40 years of Burgernomics

Forty years ago, The Economist needed a way to make a dry economic concept feel real to readers, so it turned to the price of a hamburger, something everyone already understood. This month marks four decades since the Big Mac Index debuted, and it has outlasted almost every other attempt to make the value of money easy to picture.

A Number Everyone Understands

Since 1986, The Economist has tracked the price of a Big Mac across dozens of countries, using it as a stand-in for cross-border purchasing power. If a burger costs more than a country's exchange rate suggests it should, that's a sign domestic money may be overvalued. If it costs less, other factors may be at play.

When a Burger Isn't a Burger

That popularity rests on the assumption that a Big Mac is exactly the same everywhere (two all-beef patties, special sauce, lettuce, cheese, pickles, onions, on a sesame seed bun).

Except it isn't the same everywhere.

In the UK and Ireland, for example, the beef comes from British and Irish cattle. A recent Financial Times analysis tested how much that variation actually changes the results. The answer was surprisingly little. Interestingly, the Times found that across the places where the Big Mac is enjoyed, changes in protein and calorie content seemed to affect only countries where the euro or Israeli shekel is spent.

The more interesting finding is what the index is actually measuring. A Big Mac isn't shipped across the globe and traded like wheat or oil. It's made and sold locally, closer to a service than a shipped good. That means the index mostly reflects local labor costs and rents, not the value of money itself. Even the tool built to make a dollar’s value easy to picture ends up needing a footnote.

What This Means for You

Even the Big Mac index, a lighthearted tool built on something as familiar as a fast-food menu, turns out to be more complicated once you look closely. What offbeat economic indicator do you follow?