What does a latte tell us about currencies? Very little, actually

Purchasing power parity is not the same as the Big Mac Index.

The Wall Street Journal sees what the Economist is having, and it likes it. The latter's Big Mac Index is famous for demonstrating the variation in prices for the same good around the world. Despite Big Macs being basically identical no matter where you are, the dollar price varies wildly, from $6.81 in Switzerland down to just $1.82 in India. It's so influential that it's widely thought that Argentina is exerting pressure on its branches of McDonalds to keep the price down so as to not provide evidence of the nation's tinkering with reported inflation.

So now the WSJ wants a piece of the action, and has created its Starbucks Latte Index. I mean, it doesn't call it that, but that's what they're thinking:

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But like the Economist, the WSJ draws the wrong inferences from the variation. They both have a habit of using the data to illustrate purchasing power parity, the idea that some currencies are under- or over-valued because a comparable basket of goods varies in price. So the WSJ's Ira Iosebashvili writes:

One way to determine how currencies stack up is purchasing-power parity, or PPP, which compares the amount of currency needed to buy the same item in different countries. A grande latte at Starbucks, for example, costs $4.30 in New York, but the equivalent of $9.83 using Norwegian krone in Oslo, and just $3.92 in Turkish lira in Istanbul.

Starbucks Lattes and Big Macs both have another unique feature, though, which renders them less useful for comparing the strength of a currency overall: they are both made up of highly fungible goods, produced in two of the most integrated supply chains in the world. McDonalds, for instance, doesn't need to buy artisanal wheat from an individual farm; it can just trade in "wheat" as a mass-produced, internationally-traded com oddity. The company has even invented a product to sell to take advantage of variations in the cost of pork, the McRib.

In fact, for Starbucks, that's even more true than it is for MacDonalds. While Maccy D's has made a big deal out of its promise to only use British beef in its British burgers, most of the countries Starbucks operates in in don't grow their own coffee. That has to be imported from South America or North Africa, and so a Starbucks in London will almost certainly be paying the same for its coffee as a branch in Oslo, despite the difference in retail price being over $6.

What the Starbucks and Big Mac indices actually show is the price of unskilled labour and retail space. Those are the parts of the companies' businesses which, no matter how hard they try, they can't erase national differences from. Operating in Oslo, land of high taxes, is always going to be expensive, no matter how strong or weak the krone is.

The Starbucks index even makes this clear, thanks to the fact that the WSJ has included three American cities. A latte in New York City costs more than one in Detroit, a difference that self-evidently can't be due to the currency variation.

But the really important news is that London is actually one of the cheapest cities in the world for a Starbucks latte. Still overpriced for what it is, though.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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The problems with ending encryption to fight terrorism

Forcing tech firms to create a "backdoor" to access messages would be a gift to cyber-hackers.

The UK has endured its worst terrorist atrocity since 7 July 2005 and the threat level has been raised to "critical" for the first time in a decade. Though election campaigning has been suspended, the debate over potential new powers has already begun.

Today's Sun reports that the Conservatives will seek to force technology companies to hand over encrypted messages to the police and security services. The new Technical Capability Notices were proposed by Amber Rudd following the Westminster terrorist attack and a month-long consultation closed last week. A Tory minister told the Sun: "We will do this as soon as we can after the election, as long as we get back in. The level of threat clearly proves there is no more time to waste now. The social media companies have been laughing in our faces for too long."

Put that way, the plan sounds reasonable (orders would be approved by the home secretary and a senior judge). But there are irrefutable problems. Encryption means tech firms such as WhatsApp and Apple can't simply "hand over" suspect messages - they can't access them at all. The technology is designed precisely so that conversations are genuinely private (unless a suspect's device is obtained or hacked into). Were companies to create an encryption "backdoor", as the government proposes, they would also create new opportunities for criminals and cyberhackers (as in the case of the recent NHS attack).

Ian Levy, the technical director of the National Cyber Security, told the New Statesman's Will Dunn earlier this year: "Nobody in this organisation or our parent organisation will ever ask for a 'back door' in a large-scale encryption system, because it's dumb."

But there is a more profound problem: once created, a technology cannot be uninvented. Should large tech firms end encryption, terrorists will merely turn to other, lesser-known platforms. The only means of barring UK citizens from using the service would be a Chinese-style "great firewall", cutting Britain off from the rest of the internet. In 2015, before entering the cabinet, Brexit Secretary David Davis warned of ending encryption: "Such a move would have had devastating consequences for all financial transactions and online commerce, not to mention the security of all personal data. Its consequences for the City do not bear thinking about."

Labour's manifesto pledged to "provide our security agencies with the resources and the powers they need to protect our country and keep us all safe." But added: "We will also ensure that such powers do not weaken our individual rights or civil liberties". The Liberal Democrats have vowed to "oppose Conservative attempts to undermine encryption."

But with a large Conservative majority inevitable, according to polls, ministers will be confident of winning parliamentary support for the plan. Only a rebellion led by Davis-esque liberals is likely to stop them.

George Eaton is political editor of the New Statesman.

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