"...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 $3.10 (see the first column of the table). To make the two prices equal would require an exchange rate of 3.39 yuan to the dollar, compared with a market rate of 8.03. In other words, the yuan is 58% “undervalued” against the dollar. To put it another way, converted into dollars at market rates the Chinese burger is the cheapest in the table...."With a Big Mac costing Rp 14,400 in Jakarta, rupiah is 49% "undervalued" against the dollar. Of course, no one is arguing that Big Mac is representative of what Indonesians are gobbling up. In fact, any Indonesian worth his paket hemat would know that we go to McDonald to get them chicken.
It turns out that several years ago, the financial giant UBS created an alternative Big Mac index, based on how long (in minutes) a typical worker would need to work before he earn enough money to buy a Big Mac. The 2005 numbers say that a typical worker in Karachi would have to work for 132 minutes to be able to buy a Big Mac. It would have taken 64 minutes of work for a typical Jakarta worker to be able to afford one (alternatively, he only needs to work for 19 minutes to get 1 kg of rice). Bangkok: 46 minutes, Singapore: 20 minutes (New York: 12 minutes). Like most cross-country indices, the numbers are more fun to look at than they are useful (what is a typical worker anyway?).
Dissapointed with these indices, Ms. Thu-Tam Doan, a travel writer, once proposed the use of her coconut index to compare purchasing power parity and cost of living in Southeast Asia,
"...I assumed that like all men, all coconuts too are created equal.....I took the given variables, the per capita income of each country in US$ and throughout my travels have noted the average cost of their coconuts. I divided per capita income by 365 to find their daily wages, then compared the cost of a coconut as a ratio to their wages (X:Y), where X = cost of 1 coconut as a fraction of their daily wages, Y......and so it went on. According to her calculation, in Indonesia, a daily wage would buy you around 12 coconuts. A daily wage in Thailand would buy you 24, and in Singapore 81. I don't know how useful those numbers are. But that's a lot of coconuts.
To her credit, Ms. Thu-Tam Doan recognizes the flaw of this index ,
Sound decision. Coconuts are not created equal after all. So I guess we're stuck with the Big Mac index, maybe for another 20 years. In the meantime, tall latte index is now a toddler.
....In conclusion, coconut quality inherently attributes to coconut cost, thereby influencing purchasing power parity (eg. the standard of living). This Coconut Index was a lot more work than I thought it would be - too much work for someone who is aimlessly traveling.
I give up.
The Economist | Big Mac | latte | coconut | ppp