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Speaker 1: Welcome to Ask Fear and Greed, where we answer questions

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Speaker 1: about business, investing, economics, politics and more. Are Michael Thompson

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Speaker 1: and hello, Sean alem Hi Michael short after yesterday's the

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Speaker 1: extraordinary success of yesterday's Ask Fear and.

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Speaker 2: Greed episode generously off there, Michael, and.

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Speaker 1: Well someone has to. We were talking about the Lipstick

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Speaker 1: Index and it led us rather neatly into another index,

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Speaker 1: the Big Mac Index. And so this is our first

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Speaker 1: time I've ever done a two part Ask Fear and Greed. Really,

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Speaker 1: what exactly is the Big Mac Index? And there's a

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Speaker 1: whole stack of these things, aren't there. There's a whole

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Speaker 1: stack of different indexes, and some of them are more

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Speaker 1: useful than others. Shall we say this one actually is

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Speaker 1: fairly useful.

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Speaker 2: So it was introduced by the Economist the magazine in

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Speaker 2: the mid eighties, I think was nineteen eighty six, and

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Speaker 2: it's supposed to illustrate what they talk about what economists

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Speaker 2: called the purchasing power of parody. What that means is

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Speaker 2: how much you can buy with your currency. So if

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Speaker 2: I've got US dollars, are living in the US, I

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Speaker 2: can buy a big max for X amount if I'm

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Speaker 2: in Australia with Australian dollars buying a big MAC, I

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Speaker 2: need to spend why amount, And they're basically comparing those

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Speaker 2: to try and show which economies can buy more stuff

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Speaker 2: with their currency. Okay, So what it does. It suggests

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Speaker 2: that with the right exchange rate, the cost of big

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Speaker 2: Mac in the US should be the same as the

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Speaker 2: cost of big Mac anywhere else. So if the exchange

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Speaker 2: rate is at the right point, a big Mac in

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Speaker 2: the US, big MAC in Australia the same costs. So

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Speaker 2: if we compare Australia and US Big Max based on

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Speaker 2: the Big Mac Index, the Bussie dollar should be worth

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Speaker 2: point eighty eight US sense or eighty eight US cents

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Speaker 2: for one Ossie dollar.

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Speaker 1: Yep.

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Speaker 2: Okay, now we're training at sixty five. So what that

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Speaker 2: suggests with the big Mac index is that the Aussie

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Speaker 2: dollar is ferociously undervalued versus the US dollar. Now there

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Speaker 2: is actually some method in this madness. I mean, it

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Speaker 2: kind of is humorous, but it actually does demonstrate what

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Speaker 2: things should cost if there's this parody across currencies.

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Speaker 1: And so the purpose of choosing the big Mac is

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Speaker 1: to find something that is pretty much universally available and

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Speaker 1: is a roughly consistent product in every single market, so

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Speaker 1: that you can do a like for like comparison.

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Speaker 2: That is a genius of the Big Mac index, because

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Speaker 2: big Macs are available pretty much in most economies, in

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Speaker 2: most economies, and you're right, their uniform and so you

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Speaker 2: can compare. Now it's trend is your friend, Michael.

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Speaker 1: Yes, we have established for a long period.

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Speaker 2: Total science, to be honest, but it does sort of work,

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Speaker 2: you know. So the Big Mac Index says, think places

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Speaker 2: like Switzerland and Norway are very expensive places to live,

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Speaker 2: and I think that's true, you know, I think Scandinavian

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Speaker 2: countries generally are considered very expensive to live. And if

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Speaker 2: you think about what goes into a big Mac, it's

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Speaker 2: not just the beef patty, the cheese, the bun. It's

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Speaker 2: also labor costs, you know, raw material costs, special costs

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Speaker 2: and things like that. So it's kind of We talked

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Speaker 2: about Lipstick index yesterday and you know, the final part

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Speaker 2: of the Lipsticck indexes it doesn't actually work. The Big

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Speaker 2: Mac Index does kind of work, okay, and it does

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Speaker 2: show kind of purchasing parody or not across economies.

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Speaker 1: I have a bad feeling that we're going to end

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Speaker 1: up on a run of unusual indexes and indicators. So

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Speaker 1: just while you were talking there towards the very end,

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Speaker 1: I had been listening intently up until that point.

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Speaker 2: I could be going on.

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Speaker 1: I was, I really was, except for when I was

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Speaker 1: googling other strange economic indicators. And we talked about the

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Speaker 1: lipstick index, which is one of the first ones to

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Speaker 1: come up, but the men's underwear index, the first date indicator,

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Speaker 1: the baked bean sales indicator, the Japanese haircut indicator.

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Speaker 2: What's the Japanese haircut indicator.

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Speaker 1: Well, it's about Japanese haircuts, Sean, and quite simply, it

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Speaker 1: is an indicator that women in Japan tend to cut

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Speaker 1: their hair and keep them short when the economy is declining,

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Speaker 1: and then let them grow out over time. Is that right? Yeah,

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Speaker 1: that's some very nice speed googling. That was. Yeah.

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Speaker 2: I don't ask I'm not going to ask you the

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Speaker 2: underbee one. That's not good.

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Speaker 1: No, No, I don't think we want to maintain a

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Speaker 1: g rating. Actually no, it's very simple. It's basically that

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Speaker 1: men will forego purchasing new underwear to save money during

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Speaker 1: hard times. It doesn't really need to be men's under,

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Speaker 1: does it. It could be kind of a lot of

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Speaker 1: different products.

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Speaker 2: See that's one product, undies and socks. I would never

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Speaker 2: forgo there.

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Speaker 1: Really, I'm forgoing them right now. Sean.

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Speaker 2: You had to say that I had to get out

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Speaker 2: of here.

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Speaker 1: Set me up perfectly, all right, Thank you very much, Sean,

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Speaker 1: well answered.

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Speaker 2: Thank you. Michael.

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Speaker 1: Remember, if you've got your own question that you would

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Speaker 1: like us to answer, or if you'd like us to

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Speaker 1: explore and discuss an unusual economic indicator, then please get

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Speaker 1: in touch Fear and Greed dot com dot au and

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Speaker 1: a note, we'll pop it on the list our Michael Thompson,

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