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EDITORIAL: What the Big Mac says about Russia

EDITORIAL

What the Big Mac says about Russia

big%20mac%20sculptureOne of the stupidest commentaries we’ve seen regarding Russia is the Economist magazine’s “Big Mac Index.”  Even while admitting it is “light-hearted” and totally without any real meaning the magazine goes right on publishing it.

This year’s index says that Big Mac sandwich costs $3.57 on average in four large American cities while it costs $2.04 in Russia (based on an unspecified number of cities surveyed). The world’s cheapest Big Mac is in Hong Kong (where it costs $1.72) and the most expensive is in Norway (where it will set you back $6.15).  So Russia has a claim to fame! It offers one of the cheapest American hamburgers on the planet (more than enough reason to book a plane ticket, right?).  Good job, Russians!

Based on this revelation, namely that the Big Mac is $1.53 or 43% cheaper in Russia than in the USA, the Economist concludes that the Russian currency is 43% undervalued and that the exchange rate should not be 32.8 rubles to the dollar, which it currently is, but rather 18.8 rubles to the dollar, which would make the price of the sandwich the same in both countries.

The implication of this is that Russians are foolishly willing to pay more than fair market value for a dollar, Americans foolishly unwilling to pay more for a ruble.  For various reasons, it’s surely one of the stupidest economic suggestions ever made.

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