Economy

Is The Big Mac Index Obsolete?

Japan's Nomura company thinks technology prices tell us more about currency comparisons than fast food.

Not so big anymore
Not so big anymore
Camélia Echchihab

PARIS â€" A Japanese financial firm says it's high time to replace the now famous "Big Mac index," introduced 30 years ago by the London-based magazine The Economist, with something that better fits our digital era: an "iPhone index."

The logic behind the proposal, put forth by the company Nomura, is that consumers today are more likely to cross borders to find a cheaper iPhone than they are to buy a better priced McDonald's burger.

Both indices compare currencies on the basis of purchasing power parity (PPP), and are tools allowing economists and consumers alike to see which currencies are overvalued and which are undervalued.

The scales work by comparing the different prices in each country of a good that is uniformly sold and produced across the globe â€" one as ubiquitous as a McDonald's Big Mac or an Apple iPhone â€" to discover the currency effect that determines the good's varying prices. A Big Mac, for example, is 1.3 times more expensive in Switzerland than it is in the United States, meaning the Swiss franc is 30.7% overvalued compared to the U.S. dollar.

Nomura researcher Bilal Hafeez, formerly the head of foreign exchange research at Deutsche Bank, says the iPhone, given what it demonstrates about currency effects on technological products, is now a better product for PPP comparison than the Big Mac.

When the Big Mac is exchanged with the iPhone as the product of reference, he explains, the rankings of how currencies are valued is completely turned on its head.

With the iPhone index, the most overvalued currencies compared to the U.S. dollar are the Brazilian real (60%), the Turkish lira (54%), and the Russian ruble (31%). The Big Mac index, in contrast, identifies the Swiss, Swedish, and Norwegian currencies as the world's most overvalued. Unlike its Big Mac counterpart, the iPhone index finds that every currency in the world is overvalued compared to the U.S. dollar, as Apple sells its iPhones cheapest in the United States.

So which one is the most accurate? The answer isn't entirely clear, since the two indices analyze different effects. The Big Mac index is heavily influenced by labor costs in each country and measures the effect those costs have on PPP. As such, it lists many emerging market currencies as undervalued. The iPhone index, on the other hand, reflects the quality of local infrastructure to produce high-tech and luxury goods, revealing a different set of comparisons.

The indices do agree on some points, and there are a few countries whose currencies are overvalued and expensive any way you look at them: Sweden and Norway. Looking for a cheap burger and a new phone? Try Mexico or Hong Kong.

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Society

A Mother In Spain Denied Child Custody Because She Lives In Rural Area

A court in Spain usurps custody of the one-year-old boy living with his mother in the "deep" part of the Galicia region, forced to instead live with his father in the southern city of Marbella, which the judge says is "cosmopolitan" with good schools and medical care. Women's rights groups have taken up the mother's case.

A child in Galician countryside

Laure Gautherin

A Spanish court has ordered the withdrawal of a mother's custody of her one-year-old boy because she is living in the countryside in northwestern Spain, where the judge says the child won't have "opportunities for the proper development of his personality."

The case, reported Monday in La Voz de Galicia, has sparked outrage from a women's rights association but has also set off reactions from politicians of different stripes across the province of Galicia, defending the values of rural life.


Judge María Belén Ureña Carazo, of the family court of Marbella, a city on the southern coast of 141,000 people, has ordered the toddler to stay with father who lives in the city rather than with his mother because she was living in "deep Galicia" where the child would lack opportunities to "grow up in a happy environment."

Front page of La Voz de Galicia - October 25, 2021

Front page of La Voz de Galicia - Monday 25 October, 2021

La Voz de Galicia

Better in a "cosmopolitan" city?


The judge said Marbella, where the father lives, was a "cosmopolitan city" with "a good hospital" as well as "all kinds of schools" and thus provided a better environment for the child to thrive.

The mother has submitted a formal complaint to the General Council of the Judiciary that the family court magistrate had acted with "absolute contempt," her lawyer told La Voz de Galicia.

The mother quickly accumulated support from local politicians and civic organizations. The Clara Campoamor association described the judge's arguments as offensive, intolerable and typical of "an ignorant person who has not traveled much."

The Xunta de Galicia, the regional government, has addressed the case, saying that any place in Galicia meets the conditions to educate a minor. The Socialist party politician Pablo Arangüena tweeted that "it would not hurt part of the judiciary to spend a summer in Galicia."

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