The Economist Big Mac index turns 25; readers challenged to devise new barometer
The Economist [disclosure: Speed client] today publishes the 25th annual edition of the Big Mac index. Since its launch in 1986, this light-hearted guide to whether currencies are at their “correct” level has made some startling predictions.
This year’s Big Mac index is no exception with warnings about the widely perceived undervaluation of the Chinese yuan as well as warnings about the overvaluation of the Brazilian and Argentinian currencies. In its 25-year history, the burgernomics behind the Big Mac index has been praised, criticised, analysed as the subject of at least 20 academic studies, and widely quoted by politicians and pundits around the world.
It has also provided a few hot tips for investors. When the euro was launched in 1999, the widespread prediction was that it would immediately rise against the dollar. The Big Mac index disagreed, showing that the euro was already significantly overvalued. Soros Fund Management later admitted to The Economist that it studied the Big Mac index’s prediction but decided to ignore it and regretted the decision when the euro promptly fell.
Image source: The Economist online
This year’s main burgernomics prediction is that the yuan is not as undervalued as American politicians state. The raw data from the Big Mac index implies that the yuan is 44% undervalued compared to the US dollar. However, burgers should be cheap in emerging economies where wages are low. When the relationship between prices and GDP per person is taken into account, The Economist calculates that the yuan is now close to its fair value against the dollar.
To celebrate the 25 years of burgernomics, readers of The Economist are also being challenged to devise a new light-hearted international economic barometer. The invitation to devise a new international barometer is open to all readers.
Suggestions for other quirky indices to rival the crane Index (the number of cranes you can see from a given point in a city), the lipstick index (when things get tough, women buy lipsticks instead of dresses) and The Economist’s own “R-word” index (tracking the early signs of an impending recession by counting newspaper stories which mention the R word) should be sent to deliciousdata@economist.com.
The Economist finds opportunity for traditional media in the grey market
The noisy disruption of media business models by the internet in the past decade has obscured a demographic transformation according to a briefing in The Economist [disclosure: Speed client].
As young people turn their back on traditional media in favour of social media older generations have a seemingly insatiable appetite for newsprint. But rather than trying to reverse this trend The Economist finds that many publishers are embracing the grey market.
“The clearest sign of this shift is the appearance of online paywalls. Last month paywalls went up around the New York Times and the Dallas Morning News. The websites of Britain’s Times and News of the World began to restrict content to subscribers last year.”
The same applies for the broadcast and music industries. Young people file share and watch YouTube whereas the old deem it to be too much like hard work and prefer their content delivered by subscription.
Britain’s newspapers leading world in media innovation, says The Economist
By most conventional measures Britain’s newspapers look doomed, according to The Economist (disclosure: client), as readers abandon print for the Internet and TV.
But The Economist finds Britain’s papers are being “exceptionally innovative, busily testing new formats and sizes.”
In an article in this week’s issue it examines three different strategies being played out by newspaper publishers:
- News Corporation – pay wall and direct sales via initiatives such as The Sunday Times wine club
- Daily Mail – advertising targeted built around huge online audiences attracted by celebrity editorial
- Independent – mix of paid for and freemium formats based on editorial content
There’s a further strategy promoted by the Financial Times and The Economist itself; porous pay walls that provide access to quality content against various subscription models, and apps.
Related articles
- Bold newspapers: The crucible of print (economist.com)
The Economist: “Rise of the image men”
An article in The Economist this week (disclosure: client) revisits the argument that the public relations industry is enjoying a renaissance thanks to the rise of the social media.
“Such optimists – the industry is full of them, of course – now spy a rare opportunity to steal a march on the Mad Men of advertising and the flipchart wielders of marketing.”
Earning the attention of influencers is what the PR industry has done ever since the beginning of the twentieth century. But today influencers are more fragmented than ever and anyone armed with a laptop can become a corporate irritant and vent their ire online.
The role of traditional media remains important and is often used as a social media source.
“Most [social media influencers] get their information from old-fashioned news providers, as do most powerful and influential people.”
The Economist finds an industry in good health and that although it is in danger of believing its own spin it is finding ways to adapt to technological change.
The Economist on a return to growth
Austerity cuts can only be part of the solution to restoring economic prosperity in the Western economy. That’s the view of the economic team at The Economist (disclosure: client) published in a special cover report this week on the world economy.
At first sight The Economist says that the recovery is in pretty decent shape. The IMF reckons that global GDP should expand by 4.8 per cent this year. But this statistics plasters over the chasm between the emerging and rich economies.
The Economist makes the case that long-term growth may depend on structural reforms as much as prudent macroeconomic policy. “Governments should think more coherently about how to support demand and boost supply,” it says.
The Economist on threats to the internet’s openness
The internet “is in danger of losing it’s universality and splintering into separate digital domains” according to an article in The Economist (disclosure: client) this week.
It believes that the geographic, commercial and technological silos being created on the Internet are a threat to it’s openness and the very essence of the Internet.
It scrutinises the three types of silos that are being created on the internet.
- National – China, Iran, Cuba, Saudi Arabia and Vietnam all restrict access
- Commercial walled gardens – we’re reverting to a bygone period when tech companies (AOL, CompuServe etc) shackled consumers to their proprietary systems
- Net neutrality – The Economist suggests that operators looking for sources of revenue may try and strike deals with content provides and discriminate between traffic from different sources
It’s well worth a read if you’re interested in the commercial development of the Internet.
In it’s conclusion The Economist, champion of free trade, open markets and vigorous competition, says that these principals must apply to the virtual as well as the physical world.
The Economist on the survival of newsprint – “not dead yet”
Positive comment on the future of newsprint is hard to come by yet an article in The Economist today (disclosure: Speed client) is optimistic. It finds that newspapers have escaped closure by cutting costs.
The decline in the fortunes of print has been widely reported. Consumer appetite is in decline and classified advertising has moved online to sites such as eBay and social networks such as Facebook.
The Economist reports that the response from publishers has been to cuts costs (staff and paper), raise prices and use syndicated content. Only a handful of papers have succeeded in persuading their readers to pay for online content.
The post recession prognosis calls for newspapers to “become more distinctive and customer focussed.” Success says The Economist relies on carving out niches. Survival depends on the broader issue of persuading young people to pay for news.
The Economist election briefing on UK business prospects
Manufacturing as a share of GDP currently stands at 12%. In its election briefing The Economist [disclosure: Speed client] says that which ever party forms the next election we’re not going to see a return to the manufacturing height of the mid-80s when it accounted for almost 24% of GDP.
In its election briefing supplement The Economist outlines the four areas that the new government will need to address to kick start business growth.
- incentives – in the form of grants, co-investment or subsidies
- taxation – which can be skewed to favour investment
- education – “in favour of science, technology and manufacturing skills”
- regulation – to reduce red tape
The Economist says that the new government will need to succeed where the current administration has failed and convince the banks to start lending to business. “Business investment fell by 19% last year,” says The Economist.
The Economist election briefing
Prospective parliamentary candidates would do well to pick up a copy of The Economist [disclosure: Speed client] this weekend. It contains a supplement called Britain 2010. It’s a briefing document on the key issues of the forthcoming election and provides an excellent summary of the challenges that face the country for voters and any would be Member of Parliament.
“For a decade and a half Britain enjoyed solid growth. The City of London was the world’s biggest financial centre. Jobs grew on trees. Heavy spending on public services pulled up [quality of life] a fair bit. Most Britons grew tolerant of diversity”.
The ensuing narrative of financial decline and slow recovery since 2008 is oft repeated. We are where we are. The Economist identifies three key issues facing the country’s politicians post-election.
1. Financial insecurity: the budget deficit is huge, taxes are increasing and cut backs are inevitable. People are worried about their economic future
2. Social cohesion and behaviour: immigration combined with old issues such as binge-drinking, rudeness and dysfunctional families are raising anxiety
3. Foreign policy and defence: the cost in money and lives of the war in Iraq is forcing a reappraisal of Britain’s position in the world
Over 20 pages The Economist scrutinises the leaders, the economy, public finances, banking, business poverty and inequality, immigration and society, law and order, foreign policy, education, healthcare and energy.
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