My, That is a Tasty Economic Indicator

Recently, a story entitled “Burgernomics” appeared on ABC’s Nightline. The title was meant convey the connection between America’s growing consumption of hamburgers and the current economic recession. Josh Ozersky, the Restaurants Editor for Citysearch remarked “the burger is omnipotent…it is the single most powerful force in the food universe”. As it turns out burgers may also be the most powerful force in the international currency universe as well.

“Burgernomics” is the economy theory predicated on purchasing-power parity (PPP), the notion that a dollar should buy the same amount in all countries. Thus in the long run, the exchange rate between two countries should move towards the rate that equalizes the prices of an identical basket of goods and services in each country. The key of course is finding an “identical basket of goods and services” available world wide. I give you the humble hamburger. More specifically, McDonald’s Big Mac, which is produced in 120 countries, making it both ubiquitous and uniquely suited to the task.

Developed by the British publication “The Economist” back in September, 1986, the Big Mac Index is the exchange rate that would mean hamburgers cost the same in America as abroad. Comparing actual exchange rates with PPPs indicates whether a currency is under- or overvalued as illustrated below:


Source: The Economist, the Big Mac Index for July 16, 2009
*At current exchange rates
** Purchasing power parity = local price divided by price in US
*** Average of New York, Chicago, Atlanta & San Francisco


Currently, the dollar buys the most burger in China. Conversely, the least amount of bang for the burger can be found in Geneva, Switzerland.

Other companies are getting wise to the idea that burgers are not just for breakfast, lunch or dinner. UBS, the global financial services giant based in Zurich Switzerland, recently published a study detailing a how long it takes a worker on the average net wage to earn the price of a Big Mac in 73 cities world wide.


Fast-food junkies are best off in Chicago, Toronto and Tokyo, where it takes a mere 12 minutes at work to afford a Big Mac. By contrast, employees must toil for over two hours to earn enough for a burger fix in Mexico City, Jakarta and Nairobi.

So next time you’re wrapping your hands around a big tasty burger, remember: how many other economic indicators come with two all beef patties, special sauce, lettuce, cheese on a sesame seed bun?