"True, a Big Mac here costs more — $5.60, compared with $4.80 in the United States. But that is a price Danes are willing to pay. “We Danes accept that a burger is expensive, but we also know that working conditions and wages are decent when we eat that burger,” said Soren Kaj Andersen, a University of Copenhagen professor who specializes in labor issues.”
https://scm.ncsu.edu/scm-articles/article/the-price-of-a-big...
Bottom line, everything has a cost. Higher wages do need to be paid for with higher prices. Wise people understand that the world has trade offs and they make those trade offs with open eyes. Foolish people pretend there is no tradeoff.
And they admit it:
> Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible.
The Big Mac Index is also not accurate as it pertains to the US. Big Mac prices vary considerably by location in the US (ranging from $3.x to $6.x). It'd be like trying to pretend there's a Big Mac price in the EU. The index claims $5.65 for the US. That's their poor attempt at a national guess, they didn't actually figure out prices for every location, and they appear to have picked a high price as their foundation. Cities in Florida, Texas, Illinois, Pennsylvania and Ohio are commonly in the $4.x price area for example.
This article finds the national average is closer to $4.82 (in my state it's well below that) -
https://www.restaurantbusinessonline.com/financing/why-big-m...
It's not. You're not accounting for the higher US wages for one thing. Median take home pay is about 40% higher in the US vs Denmark.
The Big Mac Index also gets pricing wrong for the Big Mac in the US market. Their quoted $5.65 figure is higher than nearly every state's average, and far higher than most states. The average US state Big Mac price is comparable to or below Denmark.
US workers have far more disposable income than workers in Denmark. Tax rates are dramatically higher in Denmark than in the US (over 2x higher for someone earning $40,000 per year). The US has a far more progressive taxation system. Someone earning $38,000 in Denmark takes home about as much as someone earning $30,000 in the US; someone earning $61k in Denmark takes home about as much as someone earning $50k in the US.
US workers at the median and average earn higher wages than people in Denmark do.
"In Denmark, the average household net-adjusted disposable income per capita is USD 29,606 a year, lower than the OECD average of USD 33,604 a year."
vs
"In the United States, the average household net-adjusted disposable income per capita is USD 45,284 a year, much higher than the OECD average of USD 33,604 a year, and the highest figure in the OECD."
https://www.oecdbetterlifeindex.org/countries/denmark/
Don't like average (since the high tier incomes in the US warp things so much)? Ok, how about the median:
$35,600 US (2017) vs $28,926 Denmark (2016)
https://en.wikipedia.org/wiki/Median_income
Since this has deflated the myth about higher wages in Denmark, the next response will be: yeah, but people in Denmark have healthcare. And so do people in the US as it turns out, commonly provided by their employer. So if we're going to back healthcare costs out of the high Denmark tax rates, we have to add the drastically more expensive US healthcare (about 90% more expensive in the US per capita) back in to employee wages to one extent or another to adjust correctly. The US worker would gain even more ground vs their peer in Denmark.
But does this tell the whole story? Well, no. Household finances are in horrific condition in Denmark compared to the US, which throws further question on affordability of the burger prices. The people of Denmark are approximately the most indebted people in the world vs their disposable incomes.
There is definitely a tradeoff to be made because nothing ever comes for free. However, that 4.73 billion dollar profit can give every one of their 210k employees each an extra 20k per year (regardless of the average income in their respective countries) before it would even turn a loss based on 2020 numbers. And that's not even taking into account the fact that 2020 profits were significantly down.
In a fair system, increases in price would pay for wage increases and vice versa. In practice, price increases flow towards the top.
which is why the employer pays the employee for their service.
>this entire article shows how employees can capture some of that money if they work in solidarity.
creating a cartel is one way to strengthen your bargaining position.
Tragedy of the commons and all that.
Most McDonald's restaurant workers worldwide are employees of local franchise companies which are far less profitable. The main McDonald's corporation is just a supplier for them.
There are two problems with this argument.
First, we do not believe in the labor theory of value. Time has a value. Risk has value, land has value, and there is also value in nature, so if you were to distribute all the profits solely to labor, you would have only labor and no capital.
That means no equipment, no burgers, no fries, no land, no buildings, no cash registers, no working capital, etc. Just a bunch of people standing around, not even being able to work because tools are required to work and the moment someone suggest paying for the tools necessary to do work, someone like you pops up and starts complaining that there must be no payments for capital, all payments must be only for labor, and so no tools are ever purchased.
No land is purchased. No money is borrowed to pay for any expenses, etc.
The second problem is opportunity cost. McDonald's market cap is 180 Billion dollars, and it earns about 5 Billion per year for a yield of ~2.7%. But this is a risky return. Alternately one can invest in 30 year treasuries that are guaranteed and earn 1.86%. So that corresponds to a risk premium of 1% and a real rate of ~1.8%. In real terms, the risk-free rate is actually negative and the McDonald's earnings yield is approximately zero. Thus the earnings accruing to McDonalds are basically just enough to make up for the loss of the value of the investment due to inflation, so you'd get your original money back, with a healthy dose of risk.
That is charity. You should be on your knees thanking investors for supplying the 200K workers of McDonalds with 180 Billion dollars of capital that allows them to have jobs while the investors are getting basically nothing back in exchange for taking on that risk.
Of course these yields are temporary. Investors may not be getting anything back now, but long term, these types of yields are unsustainable and they will go up. Investors do need to get something back for their investment otherwise the investment wont be made.
And getting back just the original amount invested is generally insufficient to motivate investment and is characteristic of a dysfunctional economy that is unpleasant for workers. When yields are so low as to just match inflation, that's when you see things like housing bubbles as investors turn around to buy up real assets like land because there is no point in investing in risky ventures, and that is when more people who don't understand the world start moaning about how unfair all the expensive housing is, while with the other side of their mouth they advocate for zero interest rates because payments to capital are "bad". We would like to live in a world where ventures are funded, where investment in productive capital is funded. We like the idea of SpaceX and Tesla and mRNA vaccines and M1 chips. We like investment. But that means that the investment must be more profitable that merely buying land and holding it to get back your money in inflation adjusted terms. And the greater the reward for investment, the more investment that will occur.
You seem to be doing a pretty good job of this already
>That means no equipment, no burgers, no fries, no land, no buildings, no cash registers, no working capital, etc.
As I mentioned above. You're wrong.
>That is charity. You should be on your knees thanking investors for supplying the 200K workers of McDonalds with 180 Billion dollars of capital that allows them to have jobs while the investors are getting basically nothing back in exchange for taking on that risk.
You can call it charity but when wealth inequality rises to the point where nothing provides sufficient yields then calling that spending charity misses the tree for the forest. There is nothing to spend the money on, except charity. When you personally only demand 30 hours of work but provide 40 hours of work, there will be someone providing 10 hours less than they demand. The excess hours worked can only be spent on "pointless" activities which inevitably end up in the hands of the person working 10 hours less. When people don't share work, they share incomes.
I don't need to thank them for anything. The investors should be on their knees thanking their workers that they are providing this investment opportunity even if yields are negative. It literally makes no sense to thank someone for sitting on their money. If investors are willing to take on that risk, then it's clearly because that investment is more profitable than other investments from their perspective.
Think about it this way. Someone having a billion potatoes rotting in storage wants to maintain their wealth. The only way that person can maintain their wealth is by giving the potatoes to people who want to work for you in exchange for potatoes. The fact that you get to maintain your wealth is something others provided to you. If it wasn't for them you would be sitting on rotting potatoes and end up with nothing in the end. You'd accept negative yields on investments if they are higher than the negative yield of having too many potatoes.
>And getting back just the original amount invested is generally insufficient to motivate investment and is characteristic of a dysfunctional economy that is unpleasant for workers.
The fact that the investor is accepting zero or negative yields clearly implies that he has no use for that money except to maintain his wealth. So rather than a lack of investment the problem is a lack of consumption or alternatively people producing more than they consume.
>When yields are so low as to just match inflation, that's when you see things like housing bubbles as investors turn around to buy up real assets like land because there is no point in investing in risky ventures,
Raising interest rates doesn't magically create investment opportunities. You always have the same investment opportunities at any interest rate. The interest rate merely restricts how much investment can be done at once. Housing bubbles are not a result of low interest rates. They are a property of land itself. Monopolies allow perfect price discrimination and charge you "everything you earn" which is higher than "everything you spend". The fact that non-monopoly industries can't compete with monopoly power isn't surprising and why so many people suggest land value taxes.
>while with the other side of their mouth they advocate for zero interest rates because payments to capital are "bad". We would like to live in a world where ventures are funded, where investment in productive capital is funded.
Is this some kind of joke? The availability of low interest rates makes it easier to fund productive investment.
>And the greater the reward for investment, the more investment that will occur.
Yeah how are you going to get that? Are you going to start a war, bomb cities, kill people so that there is an artificial shortage and therefore yields are high again? Are you going to introduce tariffs so that cheap Chinese goods don't enter your nation? Are you going to force people to have children? Will you let young immigrants flood into your country? The truth is that for the last hundred years most economies were propped up by population growth and now that this has come to an end growing the economy exponentially isn't possible because it requires people's consumption to grow exponentially.
Is there a name for this kind of rationalization ?
It feels deceptive and underhanded. I can give all sorts of synonyms but without a term for it, I fear labeling it, and therefore trying to counter it, won’t be effective.
I’m seeing these kinds of rationalizations all the time these days. Especially in the news.
I’m sure unions play a factor, but many others do as well.
Is there a single fact in the linked Snopes article that is incorrect?
Not a bad trade off.
Denmark does not have a culture of tipping, it’s rarely done, primarily in very fancy restaurants and no one would ever tip or expect anyone to tip in a McD.
https://www.economist.com/big-mac-index https://en.wikipedia.org/wiki/Big_Mac_Index
More evidence of Snopes incompetence and bias.
The Big Mac index is based on the presumption that Big Macs cost the same to produce in different countries.
Using that same currency index as a measure of Big Mac cost difference is, by definition, wrong, and a gross misinterpretation of circular logic.
If you don't consider a Big Mac to be an equivalent basket of goods (including labor price) then the whole concept falls apart and is meaningless.
What everyone ITT is comparing is actual purchasing power to exchange rate.
The whole discussion of Big Macs having different embedded costs per country is a discussion on why the Big Mac index is flawed.