Big Mac Index suggests America in decade-long depression- Peter Diekmeyer (30/04/2018)

April 30, 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.
That
suggests that U.S. GDP, as measured in Big Mac terms, fell by 10% between 2007
and 2017.
ShadowStats, stagnant wages and the two-income trap
The
idea of measuring U.S. GDP in Big Mac terms is, of course, far from fully-baked.
However,
the results tie in with a lot of other anecdotal data points.
John
Williams, of ShadowStats, for example has for years tracked how the U.S.
Statistical agencies have changed their data calculations. The reasons cited by
the officials always sound good, but their net effect is to make government
statistics look a lot better than they actually are.
Williams
calculates that U.S. inflation (which came in at 2.36% during March) was
running at 5.9% based on the way the government calculated the data back in
1990, and at 10.1% based on 1980 methodologies. The official U.S. unemployment
rate of 4.14% during March is actually 21.7% when calculated using ShadowStats’
alternative measure.
Other research,
also by the Bureau of Economic Analysis, shows that real wage gains for U.S.
workers in many categories have actually fallen during recent decades. For
example, a typical 27-year-old man earned more in 1969 than he did three
decades later.
Trust the experts?
That
said, questioning the methodology of U.S. government experts is tricky
business.
Academic
economists and those that work at the big banks all use the numbers, generally
with little or no question.
Those
that do question the numbers, such as ShadowStats and the economists at the
Mises Institute in Auburn Alabama, tend to be ignored or shut out of mainstream
media.
For
example, the latest BEA data release saw no prominent experts rise to question
the data.
As
such, average Americans will need to do their own calculations to figure out
whether their government’s numbers are trustworthy.
Those
that do so in a booth at their local McDonald’s will get a relatively good
indication as to which way the wind is blowing.
Note: neither the Economist Magazine, nor McDonald’s
Restaurants responded to requests to confirm data and findings done for this
article.
The views and opinions expressed in this material are those of the author as of the publication date, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.