Food as an Economic Crystal Ball: How Economists Use Big Macs and Baked Beans to Predict the Future
If one were to inquire about the essence of a McDonald’s hamburger, most individuals would likely respond in terms of its flavor and price. However, from an economist’s perspective, the consumption of a hamburger unveils the economic undercurrents coursing through a region, a nation, or even the globe.
The Influence of Exchange Rates: The Big Mac and KFC Index
As an international chain of fast-food establishments, McDonald’s burgers possess a profound representativeness, capable of shedding light on a country’s economic state and the purchasing power of its currency. Referred to in economic circles as “purchasing power parity,” this analysis bypasses currency exchange rates.
How much does a Big Mac cost in Lima, the capital of Peru, located in South America? And what about Abu Dhabi, the capital of the United Arab Emirates, nestled in the Middle East? By comparing prices of identical products sold in various currencies across different nations, one can gauge the purchasing power of a given country’s currency. For instance, there was a point in time when a McDonald’s Big Mac burger was priced at $5.06 in the United States, while it fetched 10.75 lira in Turkey. This implies that the average purchasing power of the US dollar against the lira stands at approximately 1:2.12, meaning 1 US dollar is equivalent to 2.12 liras. However, based on the prevailing exchange rate at that juncture, the ratio of US dollars to lira was 1:3.68, signifying that 1 US dollar could be exchanged for 3.68 liras. Consequently, an individual possessing 5.06 US dollars could only purchase a solitary hamburger within the United States, whereas if they were to convert those US dollars into lira and subsequently procure the same burger, they could acquire 1.73 hamburgers. Thus, it becomes evident that within the realm of currency exchange rates, the value of the lira is undervalued.
This comparative approach has garnered a popular moniker, commonly known as the “Big Mac Index.” Furthermore, economists have also devised the “KFC Index,” primarily employed to analyze the economic conditions within African nations, owing to the scarcity of McDonald’s establishments across the continent.
Economic Fluctuations Unveiled through Popcorn and Baked Beans
Economists frequently employ food prices as a yardstick to assess the soundness of an economy’s development. Consequently, in 2009, the birth of the “Cinema Popcorn Index” transpired, postulating a direct correlation between popcorn sales and an economy’s growth trajectory.
During that period, popcorn sales in the United Kingdom experienced a steady upswing, coinciding with the country’s recovery from the 2008 financial crisis. The surge in popcorn sales at movie theaters indicates an increased attendance rate, which, in turn, implies that individuals possess both “leisure time” and “disposable income,” alongside a stable source of earnings. Such stability in income signifies an improved economic situation.
Additionally, another food item, namely baked beans in tomato sauce, serves as an indicator of economic trends. Baked beans, often served as a common side dish, witness heightened sales during times of adversity. This is due to the rise in unemployment when the economy wanes. With a surplus of idle individuals at home, their leisurely pursuit involves watching television and consuming baked beans as a pastime. Consequently, the growth in baked bean sales can be regarded as one of the markers of an economic recession. The decline in baked bean sales during 2013 coincided with signs of a healthier UK economy.
