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Comment by dcposch | Hacker News Reader

The Economist publishes a fun and simple metric called the Big Mac Index.

They present it as a way of looking at forex rates. If 1 USD buys you 1 swiss franc, but a Big Mac costs $5 here and 7 CHF there, then maybe the franc is overvalued. In any case you lose McDonald's purchasing power by converting.

But you could just as easily use it for inflation.

Big Macs are a stable product. A Big Mac sold in 1985 is very similar to one sold yesterday. Also, it includes a good mix of basic inputs. Land rents, transport costs, labor, and food ingredients.

Here's the raw data.

https://raw.githubusercontent.com/TheEconomist/big-mac-data/...

In the US, a Big Mac cost $2.54 in 2001 and $5.65 in 2021.

That works out to 4.0% annual inflation.

https://www.google.com/search?q=(5.65%2F2.54)%5E(1%2F20)&oq=...

The official numbers were 2% that entire time. Those come from a complex calculation using an always-shifting basket.

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Although if we assume any technological progress in the last 35 years a big mac should probably have gotten a little bit cheaper. So the impact of inflation-causing-forces (aka, the reserve banks) is probably higher than 4%.

Technological progress in hamburger making? It’s meat between bread. There’s only so much progress you can make.

What keeps the CPI down is technological progress in other goods, like cars and TVs.

I worked part time at a McDonald's from ~1991-1995. At the beginning of that period, we immediately assembled Big Macs with freshly grilled patties, then let them sit in a warmer for <=10 minutes before throwing them out.

By the end of my tenure at McDonald's, we were cooking patties and storing them in steam warmers for up to 30 minutes before tossing them. The same patties were used for regular burgers and Big Macs. We'd create Big Macs as needed by demand, assembling them later.

I don't know the #s, but was told that this change was to reduce product waste.

Grilling equipment and process also changed over this time period, slightly reducing the number of staff needed to run the grill and reduce the likelihood of overcooked (and thus wasted) meat.

I imagine numerous other efficiencies/changes have been made over the decades that would influence the cost to make Big Macs.

It isn't my area, but something called "Total Factor Productivity" is up around +50% since 1985 [0].

There are a lot of ways to make things cheaper. The world has seen startling progress in logistics, organisation, science and tech in the last 30 years. Some of that is applicable to gathering food more cheaply.

I suppose maybe all the gains could have been eaten up (heh heh) by population growth. The underlying equilibrium here isn't static, at any rate. The real price of a hamburger will not be steady.

[0] https://www.ers.usda.gov/data-products/agricultural-producti...

Part of the logistics improvements over the decades is "just-in-time" delivery at multiple stages, from raw materials to store delivery. The pandemic knocked that out of whack resulting in supply chain issues. The cost of mitigating that in the short term and longer term undoing some of the over-optimization for efficiency at the expense of robustness will be passed on to the consumer.

>Technological progress in hamburger making? It’s meat between bread.

That big mac is at the end of a literally global supply chain. The cost of the tires on the car of the fry cook and the number of temperature sensors one can afford to put in the reefer ship that gets the tomatoes from Argintina all have an impact on the overhead of a big mac. And this is in addition to all the direct process improvements others have mentioned. Heck, the internet has opened up a whole new world of operational efficiency for the farmer that grows the grain that feeds the cattle. He can buy parts for his machines or compare spec sheets for fertilizers from his iphone while sitting in the cab of his tractor that almost drives itself. In 2001 he had to thumb through a catalog or call someone.

The right-to-repair movement is coming from farmers who are unable to do better than call someone, in 2021, because their large farm equipment (tractors, etc) are locked down more thoroughly than an iPhone, with large support contract requirements on top of that. Not that it changes your point, but the inability to fix things will certainly change how the US market behaves.

Just a few examples of things that I suspect have improved the cost of running a McDonald's (or network of them) or other similar businesses:

1) Self-order kiosks. Definitely reduce costs and required number of workers needed at any time substantially.

2) Scheduling applications. More efficiently schedule workers, trade shifts, etc.

3) Improved warehouse, distribution infrastructure, logistics, coordination software, optimization around deliveries, predicted usage, etc.

The self order kiosks are craptastic. I hate them. The mobile app is somewhat decent.

Honestly, what they need is a voice AI to take your order in the mobile app.

Interesting. Self order kiosks are amazing. I never have a clerk take my order incorrectly, never have to repeat myself.

McDonald's was one of the prototypes of the fast food industry. There was absolutely technological progress in food preparation to be made when they did that. It seems silly to assume they wouldn't keep that up.

Of course there is plenty of progress to make. You have to look at the whole value chain, not just the last step that happens at the restaurant. Bread and meat have to be made, preprocessed and shipped. Plenty of things along the way that are subject to optimization.

That’s like dismissing technical innovation in film making as it is eventually photons hitting eyeballs.

A couple potential sources of efficiencies:

- more reliable bun-making machines that need a lower ratio of human oversight / bun produced.

- more automation in packaging the meat patties.

There are ways. Automate the burger making machine. Reduce inventory, "just in time" supply chain. Pay the workforce less, aka "financial innovation". Substitute lower quality ingredients. Shrink the burger size. Harvard, here I come for my MBA.

So much innovation!!

> should probably have gotten a little bit cheaper.

The price of a big mac obeys supply and demand.

The actual cost of producing it is but one factor in many in the final price, and likely not the most important.

Where the hump is in the price vs actual volume of Big Mac sold curve actually is what matters.

The Big Mac index is pretty stupid though, since the ingredients in various countries are different and not sourced from the same place. Here en Europe McD tries to be somewhat middle class while I'm the us it's absolute trash.

Was going to say that. They have a green logo and regularly claim some of their products are hyper local now here in CH. I doubt they have to do this in many other countries.

Other than that price differences in food between $ and CHF are likely mostly explained because work hours simply cost a lot more around here.

> I doubt they have to do this in many other countries.

Not sure why you would think that. McDonalds is famous for catering it's menu and service to it's locale.

In Australia they were required to serve real chicken in their nuggets, and they're always advertising that they use locally sourced beef for their burgers.

They also rebranded in a sense to upmarket themselves, and started selling salads, cakes and coffees in order to sneak a foot into the Australian cafe scene.

> McDonalds is famous for catering it's menu and service to it's locale.

Hence, it’s a non standard product, and a pretty dumb basis for an index.

It was never intended to be taken seriously. The reason that it is taken somewhat seriously is because it turns out to be a much more reliable indicator than you might naively expect. That said, no one truly relies on it for anything more than a rough indication.

Dumb compared to what? A basket of goods curated by a government who have a vested interest in getting certain numbers out of the formula?

What do you mean by real chicken? What are McNuggets made of in the US?

I saw Americans amazed at Europe’s “real cheese”, and Coca-Cola with “real sugar”. I have never heard the explanation for “real chicken” yet.

This is funny and scary at the same time.

I believe the ingredients were always different due to Australia's "Allowed Substances" list and local ingredients availability. Similar to the controversy over "Pink Slime" for their beef patties never being an issue here, because the substance was already banned.

USA (according to https://www.mcdonalds.com/us/en-us/product/chicken-mcnuggets... ) :

Ingredients: White Boneless Chicken, Water, Vegetable Oil (canola Oil, Corn Oil, Soybean Oil, Hydrogenated Soybean Oil), Enriched Flour (bleached Wheat Flour, Niacin, Reduced Iron, Thiamine Mononitrate, Riboflavin, Folic Acid), Bleached Wheat Flour, Yellow Corn Flour, Vegetable Starch (modified Corn, Wheat, Rice, Pea, Corn), Salt, Leavening (baking Soda, Sodium Aluminum Phosphate, Sodium Acid Pyrophosphate, Calcium Lactate, Monocalcium Phosphate), Spices, Yeast Extract, Lemon Juice Solids, Dextrose, Natural Flavors.

Australia (according to the PDFs here https://mcdonalds.com.au/maccas-food/nutrition ):

Ingredients: Chicken, Water, Flour (Wheat, Corn), Canola Oil, Starch (1420, 1422, Corn, Wheat, Tapioca), Mineral Salts (450, 500, 451, 341, 327), Salt, Spices (Celery, White Pepper, Black Pepper), Sunflower Oil, Dextrose.

> What are McNuggets made of in the US?

It was Pink Slime for awhile. "Real Chicken" is the continuing strategy to claw back from the PR nightmare.

https://www.eatthis.com/mcdonalds-debunks-rumor-about-mcnugg...

https://colors-newyork.com/who-uses-pink-slime-list-2020/

Lol, McDonald's is "locally sourced" everywhere. It's been in their branding strategy for the last ten or so years.

I honestly had no idea, I just noticed the logo being not green in the surrounding countries. I haven't put a foot in any of their stores for over 15 years now

Big Mac's have gotten smaller though. So even there is an example of shrink-flation...

Really? I thought it was becouse I was a kid and smaller myself.

They also regularly reiterate that the index is meant partially in jest, and that you shouldn't expect it to generalize in any kind of highly accurate way. Also, the leap from forex to inflation is a big one; AFAIK they haven't argued the data is valid to use as you are here, which is different from judging exchange rates (it must surely be normal for various kinds of goods and services to inflate differently, right?). They simply point out that it works surprisingly well for something so simple.

Even assuming the 2% numbers are more representative of the average household, the 4% big mac number sounds entirely consistent with that.

TL;DR: this is interesting, but I don't see how this data clarifies anything.

Big Mac depends on the popularity of MacDonalds which is incomparably higher the US than most of the EU (or Switzerland). MacDonalds is just not popular and as sibling Galaxeblaffer mentioned it's not directly targeted as a lower class restaurant. In most places/countries I have seen Big Mac are not even advertised. Some of the local regulations would prevent the same Big Mac prepared, either.

Great - now The Economist needs to add a skimpflation factor, probably by doing something like buying a real Big Mac and then weighing the patty, and the wait time. (Although really everything about the experience can be skimped on, like taking away ketchup.)

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