How does one measure their wealth? In money, assets, investments, love… or Big Macs? For the past 40 years, McDonald’s signature burger has been used as a benchmark for evaluating currency.
In 1986, The Economist developed the Big Mac Index as a “lighthearted guide to whether currencies are at their ‘correct’ level,” the outlet explained. Using the U.S. and the Big Mac as the default, the index categorizes world currency as “overvalued” or “undervalued.”
For example, as of July 30, a Big Mac cost around $6.22 in the U.S. and £5.49 in Britain. According to the index, that means that the British pound is 19% overvalued.
A separate Big Mac Index cited by The New York Post this week measures how many Big Macs you can buy for the equivalent of $100. In that scenario, India is one of the richest in Big Mac purchasing ability at nearly 41. In the U.S., you can get just 16, while in Canada you could get around 17. Big Mac purchasing power is weaker in much of Europe – in Britain you would get around 13.
However, the whole Big Mac measuring system begs the question: should we measure our wealth in burgers (specifically, two patties with lettuce, three slices of bun and special sauce)? There are some who argue against it.
This summer, the Financial Times published an article about “beefing” with the Big Mac Index. It noted that the Big Mac is not actually the same everywhere in the world.
“As a good globalist corporation, McDonalds (and its global licensees) makes all sorts of adjustments in local markets, affecting things like salt content, calories and weight. Beef in the abstract is a globally traded commodity, but the beef which McDonalds’ hamburgers are made out of isn’t – walk into a British Isles branch and you’ll see quite prominent advertising that in the UK and Ireland, they exclusively use British and Irish beef,” the outlet said.
In response to the Big Mac Index, the Council on Foreign Relations even created its own “Mini Mac” Index based on the prices of Apple’s iPad Mini.
“The law of one price assumes there are no restrictions on, or costs involved in, the movement of goods, and Big Macs travel badly. So in 2013 we created our own Mini Mac Index, which compares the price of iPad minis across countries,” CFR explained. “Minis are a global product that, unlike Big Macs, can move quickly and cheaply around the world.”
While the Big Mac Index shows the dollar overvalued against most currencies by 17%, the Mini Mac Index shows the dollar slightly undervalued at 6% on average. The Federal Reserve Bank of St. Louis has also tracked how The Economist’s Big Mac Index compares to inflation.
As we face challenges like El Nino and global military conflicts, food in general around the world is expected to get more expensive everywhere in the coming months as affordability remains a top concern for Americans.
