European Socialist Party government took power and turned back the clock, ­­­­adding 8 percentage points to the Misery Index.

As for the most recent government of Boyko Borisov, the Misery Index showed a very slight improvement. That said, it is worth noting that, at the same time Borisov’s government hardly moved Bulgaria’s Misery Index, the Misery Indexes for the rest of Europe were registering significant increases in misery.

So, while the Borisov government did not do much to reduce Bulgaria’s Misery Index score (improve economic conditions), it still succeeded in shielding Bulgaria from the economic misery being experienced by the rest of Europe.

What can we learn from this look at the economic records of past post-communist Bulgarian governments? First, the key to the massive improvement in the Misery Index under the Kostov Government was the implementation of Bulgaria’s Currency Board. Second, every time a socialist government has assumed power in Bulgaria, economic misery has increased. Third, while the Borisov government didn’t do much to improve Bulgaria’s Misery Index score, things could have been worse, when compared to the rest of Europe.

In short, while the rest of Europe was sinking, the Borisov government just managed to hold its head above water.

This article was originally published in the Bulgarian newspaper Trud.

Author Steve H. Hanke