Burgernomics: the Big Mac index applied to GDP
“Burgernomics” is hardly new. The Economist Magazine’s Big Mac Index has been using the famous hamburger as a light-hearted proxy to determine the purchasing power parity value of global currencies for decades. The idea is to see whether the market values of existing exchange rates adequately measure what people can buy with that money.
A Big Mac, which is made the same way in most countries around the world, and whose recipe has changed little during the past thirty years, provides an excellent tool.
However, the Big Mac also provides a good proxy for how much Americans’ real national output has changed.
In addition to its famous ingredients (two all beef patties, special sauce, lettuce, cheese, pickles and onions on a sesame seed bun), the burger also contains substantial inputs related to rent (purchase entitles the buyer a seat at the restaurant for an hour or so), labour and taxes (which comprise a huge portion of business costs).
America is in a Great Depression right now
Measured in official terms, U.S. GDP came in at $19.4 trillion in 2017. That’s a 33% increase over the $14.5 trillion recorded in 2007.
However, those $14.5 trillion could buy 4.25 trillion Big Macs back in 2007 when they cost just $3.41 each.
By 2017, the price of a Big Mac had risen to $5.06, so the $19.4 trillion in GDP that year equated to only 3.83 trillion of the burgers.
That suggests that U.S. GDP, as measured in Big Mac terms, fell by 10% between 2007 and 2017.
ShadowStats, stagnant wages and the two-income trap
The idea of measuring U.S. GDP in Big Mac terms is, of course, far from fully-baked.
However, the results tie in with a lot of other anecdotal data points.
John Williams, of ShadowStats, for example has for years tracked how the U.S. Statistical agencies have changed their data calculations. The reasons cited by the officials always sound good, but their net effect is to make government statistics look a lot better than they actually are.
Williams calculates that U.S. inflation (which came in at 2.36% during March) was running at 5.9% based on the way the government calculated the data back in 1990, and at 10.1% based on 1980 methodologies. The official U.S. unemployment rate of 4.14% during March is actually 21.7% when calculated using ShadowStats’ alternative measure.
Other research, also by the Bureau of Economic Analysis, shows that real wage gains for U.S. workers in many categories have actually fallen during recent decades. For example, a typical 27-year-old man earned more in 1969 than he did three decades later.
Trust the experts?
That said, questioning the methodology of U.S. government experts is tricky business.
Academic economists and those that work at the big banks all use the numbers, generally with little or no question.
Those that do question the numbers, such as ShadowStats and the economists at the Mises Institute in Auburn Alabama, tend to be ignored or shut out of mainstream media.
For example, the latest BEA data release saw no prominent experts rise to question the data.
As such, average Americans will need to do their own calculations to figure out whether their government’s numbers are trustworthy.
Those that do so in a booth at their local McDonald’s will get a relatively good indication as to which way the wind is blowing.
Note: neither the Economist Magazine, nor McDonald’s Restaurants responded to requests to confirm data and findings done for this article.
Written by Peter Diekmeyer, Sprott Money News
from the internet
Go back to 2000 and look at the prices in the newspapers. Half of what they are now, except for medical care and drugs, which are 10x higher.
if you check the tables in the article, the price of Big Macs has also been increasing by just over 4% for the entire three decade period.
This suggests that the Big Mac data might also provide a good proxy for consumer price inflation (excluding assets and government, which would drive the number up a bit higher).
a Big Mac in 1990 weighed a hell of a lot more than they do now. Fine with me. I use to have one twice a month, now, twice a year. Because I’m a fat F… whose wife can’t cook for shit. They are not healthy for you. In fact, a study could be done that would show the indirect downstream medical and loss of productivity cost would be more than the counter price.
Meanwhile, bulksuppliments and organic food sales did not exist even 18 years ago. You can live a longer and healthier life for less if you stay away from expensive things that are bad for you and embrace more affordable things that are good for you.
Back in 1995 or so, 87 grade gas costed 99 cents, now it’s $3.35.
Pizza hut (medium) $7, now $13 or so …
If you can manage the basic living stuffs, life is ok.
It’s the car, school tuition, home price, healthcare … are doing the damage. Big items are making money off of us…
In 1989 I bought a brand new Honda Civic DX (fully loaded) for $4200. It was about 6 weeks wages (I was still not at top income rate at the plant and taxes not counted). Today a new Honda is about $44,000 and is less reliable. Now, it takes a full year of salary to buy essentially the same car. We’ve been robbed.