It’s because they get the basic ideas wrong:
The most expensive Big Mac, meanwhile, is in Switzerland and that was even before the Swiss franc shot up last week after the country’s central bank abandoned its currency peg against the euro.
The index is based on the theory of purchasing-power parity (PPP), that over the long run, currencies should adjust so that a basket of identical goods costs the same everywhere. To keep things simple, in its bid to show whether currencies are at their “correct” level, the Economist uses just one item: the Big Mac burger.
No, it’s the other way around. Non-traded goods do not converge in price. Thus we adjust the value of the currency so that they do, in order to be able to measure, like for like, what that currency will buy.
Traded goods converge, non-traded do not and that’s the whole point of PPP.
Classic in the Guardian the other day. The number of UHNWIs in the UK is *increasing* from 10,000 to 12,000, this somehow shows wealth is concentrating at the top to fewer people.
Can’t see how one’s going to learn much from Big Mac prices across countries. Don’t know about CH but France has a different price gradient at the bottom end of dining out than either Spain or UK. Basic cheeseburger’s about a €uro in Spain but twice that in France. A quid UK side.
I’d suspect that ‘s due to France having high fixed costs for restauranting. A cafe café’s about double Spain in France. So’s a beer. Further up the market, prices converge.
And I’m not sure MickyD’s serves the same market in different countries. Spain & UK it’s cheap scoff on the move. France it seems to be a lifestyle statement for the young middle classes. They’ve the only ones I’ve ever had table service in & to be honest, the food actually lives up to the expectations of the picture on the menu. Changed my whole attitude to McD’s
France it seems to be a lifestyle statement for the young middle classes.
One of the most incredible sights I have ever seen – and this is no exaggeration – is the queue outside the Burger King in Gare St. Lazare in Paris. I once had half an hour to spare around that area and decided to get a quick burger. I’d seen an enormous queue formed there in the past, but never imagined it was for Burger King. But sure enough, I discovered the literally hundreds of people queuing in the concourse *outside* the restaurant was for BK.
Take a look for yourself.
I asked a few colleagues about this, apparently Burger King once tried to set up in France but for some reason it didn’t take off whilst McDonald’s boomed. Then at some point they came back and are now in a very few locations (less than 10, I think) and have found the French youth (presumably having tried it abroad) see it as some exclusive, niche cuisine which they’re prepared to queue for an hour to taste. It is absolutely staggering, as bizarre as it gets. In Moscow in 1990 you can understand it, but in Paris?!
I had a Burger King once. It was OK. I’ve had a McD’s twice: dire both times. Could that be an explanation?
Tim W, it would be quicker to tell us what we can trust the Tox Dadger on.
If the cost of a Big Mac affected the price of currencies, I doubt McDonalds staff would be on minimum wage.
Tim Newman,
I think it’s because Quick Burger are so big that BK struggled. When you’ve already got a couple of chains doing the same thing etc.
One of my favourite facts is that McDonalds second biggest market is France. It shatters every illusion of them living in either Jean de Florette or Bande a Part.
As Tim N shows, the French take an American concept like ‘fast food’ & subtract the “fast.”
Meanwhile, in the UK they subtract the “food”.
https://ecompapers.biz.uwa.edu.au/paper/PDF%20of%20Discussion%20Papers/1995/95-16%20Ong,%20L.L%20-%20Burgernomics.pdf
Further reading on burgernomics
b(n)is
I’ve eaten in McDonalds in France and can’t tell much difference. They have a few other items that we don’t have (the macaroons in the McCafe are nice), but a royale cheese doesn’t taste much different to a quarter pounder with cheese.
Er, Tim, The Economist (clue in the name, not that they are very good at it) started this burger index.
Not because the burgers are internationally traded. But the ingredients are.
No, that’s the point, they’re not. They’re largely made of locally produced goods (and of local labour of course) in each place. US beef in the US, EU beef in the EU, US lettuce in the US, EU lettuce in the EU and so on.
This is the very point of using the Big Mac. Uniform item largely produced from local supplies. That’s what makes it so useful.
The Swiss McD’s proudly promote the swissness of their chips and their beef. So we’ve got increased raw material costs there.
Plus, the servers are likely to be on the order of 3500-4000 CHF per month.
My newly-arrived French colleague didn’t believe me that a medium meal is CHF12-15, cos it France it’s EUR 6-8. I had to show him the website 🙂 He was shocked!
Doesn’t the price of differences in local regulation and law have a large cost on something like a big mac?
The Stigler says
“I’ve eaten in McDonalds in France and can’t tell much difference.”
You would if you’d ever had a McD in Tottenham. If they’re sourcing produce locally, Broadwater Farm must be more than a housing estate.
Also the idea of adjusting currencies to account for their domestic purchasing power is completely separate from the idea that real exchange rates tend toward 1
I looked at the Economist on this and it states that the Big Mac index indicates whether a currency is overvalued or undervalued. It even uses the expression ‘fair value’. Surely this is economic nonsense where currencies are free to float – because value is simply a matter of supply and demand. Fairness is nothing to do with price.
I can remember when the Economist used a Mars Bar index.
Larry Elliot is trussed up in gaffer tape and frantically trying to escape from the cleaner’s store cupboard. Keith Hudson has got the gig now and is redefining economics on his own terms.
Well the PPP of the CHF with the EUR (for France) IIRC is 1.6:1 from OECD figures. I guess this would be the “fair” exchange rate.
However, the actual exchange rate is currently 1:1.
I think it’s because Quick Burger are so big that BK struggled. When you’ve already got a couple of chains doing the same thing etc.
That’s a good point, I’d forgotten about Qucik Burger. Never been in there, but they are well established here.
One of my favourite facts is that McDonalds second biggest market is France. It shatters every illusion of them living in either Jean de Florette or Bande a Part.
That amuses me too.
Incidentally, I have found the best burgers to be in France: the French love them, almost every cafe you’ll find will serve a cheeseburger made with an inch of proper ground beef. And they ask you how you want it cooked. By contrast, I ate a burger in a bar in the UK earlier this week and it had been flame grilled for an hour before serving. The burgers in France are more expensive, though.
Now I think about it, I use the price of the cheeseburger to gauge whether a Parisian cafe is expensive or not. If it’s priced somewhere between 14 and 17 Euros, the prices are reasonable. Any higher and it’s a bit of a rip-off. And oddly enough, one of the best I found is 100m from the Eiffel tower.
Erm, Timmy
“They’re largely made of locally produced goods (and of local labour of course) in each place. US beef in the US, EU beef in the EU, US lettuce in the US, EU lettuce in the EU and so on.
This is the very point of using the Big Mac. Uniform item largely produced from local supplies. That’s what makes it so useful.”
So why do you think free trade is so important?
Mickey D’s grub here is absolutely indistinguishable from that in the UK and the US (the other two locations I’ve eaten it.) They do have a few variants on the basic menu, but the standard Big Macs and quarter pounders are carbon copies. Costa Rica was the third country in the world to get a McDonalds so their local supply chain is deep and wide. The prices seem to be high, in that £/$ × $/₡ × ₡price of burger is about £4.20 for a Big Mac Meal – essentially identical to the UK but higher in PPP terms. Now if we could just get a Fatburger or In-N-Out franchise here I’d be happy.
Tim Worstall – “This is the very point of using the Big Mac. Uniform item largely produced from local supplies. That’s what makes it so useful.”
It turns out that a large proportion of Asia’s Kentucky Fried Chicken comes from Thailand. They got caught up in a food scandal recently in China, of all places, and it turns out even China sources from Thailand.
Which is probably a bit of a relief if you think about it.
Tim Newman – “That’s a good point, I’d forgotten about Qucik Burger. Never been in there, but they are well established here.”
They are surprisingly good. Better than your average burger place anyway. I tried them as a joke, but they are not bad at all.
The Big Mac Index is avowedly tongue-in-cheek.
I have oft mused that the “nominal short back and sides” would make a better single item PPP index. Indeed, I make it a point to have a short back and sides wherever I go, specifically to give me some personal idea of PPP, and I often ask what local wages are (unbelievably low in many countries). But then you must take into account that I’m the sort of person who comes blogging here!
Tim Newman, “I’d seen an enormous queue formed there in the past, but never imagined it was for Burger King. But sure enough, I discovered the literally hundreds of people queuing in the concourse *outside* the restaurant was for BK.”
This time last year I was in Taipei staying in a smart part of town and saw every morning and afternoon of hundreds of people queuing for Krispy Kreme doughnuts. Which look disgusting, and when you think of the other food on offer in Taipei… But KK had opened just a month before so it was the latest thing – which in Taiwan means the best thing.
I pronounce a fatwa on you for impugning the name of Krispy Kreme (SAW). The Yanks might not be number one in the gastronomy stakes but by golly they make a good doughnut.