I was recently in Norway, which gave me occasion to consider the Big Mac Index first hand, although I did not actually eat a big mac. The idea behind the Big Mac Index is that whatever it costs you to buy a big mac in your home country, that same amount of money, converted to currency in another country, should also buy a big mac in that other country if exchange rates actually represent the real relative buying power of various currencies.
When I was in Norway, though, the first thing I noticed is that everything is very expensive. This is in part due to the current weakness of the dollar, but Norway has always been an expensive country, so it's not just that. On top of that, Norwegians pay some hefty income taxes, up to 50% of their income in some cases. So, does that mean that things are that much more expensive for Norwegians, or do they earn commensurately more in salary, so that the buying power of their gross or net income balances out, or what?
The economist recently published a chart interpreting the Big Mac Index in terms of how much time a worker would need to work to earn the cost of a big mac. This clearly shows that a big mac can be more or less expensive for the people living in a country, in terms of their ability to afford to buy one.
I haven't found any concrete figures for Norwegians, but I'm assuming that things in Norway are actually harder to afford for Norwegians than things in America. Some evidence for this is that lots of things you can get here and there are far cheaper here than there, since my friends often buy a lot of things when they are here because they are so much cheaper here.
However, Norwegians have a very high standard of living. In my experience, they seem to have nice houses and apartments, their cities are clean and well maintained. Their roads are smooth and new.
So how can things be harder to afford for them and at the same time they can have such a good standard of living?
My guess is that although things are harder to afford numerically, they need to buy fewer things overall because the socialist-democratic structure of their society provides them with many things for free (well, via taxes) that we have to pay for out of our own pockets. For example, health care, paid leaves of absence after the birth of a child, paid unemployment, child care stipends, many days of paid vacation.
So given all the things their taxes pay for, perhaps their net income is larger compared to what they still need to pay for, even though it appears as though those things are harder to afford based on some exchange rate theory like the big mac index.
When I was in Norway, though, the first thing I noticed is that everything is very expensive. This is in part due to the current weakness of the dollar, but Norway has always been an expensive country, so it's not just that. On top of that, Norwegians pay some hefty income taxes, up to 50% of their income in some cases. So, does that mean that things are that much more expensive for Norwegians, or do they earn commensurately more in salary, so that the buying power of their gross or net income balances out, or what?
The economist recently published a chart interpreting the Big Mac Index in terms of how much time a worker would need to work to earn the cost of a big mac. This clearly shows that a big mac can be more or less expensive for the people living in a country, in terms of their ability to afford to buy one.
I haven't found any concrete figures for Norwegians, but I'm assuming that things in Norway are actually harder to afford for Norwegians than things in America. Some evidence for this is that lots of things you can get here and there are far cheaper here than there, since my friends often buy a lot of things when they are here because they are so much cheaper here.
However, Norwegians have a very high standard of living. In my experience, they seem to have nice houses and apartments, their cities are clean and well maintained. Their roads are smooth and new.
So how can things be harder to afford for them and at the same time they can have such a good standard of living?
My guess is that although things are harder to afford numerically, they need to buy fewer things overall because the socialist-democratic structure of their society provides them with many things for free (well, via taxes) that we have to pay for out of our own pockets. For example, health care, paid leaves of absence after the birth of a child, paid unemployment, child care stipends, many days of paid vacation.
So given all the things their taxes pay for, perhaps their net income is larger compared to what they still need to pay for, even though it appears as though those things are harder to afford based on some exchange rate theory like the big mac index.
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