Happy 20th birthday to our Big Mac index.
WHEN our economics editor invented the Big Mac index in 1986 as a light-hearted introduction to exchange-rate theory, little did she think that 20 years later she would still be munching her way, a little less sylph-like, around the world. As burgernomics enters its third decade, the Big Mac index is widely used and abused around the globe. It is time to take stock of what burgers do and do not tell you about exchange rates.
The Economist’s Big Mac index is based on one of the oldest concepts in international economics: the theory of purchasing-power parity (PPP), which argues that in the long run, exchange rates should move towards levels that would equalise the prices of an identical basket of goods and services in any two countries. Our “basket” is a McDonald’s Big Mac, produced in around 120 countries. The Big Mac PPP is the exchange rate that would leave burgers costing the same in America as elsewhere. Thus a Big Mac in China costs 10.5 yuan, against an average price in four American cities of $3.10 (see the first column of the table). To make the two prices equal would require an exchange rate of 3.39 yuan to the dollar, compared with a market rate of 8.03. In other words, the yuan is 58% “undervalued” against the dollar. To put it another way, converted into dollars at market rates the Chinese burger is the cheapest in the table.
Category: Business
Why Offer Employee Benefits?
The vast majority of US executives see employee benefits as important to their company’s competitiveness, according to the latest McKinsey Quarterly survey.
If It’s Good for Philip Morris, Can It Also Be Good for Public Health?
“We don’t make widgets,” Steve Parrish likes to say, and that acknowledgment strikes me as a good place to start this story. Parrish, whose title is senior vice president for corporate affairs, is a highly paid executive at Altria Group, a New York-based holding company that is the 10th-most-profitable corporation in America. If the name of the company doesn’t strike you as terribly familiar, that’s because a few years ago the company changed its name. It used to be called Philip Morris, a name that still attaches to two of its holdings, Philip Morris USA and Philip Morris International. (Altria also owns Kraft Foods.) So, yes, let’s stipulate right up front: Steve Parrish represents the country’s leading tobacco company, whose best-known brand, Marlboro, is so dominant it accounts for 4 out of every 10 cigarettes smoked in the United States. Last year, Philip Morris USA alone made $4.6 billion in profits. What was it that Warren Buffett once said? “You make a product for a penny, you sell it for a dollar and you sell it to addicts.” They most certainly don’t make widgets.
Kraft is parent of Madison based Oscar Meyer Foods.
Fiskateers
Local firm Fiskars runs a blog for its Fiskateers program; “amabassdors for crafting”. Via John Moore.
Inside Apple’s iPod Factories
Apple’s iPods are made by mainly female workers who earn as little as £27 per month, according to a report in the Mail on Sunday yesterday.
The report, ‘iPod City’, isn’t available online. It offers photographs taken from inside the factories that make Apple music players, situated in China and owned by Foxconn.
The Mail visited some of these factories and spoke with staff there. It reports that Foxconn’s Longhua plant houses 200,000 workers, remarking: “This iPod City has a population bigger than Newcastle’s.”
UAW Chief Says Union Must Brace For Change as Big Three Struggle
AP:
The challenges we face aren’t the kind that can be ridden out. They’re structural challenges, and they require new and farsighted solutions,” he said.
Among those challenges is that nonunion U.S.-based auto assembly plants made 1.1 million more vehicles in 2005 than they did in 2001, while production at unionized plants fell by 1.1 million, he said. Mr. Gettelfinger said U.S. labor laws heavily favor management and allow employers, such as Japanese auto makers that have opened plants in this country, to intimidate workers seeking to unionize.
Ron Gettelfinger’s report is available here [25MB PDF]
The Real Estate Market Source
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Dave Stark, a friend and long time client has published the first of what will be a quarterly look at the Madison area real estate market [1.2MB PDF]:
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Google vs Microsoft
I’ve heard all sorts of chatter about the Google foray into spreadsheets, and none of it resonates with me. Here are 3 key aspects of this worth thinking about:
1. Strategically, Google is shooting at half of the Microsoft franchise
Microsoft, despite alot of hoopla you have heard about all its other product offerings, makes the vast lion’s share of its money via its Operating System and via Office. Nothing else it does is generates nearly the profitable cash flow as those two money printing presses do.
Think long term strategy: From a military perspective, Google is opening a second front in the war Microsoft launched against them. You want to come after our core busines? Allow us to return the favor.
The Key Ingredients for a “Great City”
Paul Graham ruminates on the essence of a technology hub:
I think you only need two kinds of people to create a technology hub: rich people and nerds. They’re the limiting reagents in the reaction that produces startups, because they’re the only ones present when startups get started. Everyone else will move.
Do you really need the rich people? Wouldn’t it work to have the government invest in the nerds? No, it would not. Startup investors are a distinct type of rich people. They tend to have a lot of experience themselves in the technology business. This (a) helps them pick the right startups, and (b) means they can supply advice and connections as well as money. And the fact that they have a personal stake in the outcome makes them really pay attention.
Bureaucrats by their nature are the exact opposite sort of people from startup investors. The idea of them making startup investments is comic. It would be like mathematicians running Vogue– or perhaps more accurately, Vogue editors running a math journal.
Grahams words are a must read for local politicians. Madison’s (Wisconsin) biggest challenge with respect to new business development is it’s parochialism. Living in San Francisco years ago, I was impressed by the general willingness to try new things and take risks. We have a world class University, lots of bright citizens but not so many people willing to take financial and career risks.
Emerging Airline Industry Trends 2006 – 2011
The Boyd Group [pdf]:
Airline Industry Trends Updat Presentation To Regional Airline Association May 24, 2006