Just catching up on some stuff.
One of my favorite annual surveys is the Economists’ Big Mac Index. (My other favorite is the Durex Global Sex Survey, although they are a couple of years late in doing their latest one.)
The Big Mac Index looks at whether a currency is over or under valued. Here is the Economist explanation:
The index is a lighthearted attempt to gauge how far currencies are from their fair value. It is based on the theory of purchasing-power parity (PPP), which argues that in the long run exchange rates should move to equalise the price of an identical basket of goods between two countries. Our basket consists of a single item, a Big Mac hamburger, produced in nearly 120 countries. The fair-value benchmark is the exchange rate that leaves burgers costing the same in America as elsewhere.
What the survey showed is what I have been saying for a couple of years: In Brazil you spend a lot of money for mediocre food. Brazil is the third most expensive place in the world for a Big Mac.
While this is a “lighthearted attempt” at looking at a complicated issue — currency values — it is an easy to understand index that can help people understand the issue.
Using the Big Mac Index reporters can help explain why getting China to float its currency is important. Or how trade is affected by differences in currency values.
After all, the price of a Big Mac is something everyone in the States understands. Even journalists.