Big Mac Index suggests America in decade-long depression- Peter Diekmeyer

Tuesday, May 1, 2018
By Paul Martin

SprottMoney.com
30/04/2018

U.S. GDP grew at a 4.6% clip in current dollar terms during the first quarter, according to U.S. Government officials at the Bureau of Economic Analysis.

On the surface, the data makes sense.

Businesses across the country saw sales rise. Workers got salary increases. Trump must be right, America is becoming great again, the experts seem to suggest.

But are they right?

Not if you measure U.S. economic output based on the number of Big Macs the country’s annual GDP can buy.

Measured that way, America has been in a Great Depression for the past decade.

Burgernomics: the Big Mac index applied to GDP

“Burgernomics” is hardly new. The Economist Magazine’s Big Mac Index has been using the famous hamburger as a light-hearted proxy to determine the purchasing power parity value of global currencies for decades. The idea is to see whether the market values of existing exchange rates adequately measure what people can buy with that money.

A Big Mac, which is made the same way in most countries around the world, and whose recipe has changed little during the past thirty years, provides an excellent tool.

However, the Big Mac also provides a good proxy for how much Americans’ real national output has changed.

In addition to its famous ingredients (two all beef patties, special sauce, lettuce, cheese, pickles and onions on a sesame seed bun), the burger also contains substantial inputs related to rent (purchase entitles the buyer a seat at the restaurant for an hour or so), labour and taxes (which comprise a huge portion of business costs).

America is in a Great Depression right now

Measured in official terms, U.S. GDP came in at $19.4 trillion in 2017. That’s a 33% increase over the $14.5 trillion recorded in 2007.

However, those $14.5 trillion could buy 4.25 trillion Big Macs back in 2007 when they cost just $3.41 each.

By 2017, the price of a Big Mac had risen to $5.06, so the $19.4 trillion in GDP that year equated to only 3.83 trillion of the burgers.

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