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:

Click to embiggen.

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 allegations of abuse in sport are serious – but we must guard against hysteria

This week in the media, from Castro and the student rebels, hysteria over football coaches, and Ed Balls’s ballroom exit.

From the left’s point of view, the best that can be said of Fidel Castro, who has died at 90, is that – to echo Franklin D Roosevelt on the Nicaraguan dictator Anatasio Somoza – he may have been a son of a bitch but he was our son of a bitch. Denying Castro’s dreadful record on human rights is pointless. According to the highest estimates – which include those who perished while trying to flee the regime – the death toll during Castro’s 49 years in charge was roughly 70,000. His immediate predecessor, Fulgencio Batista, whom Castro overthrew, murdered, again according to the highest estimates, 20,000 but he ruled for a mere seven years. For both men, you can find considerably lower figures, sometimes in the hundreds. It depends on the politics of the estimator, which shows the absurdity of such reckoning.

 

Murder is murder

What is certain is that Batista ran a corrupt regime with close links to the American Mafia and presided over outrageous inequalities. Even President Kennedy, who ­approved a failed military invasion of Cuba in 1960, said that, on Batista’s record, “I am in agreement with the first Cuban revolutionaries”. Castro, on the other hand, created a far more equal society where illiteracy was almost wiped out, and free health care brought life expectancy up to levels comparable to those in the US and western Europe. You could say that the numbers saved from early deaths by Cuban medicine under Castro easily exceeded the numbers that faced firing squads.

But nothing excuses torture, murder and political imprisonment. There isn’t a celestial balance sheet that weighs atrocities against either the freedoms from ignorance and disease that the left favours or the freedoms to make money and hold private property that the right prefers. We should argue, as people always will, about which freedoms matter most. We should be united in condemning large-scale state brutality whatever its source.

 

Spirit of ʼ68

Though his regime became an ally (or, more precisely, a client) of the Soviet Union, Castro wasn’t a communist and he didn’t lead a communist uprising. This point is crucial to understanding his attraction to the mostly middle-class student rebels in Europe and America who became known as the ’68ers.

To them, communist rulers in eastern European were as uninspiring as the cautious centrists who hogged power in Western democracies. They were all grey men in suits. Castro had led a guerrilla army and wore battle fatigues. As the French writer Régis Debray explained in Revolution in the Revolution? – a book revered among the students – Castro’s band of revolutionaries didn’t start with a political programme; they developed one during “the struggle”. Their ideology grew organically in the mountains of Cuba’s Sierra Maestra.

This do-it-yourself approach seemed liberating to idealistic young people who didn’t want to bother with the tedious mechanics of bourgeois democracy or the dreary texts of Marxism-Leninism. They had permission for “direct action” whenever they felt like it without needing to ­formulate aims and objectives. They couldn’t, unfortunately, see their way to forming a guerrilla army in the Scottish Highlands or the Brecon Beacons but they could occupy a university refectory or two in Colchester or Coventry.

 

Caution over coaches

Commenting on Radio 5 Live on the case of Barry Bennell, the Crewe Alexandra coach convicted in 1998 of sexual offences against boys aged nine to 15 (the case came to fresh attention because several former professional football players went public about the abuse), an academic said that 5 per cent of boys reported being sexually abused in sport. “That’s one boy on every football pitch, every cricket pitch, every rugby pitch in the country,” he added.

This is precisely the kind of statement that turns perfectly reasonable concerns about inadequate vigilance into public hysteria. The figure comes from an online survey carried out in 2011 by the University of Edinburgh for the NSPCC. The sample of 6,000 was self-selected from emails to 250,000 students aged 18 to 22, who were asked about their experiences of physical, emotional and sexual harm in sport while aged 16 or under. “We do not make claims for the representativeness of our sample,” the researchers state.

Even if 5 per cent is accurate, the suggestion that abusers stalk every playing field in the land is preposterous. After the Jimmy Savile revelations, just about every DJ from the 1960s and 1970s fell under suspicion – along with other prominent figures, including ex-PMs – and some were wrongly arrested. Let’s hope something similar doesn’t happen to football coaches.

 

Shut up, Tony

Brexit “can be stopped”, Tony Blair told this magazine last week. No doubt it can, but I do wish Blair and other prominent Remain supporters would shut up about it. The Brexiteers have spent 20 years presenting themselves as victims of an elite conspiracy to silence them. Committed to this image, they cannot now behave with the grace usually expected of winners. Rather, they must behave as though convinced that the prize will shortly be snatched from them, and treat any statement from Remainers, no matter how innocuous, with suspicion and resentment. Given enough rope, they will, one can reasonably hope, eventually hang themselves.

 

Strictly Balls

Perhaps, however, Nigel Farage et al are justified in their paranoia. As I observed here last week, the viewers of Strictly Come Dancing, in the spirit of voters who backed Brexit and Donald Trump, struck more blows against elite experts by keeping Ed Balls in the competition even after judges gave him abysmal ratings. Now it is all over. The BBC contrived a “dance-off” in which only the judges’ votes counted. 

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

This article first appeared in the 01 December 2016 issue of the New Statesman, Age of outrage