Purchasing power parity (PPP) is a neoclassical economic concept that states that the exchange rate between two countries should equalize the differences in prices charged for an identical basket of goods in each country.
This is a fancy way of saying if an item costs $1 in the United States and the USD/JPY exchange rate is 1:150, then the same item should cost Y150 in Japan.
When these theoretical values are aligned in the real world, it suggests that every market can operate at an equal level of productivity and enjoy a free-flowing, frictionless ecosystem where everyone has equal access to the raw materials for production.
When prices do not align as expected, it indicates that a market is at a less productive level or some factor is interfering with the net pricing of the market. Excessive rent-seeking behavior, taxes, penalties or supply chain bottlenecks to name a few potential problems.
Scottie knows about PPP
I miss post-communist Eastern European jokes
The economist has published it Big Mac Index since 1986 as a way of informally measuring purchasing power parity for food around the world. Although it started as a tongue-in-cheek measurement, due to the number of ingredients in a Big Mac, the corporate supply chain that supports it, and its ubiquity McDonald’s locations In the developed world, a Big Mac serves as a surprisingly accurate proxy for purchasing power and relative inflation levels across countries. The pointer also gave rise to the word burgernomics. So here it is.
I suggest The economist should start publishing a similar Index called the “Happy Meal” index. The Happy Meal Index would help with visualization cost of feeding a child in any country or region. The higher the cost, the greater the strain on raising children for an average family. Plus, you’ll get a great game for a Disney movie coming out soon!
I recently found out it’s now $12 Happy meals for adults for people who want a cheap game but also feel the need for 1500 calories in their lunch. Somewhere in a Brooklyn McDonald’s, a 27-year-old man-child lashes out at them when they’re outside Inside Out 2 characters
Over the long term, tracking the cost of feeding a child has strong predictive powers for GDP growth, helps estimate future changes in the birth rate, generational population fluctuations, and labor force participation figures both now and in the future.
Kids aren’t cheap! According to USDA data and inflation statistics from the BLS, raising a child in 2023 could cost an average of $331,933 from the time a child is born to age 18. At the low end of most estimates, a US family of four spends about $11,700 per year on food at home with each child costing about $2000-$2500 per year.
By using the Big Mac Index and the Happy Meal together, people would get a more complete picture of the marginal cost of food for a family. If you bought a Big Mac for yourself, it would cost a certain amount, but if you brought your 2 kids with you and bought them each a Happy Meal, how much more would it really cost you?
How much compared to a year ago? Compared to 5 years ago? What if you were in Britain? Or Brazil? Or Japan? The twin indicators would help answer these thoughts and help highlight which type of families are most affected by rising food costs.
Interested in joining the Trader Dads Podcast in 2024? Send me an email! I would love to have subscribers sit down for a chat
Thoughts; Questions? comments;
I arrive! Maybe I’ll do a full post on the topic or as a Q&A
