The Big Mac index: Value meal | Hacker News Reader

The Big Mac index: Value meal

economist.com

17 pointsmblakele6 comments

For those interested in a more detailed view of PPP, see the world bank table (2005) below. It includes a breakdown by expenditures such as food, health, transportation, etc. Compare with the actual US$ exchange rate to get the PPP ratio.

http://siteresources.worldbank.org/ICPINT/Resources/icp-fina...

The article itself says it's just a "humorous" look at PPP.

The idea overlooks a lot.

For example, the demand for big macs may be different in different countries, which would lead to price discrepancies. The same thing goes for supply (# of restaurants, etc).

Also, the branding of a Big Mac is different in different countries. A McDonald's in Paris or Brussels is generally more "upscale" than a McDonald's in Chicago. That difference in branding can also impact price.

So, other than for the purposes of amusement, or understanding "Big Mac" valuations, the "Big Mac Index" is not really a valid comparison metric.

In 2003 the St. Louis Federal reserve did an analysis of the Big Mac Index that found it to be pretty solid for PPP.

http://research.stlouisfed.org/publications/review/03/11/pak... (PDF)

It's billed as "a lighthearted guide to valuing currencies".

There's a lot of things that have an effect on the price of a Big Mac in a country, from the ingredients to how the franchises are managed. It's when you're dealing with near-identical standards in countries that the comparison is at its prime, however it's a simple way to explain and judge PPP for the average Joe.

Canada has better value than US, despite having near identical standards, why? My bet would be that every McDonalds employee receives minimum benefits (prescriptions, glasses, dental, IIRC) due to the health care being handled by the government. The interesting thing is that it used to cost more in the UK, and does in Europe still, with similar systems. In fact the UK system is more integrated than Canadian, so following the logic from USA->CA should mean the UK costs less (you don't have to cover children's dental, and there's barely any company benefit plans in the UK, at least in the sectors I worked where ironically you'd need most: construction) however it cost significantly more until this year.

So why in a system with more established care systems that remove the burden from employers did it cost more? This is where judging the prices of globalised products is interesting.

My guess for the UK would be higher taxes for the consumer, worker and business drove up the cost of the burger.

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