February 28, 2006
Dear Economist: Replace the Big Mac Index with the iPod Index
For nearly 20 years, The Economist has taken its gentlemanly jab at American mass culture with the annual rollout of the Big Mac Index. In recent years, The Economist has even created the Tall Latte Index and the Coca-Cola Map to mock Americans and their non-British drinking habits. (Brits, you see, drink tea and not coffee) Granted, the creation of the Big Mac Index in September 1986 was a natural. It gave The Economist the perfect pretext to look down its British nose at those burger-munching, obese Americans while supposedly educating the masses about exchange rate theory. The logic behind “burgernomics” seemed to make sense: after all, McDonald’s has sold more than 1 billion burgers worldwide and is firmly entrenched in nearly every major town – not just in America, but in the world.
For years, the slogan “1 billion served” has been firmly associated with McDonald’s and the Big Mac. (McDonald’s served its 1 billionth burger in 1963, eight years after starting the franchise) Think one billion of anything, and the first thing you think of is burgers. Until now. Something very interesting happened last week – the iTunes Music Store just sold its 1 billionth song. Since the iTunes Music Store only opened for business in April 2003, that amounts to 11.2 downloads per second, 673 downloads per minute, 40,375 downloads per hour, 968,992 downloads per day and 6.78 million per week.
Those stunning sales figures,, of course, leads to the following suggestion: Instead of tabulating each year a Big Mac Index to measure Purchasing Power Parity (which, by the way, most economists now believe is slightly imperfect) why doesn’t The Economist create something that truly matters: the iPod Index. (NOTE: Purchasing Power Parity states that exchange rates should adjust to equalize the cost of a basket of goods and services, wherever it is bought around the world. In economics, after all, there is no such thing as a free lunch…) Similar to the Big Mac Index, the iPod Index would measure the cost (in local currency) of an iPod in various countries of the world. The near-ubiquitous iPod, then, would replace the near-ubiquitous burger as the real estimate of PPP (Purchasing Power Parity). After all, type in “one billion served” on Google, and the first two pages are dedicated to iPod-related stories.
The bottom line: instead of measuring PPP with burgers, Starbucks coffee and Coca-Cola, why not use a hip gadget like the iPod? Any other ideas of what a hypothetical iPod Index might look like?
To get you started, Mad Dog in the Fog has already scoured through Apple iTunes press releases from the past three years to develop some data points for iTunes sales:
“Apple recently announced 1 billion songs purchased on iTunes. I dug around the Apple press releases and tracked down some of the major iTunes milestones over the last few years. It’s amazing that there have been 500 million songs purchased since July 2005. That’s 500 million songs purchased in 7 months for an average of 71 million songs purchased per month!”
The result was a graph that looks like this:
The result was a graph that looks like this:
[iTunes graph: Mad Dog in the Fog]
