The economist is my Oprah, I pretty much think whatever it tells me. This is one of my standard jokes. It's not entirely true these days, but to some extent. A terrible thing, yes, but nowhere near as bad as doing the same thing with CNN or Fox. The Economist is run and written by seriously smart people and generally it's pretty sober analysis. They do interject opinions, but only after alluding to the fact that what you're about to read is opinion. More importantly though, the magazine (or as they call themselves, newspaper) is connected to some pretty serious stuff like the Economist Intelligence Unit. A subscription to the latter costs thousands per year. The publication is so highly respected that a somewhat whimsical concept they devised has turned into a well established and ubiquitous means for judging how fairly valued a currency is.
It's called the Bic Mac index. The idea is to find a value added good that encompasses multiple materials and services. You look at the price of that good in one place and juxtapose it with the good's price in another. If after adjusting the local currencies for the ostensible exchange rate the price of the good is cheaper in state A than it is in State B, then in theory the currency of State A is undervalued. The problem is finding a such a good that exists all over the world. What could possibly exist in almost any country one might travel to?
A: McDonalds.
It's called the Bic Mac index. The idea is to find a value added good that encompasses multiple materials and services. You look at the price of that good in one place and juxtapose it with the good's price in another. If after adjusting the local currencies for the ostensible exchange rate the price of the good is cheaper in state A than it is in State B, then in theory the currency of State A is undervalued. The problem is finding a such a good that exists all over the world. What could possibly exist in almost any country one might travel to?
A: McDonalds.
A friend of mine asked me how much a Big Mac costs here, and it dawned on me that I had completely forgotten to check. That's the sort of thing that I get a kick out of and really should have been my first stop in Beijing. How it escaped me I have no idea.
So a Big Mac in Tianjin costs 13 Yuan, which in US dollars is roughly $1.90. It's probably cheaper in less bustling cities.
IMO, there are a couple problems with the Big Mac index though. One is that McDonalds are apparently branded as a different sort of experience in different places. I've been told that in France a Big Mac actually looks like the picture. Another is that I've noticed on various menus that prices are certified by the "Tianjin Pricing Bureau" (or something like that). It's more than plausible that there is a government mandated floor on the price of a Big Mac for the purpose of making the value of making the value of the currency seem more fair. 13 Yaun does seem a little high when compared with other Chinese food. You can get pretty full here with good food for about 7 Yuan if you know where to go. We eat a lot of "stick food" which is just what it sounds like: a bunch of stuff on a skewer grilled and slathered in delicious sauces and spices. Those are generally 1 yuan a piece and three will more than do the trick. If you want to get fancy you might pay up to 5 yuan for one with so much stuff on it you won't be able to finish it. A bottle of water is 1.5 - 3 yuan. Cigarettes are practically subsidized. That's 60 cents.
So a Big Mac in Tianjin costs 13 Yuan, which in US dollars is roughly $1.90. It's probably cheaper in less bustling cities.
IMO, there are a couple problems with the Big Mac index though. One is that McDonalds are apparently branded as a different sort of experience in different places. I've been told that in France a Big Mac actually looks like the picture. Another is that I've noticed on various menus that prices are certified by the "Tianjin Pricing Bureau" (or something like that). It's more than plausible that there is a government mandated floor on the price of a Big Mac for the purpose of making the value of making the value of the currency seem more fair. 13 Yaun does seem a little high when compared with other Chinese food. You can get pretty full here with good food for about 7 Yuan if you know where to go. We eat a lot of "stick food" which is just what it sounds like: a bunch of stuff on a skewer grilled and slathered in delicious sauces and spices. Those are generally 1 yuan a piece and three will more than do the trick. If you want to get fancy you might pay up to 5 yuan for one with so much stuff on it you won't be able to finish it. A bottle of water is 1.5 - 3 yuan. Cigarettes are practically subsidized. That's 60 cents.
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