Big Macs & $4 Gas

Diamond Lil's picture
Rank: Baboon | 171

Argh! you spoiled brats! Stop complaining and go get a Big Mac

The US is said to be the world's largest consumer of gasoline. As gasoline touched $4.00 a gallon, with the promise of higher prices as we approach the higher demand of Spring and Summer, we hear consumers complain and I wonder why.

Let me give you and example. While we bitch and moan for paying a bit over $1.00/liter in the US, people in Uruguay are paying close to $2.00. Here in Argentina, it is running around $1.75/liter. As a matter of fact, we in the United States pay less for a liter of gas than more than a hundred other countries, including Rwanda, Uganda, Turkey, Zimbabwe, Peru, Bolivia and Paraguay.

Of course, I don't have to tell you bunch of very well educated imported-banana eating monkeys that people in Uruguay don't really have the income of the average american. As a matter of fact, per capita income on a purchasing power parity basis, according to a 2011 IMF report, ranks the US seventh among the nations surveyed. Uruguay ranks 59th, with less than a quarter of the average income of a US citizen. And yet, they pay twice as much for a liter of gas than we do.

When I was trading FX, I always followed the Big Mac Index to look at PPP and under or over valuation of currencies. The Economist's Big Mac index tracks purchasing power parity based not on a basket of goods, but on the price of a Big Mac around the world, compared to the US "base" price. Well, you guessed it! Uruguayos pay more for a Big Mac than we do. The latest Big Mac index reflects a ten percent overvaluation of the Uruguayan peso against the US dollar. If you add the cost of gasoline to drive to your local Mac Donalds, those poor uruguayos are really getting stifffed.

I know I'm getting a bit off subject here, but if you like currency trading, the latest Big Mac Index, often called burgernomics by my friends at the Economist, reflects a whopping 62% overvaluation of the SF against the dollar. And last year, the index showed a 21% overvaluation of the Euro against the dollar, which has corrected significantly since then. That, my friends, was a good trade.

Back to gasoline prices. The New York Times reported yesterday that, while angry at rising gas prices, this fact will not really sway US voters in the upcoming election. Apparently, US voters care a lot more about electing a leader "they can trust". Me? Finding a leader I can trust will be harder to swallow than a Big Mac in Uruguay.

Comments (23)

Mar 19, 2012

reminds me of a theory that i've heard several times, but could never confirm. In Argentina prices at McDonalds are really high, but the price of a Big Mac has stayed steady at ~16 pesos (about $3.75) because the government subsidizes the price so the true inflation rate (which they go to great lengths to hide) isn't shown in the big mac index.

Decided to do another search about this and found this article. Definitely leads me to believe that ^ is true...
"Don't lie to me, Argentina - Why we are removing a figure (INDEC) from our indicators page

There is one glaring exception. Since 2007 Argentina's government has published inflation figures that almost nobody believes. These show prices as having risen by between 5% and 11% a year. Independent economists, provincial statistical offices and surveys of inflation expectations have all put the rate at more than double the official number (see article). The government has often granted unions pay rises of that order.

What seems to have started as a desire to avoid bad headlines in a country with a history of hyperinflation has led to the debasement of INDEC, once one of Latin America's best statistical offices. Its premises are now plastered with posters supporting the president, Cristina Fernandez de Kirchner. Independent-minded staff were replaced by self-described "Cristinistas". In an extraordinary abuse of power by a democratic government, independent economists have been forced to stop publishing their own estimates of inflation by fines and threats of prosecution. Misreported prices have cheated holders of inflation-linked bonds out of billions of dollars.

and in the comments:

Furthermore, I would recommend an article regarding the Big Mac Index & the K government. In Argentina, all combos at McDonald's cost double the price of the Big Mac - simply because it is subsidized to hide the true enconimical panorama.

WSO's COO (Chief Operating Orangutan) | My Linkedin

    • 1
Mar 20, 2012
AndyLouis:

reminds me of a theory that i've heard several times, but could never confirm. In Argentina prices at McDonalds are really high, but the price of a Big Mac has stayed steady at ~16 pesos (about $3.75) because the government subsidizes the price so the true inflation rate (which they go to great lengths to hide) isn't shown in the big mac index.

Decided to do another search about this and found this article. Definitely leads me to believe that ^ is true...
"Don't lie to me, Argentina - Why we are removing a figure (INDEC) from our indicators page

There is one glaring exception. Since 2007 Argentina's government has published inflation figures that almost nobody believes. These show prices as having risen by between 5% and 11% a year. Independent economists, provincial statistical offices and surveys of inflation expectations have all put the rate at more than double the official number (see article). The government has often granted unions pay rises of that order.

What seems to have started as a desire to avoid bad headlines in a country with a history of hyperinflation has led to the debasement of INDEC, once one of Latin America's best statistical offices. Its premises are now plastered with posters supporting the president, Cristina Fernandez de Kirchner. Independent-minded staff were replaced by self-described "Cristinistas". In an extraordinary abuse of power by a democratic government, independent economists have been forced to stop publishing their own estimates of inflation by fines and threats of prosecution. Misreported prices have cheated holders of inflation-linked bonds out of billions of dollars.

and in the comments:

Furthermore, I would recommend an article regarding the Big Mac Index & the K government. In Argentina, all combos at McDonald's cost double the price of the Big Mac - simply because it is subsidized to hide the true enconimical panorama.

Interesting. Are you saying the government here is directly subsidizing Mac's? I think it may be mostly indirect, with agricultural subsidies, gas and oil subsidies, etc, all contributing to a lower big mac price. Which also means that the peso would be much more than ten percent overvalued according to burgernomics. It is well known that the INDEC is not reliable anymore, and I totally agree on that. All you have to do is look at what's happened to prices at the supermarket in the last few years. Yikes!

Mar 20, 2012
Diamond Lil:
AndyLouis:

reminds me of a theory that i've heard several times, but could never confirm. In Argentina prices at McDonalds are really high, but the price of a Big Mac has stayed steady at ~16 pesos (about $3.75) because the government subsidizes the price so the true inflation rate (which they go to great lengths to hide) isn't shown in the big mac index.

Decided to do another search about this and found this article. Definitely leads me to believe that ^ is true...
"Don't lie to me, Argentina - Why we are removing a figure (INDEC) from our indicators page

There is one glaring exception. Since 2007 Argentina's government has published inflation figures that almost nobody believes. These show prices as having risen by between 5% and 11% a year. Independent economists, provincial statistical offices and surveys of inflation expectations have all put the rate at more than double the official number (see article). The government has often granted unions pay rises of that order.

What seems to have started as a desire to avoid bad headlines in a country with a history of hyperinflation has led to the debasement of INDEC, once one of Latin America's best statistical offices. Its premises are now plastered with posters supporting the president, Cristina Fernandez de Kirchner. Independent-minded staff were replaced by self-described "Cristinistas". In an extraordinary abuse of power by a democratic government, independent economists have been forced to stop publishing their own estimates of inflation by fines and threats of prosecution. Misreported prices have cheated holders of inflation-linked bonds out of billions of dollars.

and in the comments:

Furthermore, I would recommend an article regarding the Big Mac Index & the K government. In Argentina, all combos at McDonald's cost double the price of the Big Mac - simply because it is subsidized to hide the true enconimical panorama.

Interesting. Are you saying the government here is directly subsidizing Mac's? I think it may be mostly indirect, with agricultural subsidies, gas and oil subsidies, etc, all contributing to a lower big mac price. Which also means that the peso would be much more than ten percent overvalued according to burgernomics. It is well known that the INDEC is not reliable anymore, and I totally agree on that. All you have to do is look at what's happened to prices at the supermarket in the last few years. Yikes!

I've heard specifically the Big Mac, yes, simply because of the burgernomics report. If it was indirect, wouldnt all fast food prices be lower? The Big Mac is significantly cheaper than anything comparable, and they don't promote it as such (not even on the menu?).

See http://baexpats.org/expat-life/20362-how-big-mac-c... for more discussion on this

WSO's COO (Chief Operating Orangutan) | My Linkedin

Mar 19, 2012

Saying how American's should not complain about rising gas prices is ignorant. We have more roads, more sprawling cities, more cars per person, worse PT, and our mentality has always been driving everywhere. Gas is way more inelastic in the United States than it is newhere else.

Mar 20, 2012
Maverick91:

Saying how American's should not complain about rising gas prices is ignorant. We have more roads, more sprawling cities, more cars per person, worse PT, and our mentality has always been driving everywhere. Gas is way more inelastic in the United States than it is newhere else.

Are you saying because there is more demand, prices should be lower in the US?
I believe that many European countries have more cars per person than the US, but gas prices are much higher there.
Plus, as you get to know me you'll see that I just point things out, and I try to stay away from strong opinions.

Mar 19, 2012
Diamond Lil:

Back to gasoline prices. The New York Times reported yesterday that, while angry at rising gas prices, this fact will not really sway US voters in the upcoming election. Apparently, US voters care a lot more about electing a leader "they can trust".

This is complete bull shit. Obama's approval ratings took a 10% dive in a single month. It is completely due to gas prices. To those who pay attention, it's obvious that we will be using natgas to fuel transportation (at least 25-30% market share). I hope gas prices go to $6 to guarantee Romney a spot in the oval office. Don't give me shit and say he's a bad candidate... realistically he is the only one who stands a chance.

Mar 19, 2012
Connor:
Diamond Lil:

Back to gasoline prices. The New York Times reported yesterday that, while angry at rising gas prices, this fact will not really sway US voters in the upcoming election. Apparently, US voters care a lot more about electing a leader "they can trust".

This is complete bull shit. Obama's approval ratings took a 10% dive in a single month. It is completely due to gas prices. To those who pay attention, it's obvious that we will be using natgas to fuel transportation (at least 25-30% market share). I hope gas prices go to $6 to guarantee Romney a spot in the oval office. Don't give me shit and say he's a bad candidate... realistically he is the only one who stands a chance.

you have to kill many congressmen before thinking about natgas

Mar 20, 2012
Connor:
Diamond Lil:

Back to gasoline prices. The New York Times reported yesterday that, while angry at rising gas prices, this fact will not really sway US voters in the upcoming election. Apparently, US voters care a lot more about electing a leader "they can trust".

This is complete bull shit. Obama's approval ratings took a 10% dive in a single month. It is completely due to gas prices. To those who pay attention, it's obvious that we will be using natgas to fuel transportation (at least 25-30% market share). I hope gas prices go to $6 to guarantee Romney a spot in the oval office. Don't give me shit and say he's a bad candidate... realistically he is the only one who stands a chance.

Hey! First of all, I am directly quoting an NYT article. Secondly, I am not calling any candidate a bad candidate. It is you who is saying Romney needs gas prices to sky rocket to get into the oval office. All I was saying is that I, personally, have a hard time finding a leader I can trust. I was speaking GLOBALLY.

Mar 19, 2012

If you think that "drill baby drill" will somehow bring gas prices back down, you're sadly mistaken. Canadian gas prices in Toronto are approximately $1.30/L at the moment, or the equivalent of $4.90 per gallon. This is despite Canada exporting more crude oil now than ever before and sitting on the world's second/third (depending on the source) largest crude oil reserves.

The reason? Prices for petroleum products (gasoline, diesel, kerosene/jet fuel, etc.) are set internationally (read: outside of those holiest of US borders). This is mandated by the simple "law of one price", whereby you'd be able to arbitrage any kind of pricing difference by exporting petroleum products overseas. So long as China and India are willing to consume endless supplies of petroleum products, prices will stay high, even if the US drills so aggressively as to stop imports tomorrow.

The only way to bring down petroleum prices locally is for the government to directly subsidize the product (as is done in countries like Saudi Arabia, Iran, Venezuela and others). That, of course, means gasp GOVERNMENT SPENDING, a tactic which would never pass with a republican president.

Furthermore, the US has exceedingly limited crude oil reserves, with most reserves uneconomic below $80/bbl. Therefore, the US will only be able to "drill baby drill" as long as crude (and therefore gas prices) stay high.

Finally, with regards to "switching to natural gas" (certainly attractive at $2.50/mcf), aside from the massive investment in infrastructure (imagine the time and money it would take to replace every gas station in the US), it's a safety hazard. There is not sufficient energy in uncompressed natural gas to power a car - therefore you must use compressed (or liquefied) natural gas. These tend to explode on impact, and would turn every gas station into a bomb.

Stop listening to the geniuses at Fox, realize that life doesn't end beyond $4.00, and that the only way to bring gas prices down is to consume less (yes, that means parking your Hummer at home).

    • 1
Mar 19, 2012

That may be so, but in the US consumers need to drive a lot more too, since there is little public transport and even daily commute distances are immense.

Have you compared the distances travelled in a year between the US and any of those countries? That should explain why so many Americans are frustrated by the recent price hike.

Mar 19, 2012
seedy underbelly:

That may be so, but in the US consumers need to drive a lot more too, since there is little public transport and even daily commute distances are immense.

Have you compared the distances travelled in a year between the US and any of those countries? That should explain why so many Americans are frustrated by the recent price hike.

This is due in part to automobile companies constantly lobbying politicians to "kill" public transportation bills, a phenomenon also referred to as "Free market economics".

But Rhaegar fought valiantly, Rhaegar fought nobly, Rhaegar fought bravely.

And Rhaegar died.

Mar 19, 2012

Have you ever been to Canada? You realize the distances here would make your head spin right? I travel 1.5 hours each way to work every day. Our transportation infrastructure is FAR less developed than US cities (I believe only 2-3 cities in Canada have subways).

That said, I'm not implying that you shouldn't be frustrated with high gas prices. It frustrates me to hell, spending $70 to fill my tank every few days, but I don't somehow fool myself into thinking that my government can somehow dictate world pricing.

If you vote Republican purely for the myth of a reduction in gas prices, you're likely to be disappointed.

However, we are currently predicting a slight easing in global crude pricing in the latter half of the year - mostly driven by softer Chinese demand.

Mar 19, 2012
Sovjet:

Have you ever been to Canada? You realize the distances here would make your head spin right? I travel 1.5 hours each way to work every day. Our transportation infrastructure is FAR less developed than US cities (I believe only 2-3 cities in Canada have subways).

That said, I'm not implying that you shouldn't be frustrated with high gas prices. It frustrates me to hell, spending $70 to fill my tank every few days, but I don't somehow fool myself into thinking that my government can somehow dictate world pricing.

If you vote Republican purely for the myth of a reduction in gas prices, you're likely to be disappointed.

However, we are currently predicting a slight easing in global crude pricing in the latter half of the year - mostly driven by softer Chinese demand.

1.5 hours/way would be pretty standard in traffic-congested cities.

Mar 19, 2012

Gas prices increasing will hopefully correct the horrendous environmental destruction called the suburbs. Why people want to waste their lives inside a tin can is beyond me.

Mar 19, 2012
ANT:

Gas prices increasing will hopefully correct the horrendous environmental destruction called the suburbs. Why people want to waste their lives inside a tin can is beyond me.

http://1.bp.blogspot.com/_rzJhtqoznXM/S6FyfyhWNeI/...

Mar 19, 2012

Here's an interesting article about the true cost of commuting:

http://lifehacker.com/5848665/the-true-cost-of-com...

Mar 19, 2012
Mr. Hansen:

Here's an interesting article about the true cost of commuting:

http://lifehacker.com/5848665/the-true-cost-of-com...

Dude, this article is incredibly true. I used to commute 2 hours a day, sucked the life out of me. I have a 20 minute walk, total and that is it. Groceries delivered, dry cleaning picked up and dropped off at my front desk. Gym in the building. Beer delivered. The amount of time I can enjoy has increased measurably.

Cars are nice and fun, but only as a leisure.

Mar 19, 2012
ANT:
Mr. Hansen:

Here's an interesting article about the true cost of commuting:

http://lifehacker.com/5848665/the-true-cost-of-com...

Dude, this article is incredibly true. I used to commute 2 hours a day, sucked the life out of me. I have a 20 minute walk, total and that is it. Groceries delivered, dry cleaning picked up and dropped off at my front desk. Gym in the building. Beer delivered. The amount of time I can enjoy has increased measurably.

Cars are nice and fun, but only as a leisure.

yeah if you don't factor in the time of your commute into how much you make per hour you're being deceived. working from home has its drawbacks but nothing better than a bed --> kitchen --> couch-office morning commute

WSO's COO (Chief Operating Orangutan) | My Linkedin

Mar 19, 2012

I love the people pissing and moaning in the comments of Lifehacker. No one is saying that people cannot drive, just realize that YOU made that choice and YOU incur that cost.

This is why I find the "green vehicle" tax credit to be so insulting. I am 10x greener than any Chevy Volt owner, where is my tax credit.

Also, think of how much space is wasted in a house. Apartments (or condo's) can be upsized or downsized, depending on the needs and requirements. Optimal use of space and resources.

Mar 19, 2012
ANT:

I love the people pissing and moaning in the comments of Lifehacker. No one is saying that people cannot drive, just realize that YOU made that choice and YOU incur that cost.

This is why I find the "green vehicle" tax credit to be so insulting. I am 10x greener than any Chevy Volt owner, where is my tax credit.

Also, think of how much space is wasted in a house. Apartments (or condo's) can be upsized or downsized, depending on the needs and requirements. Optimal use of space and resources.

So whats the argument here? (I don't ask to offend you, just to spark a little more debate)

All of the cities I travel to are extremely overcrowded already. Try getting on a bus or train/subway in a major city or walking down an aisle of grocery store. I love the urban lifestyle and if it wasn't for my weekly flights I would probably have an extremely small carbon footprint too but I don't think the solution is to move people out of the suburbs and into urban areas. Sure that would bring tax money into the cities and possibly improve public transit but eventually cities will reach their carrying capacity (if they haven't already).

I know this isn't exactly what you were getting at ANT but thought it'd be an interesting tangent to go off on. Can we do without the suburbs or are they a necessity to us now? Would the removal of suburban areas cause small city centers to form or would we just keep piling people into the same New York, LA, Chicago-type cities?

Rent prices would rise, traffic would be even more unmanageable, there would probably be a reduction of quality of life,etc. In other words: I need those suckers to pay $4.60/gallon or else my life becomes worse

Mar 19, 2012

No worries.

What I can see happening is more people simply choosing to centrally locate. Plenty of smaller cities that can see growth. The benefits are huge though. Public transportation can increase to take care of these people easily. Employers want to be where there are large labor pools. Most cities are already connected by rail and air and increased concentration would provide incentive to provide better transportation.

Less land used for sprawl. Less pollution. Power plants can be centrally located, etc. You will always have people wanting to be left alone or live in rural areas, but most of us benefit from being in these cities.

And many cities have plenty of space to grow out and up. Only NYC is relatively constrained (to its benefit I think).

I mean look at the negatives of not being in a city. You either have long commutes or depend on one factory in town for your life. Your interactions and social circles are limited. You have less options for work, mates, food, etc. You waste time most importantly.

Mar 19, 2012
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Mar 20, 2012
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