How McDonald's Big Macs can explain the world

Published: Wednesday, Sept. 26 2012 10:53 p.m. MDT

In examining Big Macs per hour over time, Ashenfelter can see which countries are growing and which have plateaued. For example, wage growth was "entirely confined to the developing countries of Russia, India and China during the period of 2000-2007," said Ashenfelter. During the financial crisis of 2007-2011, Ashenfelter found that wages in most countries actually declined. Russia, Latin America and China were notable exceptions.

Teaching economics

Ashenfelter travels around the country giving lectures to university students about his Big Mac index. "I tell kids I will pay for the Big Macs they eat in foreign countries if they send me the receipts with a little write-up on the back about what they learned," he said. "You wouldn't believe the receipts I get."

Part of the appeal of Ashenfelter's index is that it is an easy way to illustrate complicated economic ideas. It is as simple as asking someone, "How many Big Macs can you get with X," he said. "You can teach anyone a little bit about economics. Even kids can understand this stuff."

Though eating at an American chain restaurant while traveling internationally is looked down on by many seasoned travelers, Carla Stone, an international public health consultant based in Delaware, thinks the experience can be eye-opening, particularly for children.

When traveling internationally for work commitments, she makes a point of taking her daughter to McDonald's restaurants. "She gets to see how McDonald's adapts to the local culture," Stone said. She noticed that there was chicken but not beef at the McDonald's in India and pasta dishes on the menu in Italy. But more than providing insight about the cultural differences, "Eating at McDonald's teaches families on a real level not just about exchange rates but develops an awareness about who can afford to buy McDonald's," Stone said.

Limited model

Critics of Ashenfelter's index, such as Jamal Haider of the Paris School of Economics, suggest that it is a clever gimmick but not an accurate reflection of relative currency values. One of his criticisms is that demand for McDonald's food in many foreign countries is driven by tourists, not locals, which skews the price. Ashenfelter is not inclined to give much credit to this line of thinking, however. "McDonald's has 50,000 employees in China," he said. "They wouldn't need that many people if demand was solely driven by American tourists."

Ashenfelter admits the model has some limitations. "One of my biggest concerns has been that you could have a situation where there is no competition in the product market," he said. So for example in some countries, the government will only give one license to one American fast-food company. If McDonald's is there, then Burger King and Wendy's are not. Without competition, McDonald's has a monopoly, and that will distort the price. Minimum-wage laws in developed countries distort wage rates in a similar fashion.

email: mwhite@desnews.com

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