I used this index two days ago: my siblings and I want to buy a present as a group, but we are split across multiple countries and it wasn't clear how to make a fair split. We ended up agreeing that everyone would contribute their local equivalent of ~7.3 Big Macs.
The only minor correction needed was that the index lists the official dollar exchange price for some currencies while the real price is not even close to that, but that's not the index fault.
Also southern europe (Italy) MacDonalds are just fast foods, nothing more than a cheap place to get something to eat quick (and very used by families with children that usually love the periodical gadgets).
I remember that when I was attending primary school in Central Europe, a stop at McDonald's was the most anticipated moment of every school trip. That was 25+ years ago though, and we were kids...
Their stock and earnings would suggest they’re more popular than ever. Every time I drive past the one near me there’s a line of cars wrapped around it.
Are they not letting people inside? a couple around me still seem to be 'drive through only', which accounts for 'line of cars' I see, which... just seems like it's people sitting around wasting more gas idling. Maybe some McDonalds will convert to a 'drive-in' style, like sonic, with food runners...
Some fast-food places in the US went drive-through-only in 2020 and are still that way. I think if you're in the kind of rural or suburban place where almost everyone drives almost everywhere, then the drive-through does the majority of fast food business anyway, and many people who would have gone inside will switch to the drive-through rather than not buying your food, so the cost savings from not having to hire more staff to maintain the dining room might make up for the lost sales. Obviously in an urban area that gets a lot of foot traffic, this would not be the case.
Some of the places around me are 'dine-in sometimes', which is maddening, as I can't tell until I go to the door if it's locked or not. So... I've quite going to those places. I don't care to sit idling my car for 3-5 minutes in a long queue.
I assume that Macdonald's prices based on perceived value. If you go to Asia, McD’s has a much higher perceived value - and McD’s knows this and does multiple product launches every year, often catering to local tastes.
So I’d assume that consumers in the US or Europe don’t value a Big Mac the same was they do in Asia and as such the pricing differ (i.e. they can price higher in Asia).
True. In parts of Eastern Europe and in Asia, McDonalds is still considered a American premium-brand. Same goes for Starbucks and some other American chains.
From having eaten at McD's in Sweden and Korea I'd say the Korean McD's is miles beyond the Swedish one in every way, including tasting better and also being cheaper. In Sweden I would never eat there unless I really had no other option, whereas I don't mind eating McDonald's in Korea.
And that's ignoring the fact that a lot of the revenue and profit go to franchisees, and never make it to the corporate level to be reflected in those numbers.
There's no assumption necessary. Clearly a whole lot of people still like McDonald's.
I for one am shocked a Big Mac costs $5.81 in the United States. It's been too long I guess but I remember the meals going for $5-6 when I was a kid. And that's national average too, not an expensive metro area.
Surely there were advances in production and logistics that would have lowered the "real" cost of McDonalds delivering a Big Mac, so all else being equal we would expect the price to drop over time. But monetary inflation makes up for it and then some.
I think the index is skewed by the fact that the offers work differently in different countries.
In France the sandwich isn't much cheaper than the meal. The last time I was in Russia (lowest price on the chart) as I recall there's not as much of a saving for buying the meal.
Yes, I am surprised too. Especially when an In-n-Out Double Double costs $4.20 (this is in expensive California) and their burger has more meat. Plus In-n-out is notoriously generous with worker pay and benefits ($14 - $38 per hour, 401k benefits, health benefits, and paid holidays and vacation). I guess for McDonald's that extra money goes to advertising and executive pay?
> Surely there were advances in production and logistics that would have lowered the "real" cost of McDonalds delivering a Big Mac, so all else being equal we would expect the price to drop over time.
For that, you should look at number of minutes (or hours) the average person needs to work to afford a local Big Mac.
I meant more on the production side. Like how much labor and raw material is required to make a Big Mac.
But I guess if you consider the price relative to typical wages then it should give you a similar effect, although it would ignore the advancements in capital productivity which may not be reflected in wage data.
Advances is capital productivity usually drive wages higher pretty soon, no?
In any case, I just brought up this 'minutes of labour for one Big Mac' index, because I remembered that some people had already done the numbers and it seemed somewhat relevant to your question.
I have no clue whether it's the best index anyone could come up with.
Well first the price is built to entice you to get a value meal.
Second, there's a non-insignificant time for labor on making the Big Mac + we all know that the cost of beef is increasing quite a bit overtime. And while McDonalds are expert at logistics, you could argue that they have been expert for so long now that they already got all the savings they could have gone many years ago.
At the end of the day, it's expensive beef, with a labor shortage.
In the past few years, McDonald's (and some, but not all, other fast food restaurants) really seems to have gone all-in on the price-discrimination approach of setting list prices high and offering all kinds of discounts if you know where to look.
Relevant to the Big Mac Index, at the moment the app offers a two-for-one deal, through February 27, on Big Macs; so the effective price isn't $5.81 but $2.90. If you don't want two Big Macs, you can get free fries or a free drink, or both, or 20% off your whole order instead: but you can only use one discount every fifteen minutes, and you can only use any specific discount once per day.
The implication for the Big Mac Index is that in the face of the complex web of discounts offered by McDonald's it's nearly impossible to calculate the actual price of a Big Mac in the United States for general purposes.
That the 'discount' is offered through February 27 shows that this isn't really a discount but effectively the regular price for people who order through the app. The choice of the 27th for the end date leads me to suspect that they might be lifting the discount for one day a month to keep the FTC happy.
In the past few years, McDonald's (and some,
but not all, other fast food restaurants)
really seems to have gone all-in on the
price-discrimination approach of setting
list prices high and offering all kinds of
discounts if you know where to look.
Not that this is exactly some secret but a while back, it was explained to us (by somebody reasonably high up the org chart at McDonalds) is that the sandwiches themselves were money-losers, but that fries and drinks were essentially pure profit. (Thus, the birth of the infamous "super size it!" promotion)
They reallllly don't want you going in there and just buying sandwiches.
I don't see how this really works any more because a Big Mac is different in different countries. It's not an "identical" product being compared.
You can use McDonald's own local nutrition calculators to confirm this. A Big Mac in the US is 550 calories, yet 508 calories in the UK (522 in Russia and a mere 498 in Switzerland, for comparison). Is it factored into the index that British fast food fans are getting 7.6% less burger as well as paying more than a US consumer?
I think there's more to consider here too that makes it irrelevant in terms of currency comparison. Usually cheap stuff like bread is notoriously expensive in Switzerland for example, I'd assume because the price of labour is that high. As such the cost of making a big mac there is also more expensive, buying power is higher, so to meet demand and recoup labour costs the end prices are higher.
Same for the other extreme example in Turkey where workers are dirt cheap, and as such don't have much buying power or contribute that much to the overall burger cost, so the price is effectively lower.
This is just another standards of living map, it has barely anything to do with currency conversion. The Lira isn't undervalued, it's in a hyperinflation nosedive because of gross monetary mismanagement of Turkey lol.
It isn't about converting currency as much as a hypothetical arbitrage play in the difference between exchange rates and actual prices. If I took a bunch of dollars to Turkey, converted them, bought an obscene amount of Big Macs, brought them back to the US, and resold them, there would be a lot of money to be made due to the value gap. Obviously ignore the fact that Big Macs are perishable goods(arguable?) and that there isn't a decent market for second hand burgers...but this would work for other goods imported into the US.
Yeah theoretically, except customs tend to nullify that exact arbitrage profit. If anything you'd have a major loss. Could work for inside the EU I guess though, between those that don't use the Euro and those that do.
This isn’t really accurate. Offshoring is the act of moving services or processes to a foreign entity, and while the processes can be the production of goods, my example is simply explaining price arbitrage between goods that are existing. The same thing can be done in forex markets, but the markets are too efficient to actually find those opportunities regularly. And I wouldn’t call forex trading “offshoring”.
… and get considerably more for those taxes. When you do the math, the combined federal + state + local tax rate plus health insurance and related expenditures starts to look awfully close to what someone in Denmark gets, except that their services also work better (e.g. nobody has a part-time job fighting their insurance company to and/or hospital to pay the correct amount).
Hey, saw the comment you deleted. I'm sorry you're in a rough situation — I had a coworker in similar straits and hope that you find something which works out for your family as they eventually did.
It's not quite that simple. The US Big Mac [1] has 11% more calories than the Denmark Big Mac [2], which is an 11% difference. Also, the average hourly wage in the US is $31.63 [3] as of January 31st.
Uh, I guarantee you that a worker at a US McDonalds is not making $31/hour. The $22 I quoted for Denmark is the pay AT McDonalds, not the nationwide average hourly wage.
>Usually cheap stuff like bread is notoriously expensive in Switzerland for example,
maybe ingredient quality in some places might be legally mandated, increasing price (I know everyone gets the same, but not if the law says different) basically the thing I'm thinking of is an article about a year ago where some sort of white bread was declared legally not bread but a form of cake by some EU country - can't remember but a similar ruling could affect bun quality in various countries.
That's not really an issue because big mac advertising rarely mentions "bread" explicitly. They could make it out of actual cake, and probably be fine as long as they called it a "bun" rather than "bread".
I think you will find that countries with a bread culture (e.g. Switzerland, Germany, France, etc) will not agree that what you consider bread is what they consider bread. This is a question about quality, not labour prices.
Take the inverse: in Germany, by and large, a hamburger is that thing you get at McDonalds. That Americans typically pay more than $2.00 for a hamburger is not a sign of high labour costs, but rather that they'll buy something better instead.
Burgernomics was never intended as a precise gauge of currency misalignment,
merely a tool to make exchange-rate theory more digestible. Yet the Big Mac
index has become a global standard, included in several economic textbooks
and the subject of dozens of academic studies. For those who take their fast
food more seriously, we also calculate a gourmet version of the index.
Wow this was insane. Having lived in both the UK and US, I always felt that there was a difference in portion size. But it's pretty bonkers to see the comparison before me like this.
The calorie difference wasn't as bad as I was expecting. I always forget, because the UK is always making fun of the US for being fat, that they're the fattest people in Europe (well, they trade the title back and forth with the Greeks.)
I like that other "Big Mac index" where they compare how long an employee has to work at McDonald's in different countries to buy a Big Mac there; that at least give you some idea of which economy you'd want to live in.
What percentage of the labor force earned the minimum wage in the 1970s versus today?
Today it's less than 1%.
More realistically the new minimum wage in the US is ~$13-$15 per hour, which you can earn from Walmart, Target, Amazon, Walgreens, CVS, Best Buy and most of the rest. They can't get enough labor and will hire almost anyone that walks in the door.
These days you can trivially earn $13-$15 / hour to start, working at popular convenience stores like Sheetz, Wawa and numerous others like them.
Skills required? The ability to talk to people normally, show up to work and scan bar codes.
I'm not sure what your point is. You've invented a premise I didn't suggest, about the lack of minimum wage laws and $0 / hr.
If someone is going to reference the US minimum wage, pretending that it matters for the Big Mac context, then it's quite relevant what percentage of the labor force is actually earning the minimum wage. Today that number is exceptionally low and it's trivial for most people in the bottom labor tier to earn far more than minimum wage.
About the only places still commonly paying minimum wage, are small mom & pop businesses in the middle of nowhere (ie places entirely devoid of competition from the previously mentioned big businesses). Independent convenience stores run by Joe and Susie Shop Owner in Buckhannon West Virginia, jobs held by local teenagers that can't drive 60 minutes to the nearest Walmart (except of course even Buckhannon has a Walmart Supercenter; a town in the middle of nowhere with 5,000 people).
The biggest entry-level US employers - which hoover up labor anywhere they can get it - are all paying far more than the minimum wage (along with other now standard benefits like health insurance, which is very expensive and not included in the pay figures).
If you think about what 1970s "middle income" jobs looked like, they were mostly factory jobs that paid well. Nowadays those jobs don't exist due to deindustrialization. So you can't really blame that income inequality on domestic US social policy when a big portion was due to US foreign policy.
The minimum wage one is next to useless. States and cities set their own minimum wages. Unemployed people or people on fixed income have wages of 0. This chart doesn't really describe any meaningful set of the population or how they are doing.
About 20 states have their minimum wage at the federal minimum wage. So the federal minimum does have a major impact on the actual minimum. I agree about the other part though.
As another commenter pointed out, minimum wage affects less than 1% of the population. It's a bit bizarre to focus in on such a long tail.
More importantly, Big Mac Index is based on the average US price. But Big Macs in, say, Arkansas can be almost 40% cheaper than one from California. So it's really not fair to compare the federal minimum wage to the national price.
>minimum wage affects less than 1% of the population.
It does now. If it were raised to 15-20 an hour how many would it effect? If there was zero effect then it would have already passed because it would have been easy points for a congressmen to say "Look what I did for the poor and hopeless I care".
> About 20 states have their minimum wage at the federal minimum wage.
Minimum wage in those states is increasingly meaningless as almost no one will work for that wage. The longer the minimum wage isn't updated, the more irrelevant it is.
Seattle has a higher minimum wage now of $14.50, but it is also mostly meaningless at this point. Conservatives used to propose $20 minimum wages as slippery slope straw men, but these days that proposed wage wouldn't be considered a straw man at all.
This chart seems to be misleading, especially when we know that purchasing power was higher back then. It was far easier to buy a house with the income back then too.
In major metros, city councils prevented construction - as such supply could not meet demand and the price of housing in cities went up dramatically more than inflation.
Outside major metros, minimum setback rules, minimum size rules, and myriad other policies conspired to make the average new house twice as large as they were before, while families on average shrunk.
That said, adjusted for inflation, 1 square foot of new house costs exactly the same today as it did in the 1970s.
This is what it looks like when you have federalized zoning and allow supply to meet demand. [2, 3] This is what it looks like when you do not. [4]
I also reject the idea that it was easier to buy houses back in the day on average on a per square foot basis. In the 70s, we saw mortgage interest rates as high as 12% on a 30 year fixed. You can buy a significantly more expensive house on the same monthly payment when you're on a 30-year fixed 2% APR mortgage vs a 12% APR mortgage.
It doesn't matter that purchasing power was higher back then per unit because today you get significantly more units.
> Outside major metros, minimum setback rules, minimum size rules, and myriad other policies conspired to make the average new house twice as large as they were before, while families on average shrunk.
Outside major metros, the economy isn't as hot and demand is tapered back significantly. In cities that have poor economies, housing prices are also cheap. In places that are extremely dense (NYC) with hot economies, housing is still expensive. All I can tell from this is "popularity = high prices", it isn't clear that you could build enough housing to satisfy demand in a hot economy because more people might make the economy even hotter (attracting even more people).
In SF you can't build a house that casts a shadow over a park ever no matter how small. The entire western half of the city is zoned for 4-story housing. This is why housing is expensive in SF. SF added less than half as many houses over the last few decades as necessary to keep pace with job growth and there's simply no excuse for it. [1]
SF is one of the densest cities in the USA (17k/sqm vs. NYC's 27k/sqm). And...it is not like you HAVE to live in SF, there are plenty of cities nearby.
Houses are expensive in SF because people want to live in SF. If SF had 10 times as many housing, then there would simply be 10 times as much economic activity and prices wouldn't budge. If you want cheap housing for your city, make your economy unattractive like Gary Indiana, or, if you like your economy, take the Tokyo approach and make housing speculation unattractive and let units be small.
> SF is one of the densest cities in the USA (17k/sqm vs. NYC's 27k/sqm).
This is irrelevant, it's obviously not sufficiently dense to meet demand. If you look at the photo you'll obviously see that it's simply not particularly dense by visual inspection.
> Houses are expensive in SF because people want to live in SF.
They are expensive because they do not permit sufficient construction to meet the demand, what about that do you disagree with? It's not just that people want to live there - it's because people want to live there and city council would rather keep a derelict parking lot for Nordstrom than put up a 27-story 500 unit condo building in the middle of downtown. [1]
> If you want cheap housing for your city, make your economy unattractive like Gary Indiana, or, if you like your economy, take the Tokyo approach and make housing speculation unattractive and let units be small.
That has nothing to do with what Tokyo does. Tokyo permits construction via federal zoning rules.
> This is irrelevant, it's obviously not sufficiently dense to meet demand. If you look at the photo you'll obviously see that it's simply not particularly dense by visual inspection.
Why does demand always have to be met in one smallish (geographically speaking) city?
> They are expensive because they do not permit sufficient construction to meet the demand, what about that do you disagree with? It's not just that people want to live there - it's because people want to live there and city council would rather keep a derelict parking lot for Nordstrom than put up a 27-story 500 unit condo building in the middle of downtown. [1]
> That has nothing to do with what Tokyo does. Tokyo permits construction via federal zoning rules.
The former probably wouldn't have been approved in Tokyo either. But yes, I do prefer Tokyo's solution to zoning (residential can go anywhere, businesses can mix as well), and their solution to property speculation (housing depreciates rather than appreciates because it is so easy to rebuild)
Still, SF is more dense than Tokyo (6,658 ppl / sqkm vs 6,158 ppl /sqkm), but as mentioned before, SF is tiny while Tokyo is huge.
> Why does demand always have to be met in one smallish (geographically speaking) city?
The demand is created by that community, located in that area - it is endogenous. These communities of people create self-reenforcing network effects. Logically it follows that the supply should be created where the demand is, not just because, well, that's where the demand is - but because it re-enforces this flywheel.
Why would you put the supply somewhere the demand isn't?
>Why does demand always have to be met in one smallish (geographically speaking) city?
Because wealthy people who live off capital gains live there. Tell them to spend their money somewhere else. People move there because they want or need the billionaire's money.
> And...it is not like you HAVE to live in SF, there are plenty of cities nearby
All of which have even more draconian zoning policies that permit only SFH (not even a 5+1). If SF had 10 times as much housing maybe we'd have 10 times as many people being productively employed in industries in the city instead of being forced to locate elsewhere. Maybe some of those people wouldn't HAVE to work in tech/finance to afford the city.
Your opposition to increased density benefits only yourself and existing landowners.
I’m not against density, density does bring benefits that I prefer, just not affordability. Just that if SF was even more dense than it was now, it would still be NYC expensive, hardly affordable. Affordability isn’t a problem you can build your way out of, not in any context I’ve seen (Tokyo being a sole exception, we just have to have a falling birth rate and block off immigration for it to work).
If SF had 10x the people, it’s density would be on par with Shanghai. If only Shanghai real estate were as cheap as SF’s, then we could make a valid comparison.
Falling birth rate and immigration are irrelevant - all they do is contribute to the fact supply meets demand there. When supply meets demand prices approach the cost of construction.
Shanghai real estate is expensive because China has no property tax. Coincidentally, California also has a problem with extremely high property valuations due to Prop 13 lowering taxes.
> NYC expensive, hardly affordable
NYC has record low new supply of housing relative to demand. Not a great example.
Independent of how they got those numbers: the income levels reflect average (presumably median) worker earnings; not the earnings of minimum wage workers. Which most definitely have not gone up 10x since 1974.
This is a very, very important distinction. Right?
> "You're now losing -1% of your money to inflation per year or 1.0% per month"
What on earth does that mean? Inflation of 6% annualized is 0.4% per month.
Big Macs against the S&P 500 is some sort of chart crime. Yeah, companies became more valuable because we're good at making companies. That's got very little to do with ... anything. [edit] Especially since the S&P 500 isn't some sort of platonic ideal - it's a moving target! They replace companies over time!
Further, wage growth not matching production efficiencies or even decelerating is not a monetary policy issue (or anything to do with inflation) but a social policy issue. Specifically, minimum wage not tracking inflation, and in my opinion, a broad-based rejection of unions.
It's kind of hard to take these sites seriously when they fail at both math and economics.
And more than that when they steal my back button.
> Further, wage growth not matching production efficiencies or even decelerating is not a monetary policy issue (or anything to do with inflation) but a social policy issue. Specifically, minimum wage not tracking inflation, and in my opinion, a broad-based rejection of unions.
It can be both a monetary policy issue and a social policy issue.
Entities that are close to the money-creation spigot that is the Fed have a decreasing cost of money and debt. Anyone / thing further from the cheap supply of money have seen less benefit. The people working for minimum wage are very far from the cheap supply of money.
Social policy, as you point out, has not kept up with monetary policy. But the problem is initiated from monetary policy.
The "money creation spigot" is lending. Anywho who borrows money is at the spigot - that's how fractional reserve lending works, and that's where money comes from. This means anyone with a mortgage, anyone with a credit card, anyone with a post-paid phone plan.
Indexing minimum wage to inflation substantially solves the problem.
Can you quantify the spread you claim exists here? I feel like just pointing to the "cantillon effect" and blaming it for everything without actually quantifying the magnitude of the issue you think exists is harmful to the discourse.
The charter of the central bank is to maintain low predictable inflation and maximize employment. That's the function of monetary policy.
I wonder if a big part of the allleged theft from the little guy isn't due to dishonest CPI statistics that manipulate officially reported inflation to be lower than the cost of living increases most people experience.
Also perhaps fractional reserve banking does create the issue thatp those who can borrow money and buy assers have an advantage over those at the bottom who strugglle to buy assets and cannot borrow.
I am certainly a fan of modern day capitalism compared to socialist redistribution, but a lot can maybe be fixed with "honest" money of some sort that is not easy to inflate at will. (Algorithmic money perhaps like a carefully designed crypto or some variation of gold backing)
The challenge with honest money, is you cannot really control monetary policy (the free market will set interest rates) , but the benefit is, nobody can debase it too easily.
i. e. no bailing out wallstreet during recessions, but also if you gonna bailout consumers with stimmies they will pay for it later in higher taxes.
> I wonder if a big part of the allleged theft from the little guy isn't due to dishonest CPI statistics that manipulate officially reported inflation to be lower than the cost of living increases most people experience.
The thing is, the breakdowns, source materials, algorithms, data - they're all published. This isn't Joe Biden goes to the podium and bestows unto us that the CPI was 7% annualized this quarter and doesn't take follow-up questions. Everything is tracked, measured and published by the BLS. [1] People don't take it at face value, think tanks run their own assessments too. Then you have crackpots that just "add 7.5%" to the number and call it a day. [2]
But intuitively we know that "just add 7.5%" is way too high, because if the annualized inflation had been 10% since the year 2000, that means prices would have to be a minimum of 8X higher than they were in 2000.
- In the year 2000 an iMac cost $799. The latest iMac is $1299, not $7000. That would be 2.2% inflation.
- In the year 2002 a Big Mac cost $2.39. Today a Big Mac is $3.99, not $19.12. That would also be 2.6% inflation.
This whole conspiracy theory around a wildly different "shadow" CPI is just that.
You can even compute your own based on receipts you have lying around. I suspect you'll find it not materially different from the published numbers.
> Also perhaps fractional reserve banking does create the issue thatp those who can borrow money and buy assers have an advantage over those at the bottom who strugglle to buy assets and cannot borrow.
I'm not rejecting the cantillon effect wholesale, I'm asking for a quantification, which I have yet to see anyone provide. Folks tend to point at it and blame it for everything but then not have any substantiation of its size.
However, I strongly suspect poor folks and especially middle class folks, have far more debt as a percentage of net worth than rich folks do and so spend more time at the spigot so to speak - relatively, not in absolute terms.
> The challenge with honest money, is you cannot really control monetary policy (the free market will set interest rates) , but the benefit is, nobody can debase it too easily.
Debase is a poor term to use because modern economics shows us that supply and value are not tied in the way folks intuit. For instance, Japan has 3X'd their money supply since 1990 but their CPI is literally dead-ass 0% and has been for 30 years. Their prices for anything and everything on average remain exactly the same as in 1990. This is why we reject the Austrian school.
> ... but also if you gonna bailout consumers with stimmies they will pay for it later in higher taxes.
Money has a value and a duration. Stimulus bills pull future money into the present. You don't pay for it later in taxes, per se. If the stimulus creates economic activity yielding revenues in excess of the stimulus itself then it can be 'free.'
A stimulus is an investment and it is a common mistake to look at the liabilities line without looking at the assets line.
> I'm not rejecting the cantillon effect wholesale, I'm asking for a quantification ..
You might as well ask for a quantification of the Matthew Effect [1] ... you won't get one. Would it be helpful? Yes, probably.
But more important than having a quantification is, that people register the fact that such effects exist. Depending upon how most people would define fairness, the conclusion from the existence of these effects could then be: there need to be measures taken (taxes, subsidies, ...) so there's some degree of compensation, otherwise society will find itself in an (unnecessarily) instable dynamic.
> However, I strongly suspect poor folks and especially middle class folks, have far more debt as a percentage of net worth than rich folks do and so spend more time at the spigot so to speak - relatively, not in absolute terms.
It reads as if you put some kind of blame on those poorer people who borrow money .. or do I get this wrong?
You do realize that taking on debt doesn't make these poorer people the ones who create the money, right?
The banks lending out the money are the creators of fresh money. And likewise it's not the debtors but the banks who collect the interest. The interest, which represents the exact (and only) amount of money that'll effectively have been created out of nothing after everything will have been payed back.
The much bigger credit sum which the banks hand out to the debtors, that's just lending from the future, not money creation.
Not trying to blame anyone for anything here! My point was that in isolation, if wages keep pace with inflation, inflation benefits debtors (especially long term structured debt like mortgages) because you take out the debt in today dollars and can repay them with future dollars worth less.
For instance I have a 2.75-ish% APR 30 year fixed rate mortgage but inflation was 7%, so I made a ton of money by having that debt - factoring in tax breaks, I made nearly 6% return by having that mortgage over paying off my house.
I’m suggesting that lower and middle class folks have far more debt as a percentage of net worth and therefore benefit more as a percentage of net worth than wealthy folks from inflation (“being at the spigot”).
This is roughly right, as inflation rates go up to 12% inequality actually declines. Rich folks lose money on equities due to DCF modeling and folks with debt see it inflate away. I can find the study if you like.
But this is all conditional on wages keeping pace.
> I’m suggesting that lower and middle class folks have far more debt as a percentage of net worth and therefore benefit more as a percentage of net worth than wealthy folks from inflation (“being at the spigot”).
Agree. This is one effect of inflation that's beneficial for debtors.
There's another effect that lets especially lower wealth/income groups look not so good: the structure of net worth.
Wealthy and high income group people typically have assets that will be more or less inflation neutral. I don't need to make a list: real estate, stocks, ... the big fortunes consisting of these won't care one bit about inflation.
Low income people mostly don't have these. If they own anything at all, it's mostyl cash, so hit 100 % by inflation.
> But this is all conditional on wages keeping pace.
Here's the catch ... according to [1]:
> Research by the McKinsey Global Institute found that between 65% and 70% of people in 25 advanced countries saw no increase in their earnings between 2005 and 2014.
You might say, hey, we didn't have much inflation according to CPI from 2005 to 2014.
Well, then just take housing prices, which make up a big chunk of most peoples' expenses and have increased significantly over this period according to OECD data [2].
> If the stimulus creates economic activity yielding revenues in excess of the stimulus itself then it can be 'free.'
In a growing economy (where more tangible goods and services are delivered to customers) this can be true, yes.
Kind of off-topic: I very much doubt this concept/aspiration/narrative/foundation or principle of planning/budgeting worldwide economy/expenses will remain viable for more than 20 years from now.
Why? Because humankind would be well advised to regard consumption of fossil energy as peak value, from where it continuously needs to decrease (rapidly so). The one driver of economic growth - energy, key to any human activity - ought to better have a lid on for decades to come.
Not a good outlook for growth (of said tangible goods and services).
A lot can be fixed with demurrage currency. Eternal currency inspired by the gold standard does not work because time doesn't stand still when you don't spend your money, there are people on the other side waiting for you to spend your money so they can buy food.
"Printing" money is a side effect caused by people delaying their spending eternally. You can have an fixed supply inflation free 0% interest currency with an annual fee on excess liquitiy (often known as negative interest). All you need to do is implement the demurrage fee on cash via expiration dates. Expired notes require a fee to be exchanged, the expiry date is printed on a replaceable sticker.
You should worry about the federal tax "spigot" instead. It does not take very many brain cells to understand that taxes are collected everywhere and paid out wherever politicians want leading to geographical inequality.
Interest rates and capital gains kinda act like a tax as well because wealthy people concentrate in a few high profile cities and are not spread out like local bank branches.
Oh and land is a natural monopoly so land owners get their cut as well.
Labour and tax components of the costs are wildly different in countries. Raw materials might be almost irrelevant in some places. Because of this, the quality of the dining experiences are wildly different, because each restaurant owner needs to justify their costs. Add to this the effect of competition, which itself depends on local markets.
The thing about the big mac is that it's that the ingredients are locally sourced -- local beef, bread, vegetables, and workforce. Not so much with Aspirin, or many other "universal" products
The original idea used to be that you could use the price of big Mac instead of comparing every aspect of consumer spend to calculate PPP.
But clearly that isn't working anymore. Indian PPP rate which tech companies use to adjust pay is around 17-20 INR/USD. But this chart implies that the number is close to 35 INR/USD
The numbers from numbeo which uses all the aspects of consumer spend gets a ratio closer to the one used by tech companies
Maybe the original criticism of big Mac index still stands: there are cheaper burgers in other countries and they should be comparing against that.
They didn't choose "burgers" - they choose something that's largely the same across the world. A Big Mac was what they choose. It's certainly not intended as a policy tool or a pay adjustment tool. But it is an interesting metric non the less.
I actually eat McD's specifically at least once while traveling internationally to see how much it changes. Anecdotal but its been my experience the core items taste and appear strikingly similar everywhere, and that's ~10 data points across the world.
I ask because I didn't get around to it; there's just too much good food in Japan and I wasn't there long enough.
But I did have a Wendy's burger, and I can tell you: it's not the same burger you get in the States. It's much better. For a given ingredient, it will be inadequate in the US, in Japan, they are all food, like you might get from a bistro.
That made me curious about McDs, but not curious enough to blow an entire precious meal on it.
I've had a Big Mac in Japan. Like GP, I too have tried a Big Mac in probably a dozen different countries because I'm a strange dude who loves traveling and Big Macs. It was a little smaller and modified for local tastes (more spice, less special sauce) but overall pretty much the same.
FWIW, I had a short layover in Japan in 2017 and had the McNuggets & fries at the airport. They were identical. The biggest difference was the size of the drink that came with the meal.
The Big Mac in Japan is very tasty and definitely edible. In the US, almost every one I have had is disgusting and sloppily made. Iirc, I had one good one at one AM or so. I’ve given up on trying them.
Egg McMuffins in Japan were also better. Not sure why. I can eat them in the US, and sometimes they are good, but at least half the time I regret ordering it.
Note that these are all retrospective comparisons. I’m guessing the main differences were bread quality, freshness (not under the lamp for long), and meticulous sandwich construction.
McDs was a valid option for a quick bite in Japan (maybe once a month?). I expected something similar when I returned to the US. I was sadly disappointed.
It really is. I happened to stay for a week in the house of the man who owned the company that (at that time) provided all of the cheese for McDonalds in all of Europe, except Russia. His plants were subject to lots of random inspections where they would not only taste-test the cheese, but chemically and mechanically examine it to ensure that it was the same as was being produced in the rest of the world.
I think that the confusion might be that McDonalds has a lot of "local" menu items that you can only find in those countries (e.g.: beer in Germany, wine in France). Those items are very different, but the "core" items, like the Bic Mac in question, are very much the same across the world.
I should note that there are a few cheats to this. For example what is called the Quarter Pounder in the U.S. is slightly tweaked in Europe, and I think that is usually called something like "Hamburger Royale", so there is that. But that could go either way depending on how you see it.
All I'm saying is, it used to reflect the PPP ratio in my country a few years ago and it definitely did when they first formulated this.
But it no longer does.
Also, unrelated: India doesn't have a Big Mac because beef is illegal in most of the country and in the other parts, most of population still doesn't eat beef.
Probably 190 is the price of some hypothetical big Mac.
"In 2019, there was an estimated $1,650 trillion in
foreign exchange market activity (Bank for International Settlements 2019, p.3).6 In that same
year, world trade in goods and services was $24.96 trillion (World Trade Organization 2020,
p.17). This is 1.5% of total currency market activity. Even allowing for multiple covering
transactions by various parties and multiplying this by a factor of five, it still yields a total of only
$124.8 trillion, or 7.5% of total foreign exchange volume. If we assumed that the appropriate
factor were ten, which seems very unlikely, this does not help markedly as it only gets us to 15%
of the market. In other words, purchasing power parity is an explanation of currency prices that is
based on something in the range of 1.5% to 15% of actual foreign exchange market activity.
Even supporters of purchasing power parity admit that it only holds in the long run – a
period of time they say is equivalent to years or even decades. The more likely answer is that it
does not hold at all. Because the factors that determine the demand for goods and services differ
significantly from those that drive financial capital flows, purchasing power parity cannot
possibly explain real-world currency movements."
In Argentina one of the biggest issues with this Index is that if they use the official exchange I may look like that the Peso is way stronger than what actually it is.
We have a lot of restrictions that prohibit Argentinian's from getting Dollars a that exchange ( only 200 USD a months ). It should be more fair to use the "Dollar Libre" (kind of dollars of the black market) as the exchange rate, which is double the official.
Actually, the biggest issue with the Big Mac Index in Argentina, is that the government tried to regulate the price of Big Macs specifically to manipulate the index!
I remember the news of the time when they opened the first McDonalds in Russia and thanks to youtube, you can relive that moment and also appreciate back then, what was cheap for us, was not so in Russia, but yet they still came.
I was in McDonald’s yesterday in the UK and saw this was a product here now. I thought it was a new product hah, I hadn’t even considered it would be more readily available elsewhere
> In rich countries, it targets lower income strata.
[citation needed]; anecdotal, I live in a rich country, a trip to McD's for a family of 3 quickly adds up to €25; home cooked dinner is < €10.
I will acknowledge that the ability to cook food at home and having access to a supermarket that actually stocks fresh vegetables and the like is a rich country's privilege. That said, I gathered there's plenty of places in the US where that is simply not a thing.
Anecdotally that's the case in Brazil. McD is a lower-middle class and up place. McD in Brazil is actually not that bad in terms of quality. It doesn't have the bad rep it has in the US.
> I live in a rich country, a trip to McD's for a family of 3 quickly adds up to €25
That's pretty cheap for a rich country (i.e. the US or UK), especially when you consider the labor/time saved when you don't cook. Also, most people who fall in the lower income strata don't eat out every day, so $25/€25 for an occasional McDonalds meal for 3 is pretty achievable.
The upper middle class in rich countries easily pay 2-3 times that price per restaurant meal.
The comparison was to street/fast food, not home-cooked food; food with a labor cost. It's easy to make a great meal for a third of what street food costs, anywhere, if you're willing to list and shop for ingredients, keep track of what you have used and what you need to use quickly before it goes bad, spend 30-45 mins cooking it and another 15 mins washing dishes.
A lot of people make more money at jobs, or simply don't have the time left in the day to make that a good deal.
Isn't the point of the index that it reflects precisely this? Because the chain of production of the burger is globally standardized, its intrinsic value should be expected to be the same everywhere.
Is the article hard to read for anyone else? The font looks terrible with jaggies everywhere. After removing "Charter" from the variable "--ds-type-system-serif" on :root, the page became legible. FF96 on void.
It could also suggest Russian people don't like Big Macs as much as US Americans do, which I can confirm. A price reflects not only exchange rates but also supply and demand.
So many comments here miss the tone with which The Economist presents this. It encapsulates some intriguing truth about the HN commentariat that the disclaimers are so willfully ignored.
> The Big Mac index was invented by The Economist in 1986 as a lighthearted guide...
> Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible.
And before you go and dissect the last sentence as E claiming it has actual use, stop and look both ways for puns.
I really like puns. This seems to be the only place I post where I need to add /s or some other indicator to avoid literal interpretations of what I wrote.
I'm curious how the Hong Kong Dollar can be "undervalued" with respect to the US Dollar by 51.4% when it's pegged 1:7.8
PPP doesn't really mean that a currency is 'undervalued' or 'overvalued' with respect to one another, just that local efficiencies or inefficiencies make procurement of a basket of goods relatively more or less expensive there relative to tradeable goods no?
In general island areas will show an "undervalue" for PPP measures. Hawaii Big Macs are more expensive than Indiana big macs, but that doesn't mean that Hawaiian USD are undervalued to Indiana USD.
193 comments
[ 3.0 ms ] story [ 225 ms ] threadThe only minor correction needed was that the index lists the official dollar exchange price for some currencies while the real price is not even close to that, but that's not the index fault.
Sorry Lenin, old chap.
Or maybe I'm just used to the local one so all of the foreign big macs taste novel and interesting.
So the low price simply reflects the low demand.
(However, I live in Singapore.)
I assume that Macdonald's prices based on perceived value. If you go to Asia, McD’s has a much higher perceived value - and McD’s knows this and does multiple product launches every year, often catering to local tastes.
So I’d assume that consumers in the US or Europe don’t value a Big Mac the same was they do in Asia and as such the pricing differ (i.e. they can price higher in Asia).
Annual revenue: $23.22B Profit margin: 32.49%
And that's ignoring the fact that a lot of the revenue and profit go to franchisees, and never make it to the corporate level to be reflected in those numbers.
There's no assumption necessary. Clearly a whole lot of people still like McDonald's.
Surely there were advances in production and logistics that would have lowered the "real" cost of McDonalds delivering a Big Mac, so all else being equal we would expect the price to drop over time. But monetary inflation makes up for it and then some.
In France the sandwich isn't much cheaper than the meal. The last time I was in Russia (lowest price on the chart) as I recall there's not as much of a saving for buying the meal.
For that, you should look at number of minutes (or hours) the average person needs to work to afford a local Big Mac.
Wikipedia's entry on the Big Mac index says that https://web.archive.org/web/20080216015122/http://www.ubs.co... should provide this information. Or see https://www.statista.com/statistics/275235/big-mac-worldwide...
But I guess if you consider the price relative to typical wages then it should give you a similar effect, although it would ignore the advancements in capital productivity which may not be reflected in wage data.
Advances is capital productivity usually drive wages higher pretty soon, no?
In any case, I just brought up this 'minutes of labour for one Big Mac' index, because I remembered that some people had already done the numbers and it seemed somewhat relevant to your question.
I have no clue whether it's the best index anyone could come up with.
Second, there's a non-insignificant time for labor on making the Big Mac + we all know that the cost of beef is increasing quite a bit overtime. And while McDonalds are expert at logistics, you could argue that they have been expert for so long now that they already got all the savings they could have gone many years ago.
At the end of the day, it's expensive beef, with a labor shortage.
I'd find it surprising it didn't increase more.
Relevant to the Big Mac Index, at the moment the app offers a two-for-one deal, through February 27, on Big Macs; so the effective price isn't $5.81 but $2.90. If you don't want two Big Macs, you can get free fries or a free drink, or both, or 20% off your whole order instead: but you can only use one discount every fifteen minutes, and you can only use any specific discount once per day.
The implication for the Big Mac Index is that in the face of the complex web of discounts offered by McDonald's it's nearly impossible to calculate the actual price of a Big Mac in the United States for general purposes.
That the 'discount' is offered through February 27 shows that this isn't really a discount but effectively the regular price for people who order through the app. The choice of the 27th for the end date leads me to suspect that they might be lifting the discount for one day a month to keep the FTC happy.
And then there’s some points/rebate with each purchase.
They reallllly don't want you going in there and just buying sandwiches.
You can use McDonald's own local nutrition calculators to confirm this. A Big Mac in the US is 550 calories, yet 508 calories in the UK (522 in Russia and a mere 498 in Switzerland, for comparison). Is it factored into the index that British fast food fans are getting 7.6% less burger as well as paying more than a US consumer?
Same for the other extreme example in Turkey where workers are dirt cheap, and as such don't have much buying power or contribute that much to the overall burger cost, so the price is effectively lower.
This is just another standards of living map, it has barely anything to do with currency conversion. The Lira isn't undervalued, it's in a hyperinflation nosedive because of gross monetary mismanagement of Turkey lol.
The US definitely has much higher inequality, so maybe comparing average rather than median could be unrealistic.
[1] https://www.mcdonalds.com/us/en-us/product/big-mac.html [2] https://www.myfitnesspal.com/food/calories/mcdonalds-big-mac... [3] https://www.bls.gov/news.release/empsit.b.htm
Sorry, could we get someone to check those numbers?
maybe ingredient quality in some places might be legally mandated, increasing price (I know everyone gets the same, but not if the law says different) basically the thing I'm thinking of is an article about a year ago where some sort of white bread was declared legally not bread but a form of cake by some EU country - can't remember but a similar ruling could affect bun quality in various countries.
https://www.nbcnews.com/news/world/subway-s-sandwich-bread-i...
Take the inverse: in Germany, by and large, a hamburger is that thing you get at McDonalds. That Americans typically pay more than $2.00 for a hamburger is not a sign of high labour costs, but rather that they'll buy something better instead.
The differences in the ingredients lists are hilarious (oh and the portion size difference for the drinks).
https://inflationchart.com/cpi-in-bigmac
https://inflationchart.com/spx-in-bigmac
In the 70s you could work minimum wage for an hour and afford three Big Macs. Now you have to work almost an hour to afford one Big Mac.:
https://inflationchart.com/minwage-in-bigmac
Today it's less than 1%.
More realistically the new minimum wage in the US is ~$13-$15 per hour, which you can earn from Walmart, Target, Amazon, Walgreens, CVS, Best Buy and most of the rest. They can't get enough labor and will hire almost anyone that walks in the door.
These days you can trivially earn $13-$15 / hour to start, working at popular convenience stores like Sheetz, Wawa and numerous others like them.
Skills required? The ability to talk to people normally, show up to work and scan bar codes.
If someone is going to reference the US minimum wage, pretending that it matters for the Big Mac context, then it's quite relevant what percentage of the labor force is actually earning the minimum wage. Today that number is exceptionally low and it's trivial for most people in the bottom labor tier to earn far more than minimum wage.
About the only places still commonly paying minimum wage, are small mom & pop businesses in the middle of nowhere (ie places entirely devoid of competition from the previously mentioned big businesses). Independent convenience stores run by Joe and Susie Shop Owner in Buckhannon West Virginia, jobs held by local teenagers that can't drive 60 minutes to the nearest Walmart (except of course even Buckhannon has a Walmart Supercenter; a town in the middle of nowhere with 5,000 people).
The biggest entry-level US employers - which hoover up labor anywhere they can get it - are all paying far more than the minimum wage (along with other now standard benefits like health insurance, which is very expensive and not included in the pay figures).
US income hasn’t increased equally though. The rich could already afford a Big Mac.
More importantly, Big Mac Index is based on the average US price. But Big Macs in, say, Arkansas can be almost 40% cheaper than one from California. So it's really not fair to compare the federal minimum wage to the national price.
It does now. If it were raised to 15-20 an hour how many would it effect? If there was zero effect then it would have already passed because it would have been easy points for a congressmen to say "Look what I did for the poor and hopeless I care".
Minimum wage in those states is increasingly meaningless as almost no one will work for that wage. The longer the minimum wage isn't updated, the more irrelevant it is.
Seattle has a higher minimum wage now of $14.50, but it is also mostly meaningless at this point. Conservatives used to propose $20 minimum wages as slippery slope straw men, but these days that proposed wage wouldn't be considered a straw man at all.
The charts you linked are beyond meaningless.
https://inflationchart.com/income-in-life
In major metros, city councils prevented construction - as such supply could not meet demand and the price of housing in cities went up dramatically more than inflation.
Outside major metros, minimum setback rules, minimum size rules, and myriad other policies conspired to make the average new house twice as large as they were before, while families on average shrunk.
That said, adjusted for inflation, 1 square foot of new house costs exactly the same today as it did in the 1970s.
This is what it looks like when you have federalized zoning and allow supply to meet demand. [2, 3] This is what it looks like when you do not. [4]
I also reject the idea that it was easier to buy houses back in the day on average on a per square foot basis. In the 70s, we saw mortgage interest rates as high as 12% on a 30 year fixed. You can buy a significantly more expensive house on the same monthly payment when you're on a 30-year fixed 2% APR mortgage vs a 12% APR mortgage.
It doesn't matter that purchasing power was higher back then per unit because today you get significantly more units.
[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...
[2] https://fred.stlouisfed.org/series/JPNCPIHOUQINMEI
[3] https://marketurbanism.com/2019/03/19/why-is-japanese-zoning...
[4] https://fred.stlouisfed.org/series/CPIHOSNS
> Outside major metros, minimum setback rules, minimum size rules, and myriad other policies conspired to make the average new house twice as large as they were before, while families on average shrunk.
Outside major metros, the economy isn't as hot and demand is tapered back significantly. In cities that have poor economies, housing prices are also cheap. In places that are extremely dense (NYC) with hot economies, housing is still expensive. All I can tell from this is "popularity = high prices", it isn't clear that you could build enough housing to satisfy demand in a hot economy because more people might make the economy even hotter (attracting even more people).
[1] https://en.wikipedia.org/wiki/File:San_Francisco_aerial.jpg
Houses are expensive in SF because people want to live in SF. If SF had 10 times as many housing, then there would simply be 10 times as much economic activity and prices wouldn't budge. If you want cheap housing for your city, make your economy unattractive like Gary Indiana, or, if you like your economy, take the Tokyo approach and make housing speculation unattractive and let units be small.
This is irrelevant, it's obviously not sufficiently dense to meet demand. If you look at the photo you'll obviously see that it's simply not particularly dense by visual inspection.
> Houses are expensive in SF because people want to live in SF.
They are expensive because they do not permit sufficient construction to meet the demand, what about that do you disagree with? It's not just that people want to live there - it's because people want to live there and city council would rather keep a derelict parking lot for Nordstrom than put up a 27-story 500 unit condo building in the middle of downtown. [1]
> If you want cheap housing for your city, make your economy unattractive like Gary Indiana, or, if you like your economy, take the Tokyo approach and make housing speculation unattractive and let units be small.
That has nothing to do with what Tokyo does. Tokyo permits construction via federal zoning rules.
[1] https://thefrisc.com/how-to-unpack-one-supervisors-rejection...
Why does demand always have to be met in one smallish (geographically speaking) city?
> They are expensive because they do not permit sufficient construction to meet the demand, what about that do you disagree with? It's not just that people want to live there - it's because people want to live there and city council would rather keep a derelict parking lot for Nordstrom than put up a 27-story 500 unit condo building in the middle of downtown. [1]
> That has nothing to do with what Tokyo does. Tokyo permits construction via federal zoning rules.
The former probably wouldn't have been approved in Tokyo either. But yes, I do prefer Tokyo's solution to zoning (residential can go anywhere, businesses can mix as well), and their solution to property speculation (housing depreciates rather than appreciates because it is so easy to rebuild)
Still, SF is more dense than Tokyo (6,658 ppl / sqkm vs 6,158 ppl /sqkm), but as mentioned before, SF is tiny while Tokyo is huge.
The demand is created by that community, located in that area - it is endogenous. These communities of people create self-reenforcing network effects. Logically it follows that the supply should be created where the demand is, not just because, well, that's where the demand is - but because it re-enforces this flywheel.
Why would you put the supply somewhere the demand isn't?
Because wealthy people who live off capital gains live there. Tell them to spend their money somewhere else. People move there because they want or need the billionaire's money.
All of which have even more draconian zoning policies that permit only SFH (not even a 5+1). If SF had 10 times as much housing maybe we'd have 10 times as many people being productively employed in industries in the city instead of being forced to locate elsewhere. Maybe some of those people wouldn't HAVE to work in tech/finance to afford the city.
Your opposition to increased density benefits only yourself and existing landowners.
If SF had 10x the people, it’s density would be on par with Shanghai. If only Shanghai real estate were as cheap as SF’s, then we could make a valid comparison.
> NYC expensive, hardly affordable
NYC has record low new supply of housing relative to demand. Not a great example.
This is a very, very important distinction. Right?
> "You're now losing -1% of your money to inflation per year or 1.0% per month"
What on earth does that mean? Inflation of 6% annualized is 0.4% per month.
Big Macs against the S&P 500 is some sort of chart crime. Yeah, companies became more valuable because we're good at making companies. That's got very little to do with ... anything. [edit] Especially since the S&P 500 isn't some sort of platonic ideal - it's a moving target! They replace companies over time!
Further, wage growth not matching production efficiencies or even decelerating is not a monetary policy issue (or anything to do with inflation) but a social policy issue. Specifically, minimum wage not tracking inflation, and in my opinion, a broad-based rejection of unions.
It's kind of hard to take these sites seriously when they fail at both math and economics.
And more than that when they steal my back button.
It can be both a monetary policy issue and a social policy issue.
Entities that are close to the money-creation spigot that is the Fed have a decreasing cost of money and debt. Anyone / thing further from the cheap supply of money have seen less benefit. The people working for minimum wage are very far from the cheap supply of money.
Social policy, as you point out, has not kept up with monetary policy. But the problem is initiated from monetary policy.
Indexing minimum wage to inflation substantially solves the problem.
Can you quantify the spread you claim exists here? I feel like just pointing to the "cantillon effect" and blaming it for everything without actually quantifying the magnitude of the issue you think exists is harmful to the discourse.
The charter of the central bank is to maintain low predictable inflation and maximize employment. That's the function of monetary policy.
Also perhaps fractional reserve banking does create the issue thatp those who can borrow money and buy assers have an advantage over those at the bottom who strugglle to buy assets and cannot borrow.
I am certainly a fan of modern day capitalism compared to socialist redistribution, but a lot can maybe be fixed with "honest" money of some sort that is not easy to inflate at will. (Algorithmic money perhaps like a carefully designed crypto or some variation of gold backing)
The challenge with honest money, is you cannot really control monetary policy (the free market will set interest rates) , but the benefit is, nobody can debase it too easily.
i. e. no bailing out wallstreet during recessions, but also if you gonna bailout consumers with stimmies they will pay for it later in higher taxes.
The thing is, the breakdowns, source materials, algorithms, data - they're all published. This isn't Joe Biden goes to the podium and bestows unto us that the CPI was 7% annualized this quarter and doesn't take follow-up questions. Everything is tracked, measured and published by the BLS. [1] People don't take it at face value, think tanks run their own assessments too. Then you have crackpots that just "add 7.5%" to the number and call it a day. [2]
But intuitively we know that "just add 7.5%" is way too high, because if the annualized inflation had been 10% since the year 2000, that means prices would have to be a minimum of 8X higher than they were in 2000.
- In the year 2000 an iMac cost $799. The latest iMac is $1299, not $7000. That would be 2.2% inflation.
- In the year 2002 a Big Mac cost $2.39. Today a Big Mac is $3.99, not $19.12. That would also be 2.6% inflation.
This whole conspiracy theory around a wildly different "shadow" CPI is just that.
You can even compute your own based on receipts you have lying around. I suspect you'll find it not materially different from the published numbers.
> Also perhaps fractional reserve banking does create the issue thatp those who can borrow money and buy assers have an advantage over those at the bottom who strugglle to buy assets and cannot borrow.
I'm not rejecting the cantillon effect wholesale, I'm asking for a quantification, which I have yet to see anyone provide. Folks tend to point at it and blame it for everything but then not have any substantiation of its size.
However, I strongly suspect poor folks and especially middle class folks, have far more debt as a percentage of net worth than rich folks do and so spend more time at the spigot so to speak - relatively, not in absolute terms.
> The challenge with honest money, is you cannot really control monetary policy (the free market will set interest rates) , but the benefit is, nobody can debase it too easily.
Debase is a poor term to use because modern economics shows us that supply and value are not tied in the way folks intuit. For instance, Japan has 3X'd their money supply since 1990 but their CPI is literally dead-ass 0% and has been for 30 years. Their prices for anything and everything on average remain exactly the same as in 1990. This is why we reject the Austrian school.
> ... but also if you gonna bailout consumers with stimmies they will pay for it later in higher taxes.
Money has a value and a duration. Stimulus bills pull future money into the present. You don't pay for it later in taxes, per se. If the stimulus creates economic activity yielding revenues in excess of the stimulus itself then it can be 'free.'
A stimulus is an investment and it is a common mistake to look at the liabilities line without looking at the assets line.
[1] https://www.bls.gov/cpi/
[2] http://www.shadowstats.com/alternate_data/inflation-charts
You might as well ask for a quantification of the Matthew Effect [1] ... you won't get one. Would it be helpful? Yes, probably.
But more important than having a quantification is, that people register the fact that such effects exist. Depending upon how most people would define fairness, the conclusion from the existence of these effects could then be: there need to be measures taken (taxes, subsidies, ...) so there's some degree of compensation, otherwise society will find itself in an (unnecessarily) instable dynamic.
[1] https://en.wikipedia.org/wiki/Matthew_effect
It reads as if you put some kind of blame on those poorer people who borrow money .. or do I get this wrong?
You do realize that taking on debt doesn't make these poorer people the ones who create the money, right?
The banks lending out the money are the creators of fresh money. And likewise it's not the debtors but the banks who collect the interest. The interest, which represents the exact (and only) amount of money that'll effectively have been created out of nothing after everything will have been payed back. The much bigger credit sum which the banks hand out to the debtors, that's just lending from the future, not money creation.
For instance I have a 2.75-ish% APR 30 year fixed rate mortgage but inflation was 7%, so I made a ton of money by having that debt - factoring in tax breaks, I made nearly 6% return by having that mortgage over paying off my house.
I’m suggesting that lower and middle class folks have far more debt as a percentage of net worth and therefore benefit more as a percentage of net worth than wealthy folks from inflation (“being at the spigot”).
This is roughly right, as inflation rates go up to 12% inequality actually declines. Rich folks lose money on equities due to DCF modeling and folks with debt see it inflate away. I can find the study if you like.
But this is all conditional on wages keeping pace.
Agree. This is one effect of inflation that's beneficial for debtors.
There's another effect that lets especially lower wealth/income groups look not so good: the structure of net worth. Wealthy and high income group people typically have assets that will be more or less inflation neutral. I don't need to make a list: real estate, stocks, ... the big fortunes consisting of these won't care one bit about inflation. Low income people mostly don't have these. If they own anything at all, it's mostyl cash, so hit 100 % by inflation.
> But this is all conditional on wages keeping pace.
Here's the catch ... according to [1]:
> Research by the McKinsey Global Institute found that between 65% and 70% of people in 25 advanced countries saw no increase in their earnings between 2005 and 2014.
You might say, hey, we didn't have much inflation according to CPI from 2005 to 2014. Well, then just take housing prices, which make up a big chunk of most peoples' expenses and have increased significantly over this period according to OECD data [2].
[1] https://www.theguardian.com/business/2016/jul/14/up-to-70-pe... [2] https://data.oecd.org/chart/6yZt
In a growing economy (where more tangible goods and services are delivered to customers) this can be true, yes.
Kind of off-topic: I very much doubt this concept/aspiration/narrative/foundation or principle of planning/budgeting worldwide economy/expenses will remain viable for more than 20 years from now.
Why? Because humankind would be well advised to regard consumption of fossil energy as peak value, from where it continuously needs to decrease (rapidly so). The one driver of economic growth - energy, key to any human activity - ought to better have a lid on for decades to come. Not a good outlook for growth (of said tangible goods and services).
"Printing" money is a side effect caused by people delaying their spending eternally. You can have an fixed supply inflation free 0% interest currency with an annual fee on excess liquitiy (often known as negative interest). All you need to do is implement the demurrage fee on cash via expiration dates. Expired notes require a fee to be exchanged, the expiry date is printed on a replaceable sticker.
Interest rates and capital gains kinda act like a tax as well because wealthy people concentrate in a few high profile cities and are not spread out like local bank branches.
Oh and land is a natural monopoly so land owners get their cut as well.
https://www.marketwatch.com/story/the-stock-markets-rally-to...
Working hours to buy a stock on the S&P 500.
Labour and tax components of the costs are wildly different in countries. Raw materials might be almost irrelevant in some places. Because of this, the quality of the dining experiences are wildly different, because each restaurant owner needs to justify their costs. Add to this the effect of competition, which itself depends on local markets.
But clearly that isn't working anymore. Indian PPP rate which tech companies use to adjust pay is around 17-20 INR/USD. But this chart implies that the number is close to 35 INR/USD
The numbers from numbeo which uses all the aspects of consumer spend gets a ratio closer to the one used by tech companies
Maybe the original criticism of big Mac index still stands: there are cheaper burgers in other countries and they should be comparing against that.
It's a cute form of comparison but indeed should not be used as a policy tool.
I ask because I didn't get around to it; there's just too much good food in Japan and I wasn't there long enough.
But I did have a Wendy's burger, and I can tell you: it's not the same burger you get in the States. It's much better. For a given ingredient, it will be inadequate in the US, in Japan, they are all food, like you might get from a bistro.
That made me curious about McDs, but not curious enough to blow an entire precious meal on it.
The Big Mac in Japan is very tasty and definitely edible. In the US, almost every one I have had is disgusting and sloppily made. Iirc, I had one good one at one AM or so. I’ve given up on trying them.
Egg McMuffins in Japan were also better. Not sure why. I can eat them in the US, and sometimes they are good, but at least half the time I regret ordering it.
Note that these are all retrospective comparisons. I’m guessing the main differences were bread quality, freshness (not under the lamp for long), and meticulous sandwich construction.
McDs was a valid option for a quick bite in Japan (maybe once a month?). I expected something similar when I returned to the US. I was sadly disappointed.
I think that the confusion might be that McDonalds has a lot of "local" menu items that you can only find in those countries (e.g.: beer in Germany, wine in France). Those items are very different, but the "core" items, like the Bic Mac in question, are very much the same across the world.
I should note that there are a few cheats to this. For example what is called the Quarter Pounder in the U.S. is slightly tweaked in Europe, and I think that is usually called something like "Hamburger Royale", so there is that. But that could go either way depending on how you see it.
But it no longer does.
Also, unrelated: India doesn't have a Big Mac because beef is illegal in most of the country and in the other parts, most of population still doesn't eat beef.
Probably 190 is the price of some hypothetical big Mac.
Harvey, John. (2021). Modern Monetary Theory, the United Kingdom, and Pound Sterling. https://www.researchgate.net/publication/351764940_Modern_Mo...
https://www.youtube.com/watch?v=ckbfS99N6jY
I remember going to the US and thinking it was cheap.
I travelled from South Africa to Chattanogga to have my very first American BigMac, and it was delicious! I was probably just very hungry, though. ;-)
All she has ever eaten: https://www.mcdonalds.com/qa/en-qa/product/chicken-mac.html
In rich countries, it targets lower income strata.
In the third world, it targets middle and upper middle class. You can get much cheaper local food (and probably more nutritious food) on the streets.
Therefore, Macdonald's is relatively more expensive in poorer countries.
[citation needed]; anecdotal, I live in a rich country, a trip to McD's for a family of 3 quickly adds up to €25; home cooked dinner is < €10.
I will acknowledge that the ability to cook food at home and having access to a supermarket that actually stocks fresh vegetables and the like is a rich country's privilege. That said, I gathered there's plenty of places in the US where that is simply not a thing.
That's pretty cheap for a rich country (i.e. the US or UK), especially when you consider the labor/time saved when you don't cook. Also, most people who fall in the lower income strata don't eat out every day, so $25/€25 for an occasional McDonalds meal for 3 is pretty achievable.
The upper middle class in rich countries easily pay 2-3 times that price per restaurant meal.
A lot of people make more money at jobs, or simply don't have the time left in the day to make that a good deal.
It could also suggest Russian people don't like Big Macs as much as US Americans do, which I can confirm. A price reflects not only exchange rates but also supply and demand.
> The Big Mac index was invented by The Economist in 1986 as a lighthearted guide...
> Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible.
And before you go and dissect the last sentence as E claiming it has actual use, stop and look both ways for puns.
PPP doesn't really mean that a currency is 'undervalued' or 'overvalued' with respect to one another, just that local efficiencies or inefficiencies make procurement of a basket of goods relatively more or less expensive there relative to tradeable goods no?