What You Need To Know About Currency Economics In Case Of Zombie Attack

The other day, the website PriceOfTravel.com issued a list of how much a 3-mile cab journey costs in 72 world cities. Interesting enough as a table but it’s more of an indicator of currency exchange rather than actual cost of service relative to the local economy.

[FYI to regular readers: This post mentions classical music exactly zero times. Except for that last one….so this post mentions classical music exactly one….never mind. Just go watch this from 3 mins in.]

Also, if you’re reading this via feedreader, click through. This post is marginally less bonkers with the graphs.

The rest of you: pretend you’re a youngish person looking for some adventure in the form of a working holiday. Where do you go?
Athens, Beijing, Berlin, Los Angeles, Melbourne, Mexico City, St Petersburg, Tel Aviv, Vancouver, Zurich

Keep your choice in the back of your mind until you are instructed to reveal it.

If you were determining where you should go to based on how much it costs to live there, you might, for example, have a look at cab fare. Here’s what it costs in each of those cities for a 3-mile cab journey.

dyerware


Those figures are all well and good if you’re on vacation from the US but does they still apply if your plan is to work behind the bar, so you can “better appreciate the local culture?” Is the graph the same shape if we look at the minimum hourly wage?

dyerware


Not really, so the answer to the first question is no.

Here are the ten cities ranked in order of how many minutes a minimum-wage employee/mid-college cultural immersionist would have to work to pay for the 3-mile fare. All wages have been converted to US dollars in aid of approaching something close to like-with-like.

The comparison with the California minimum wage is shows what your position would be if you’d stayed home and worked at Kroger’s.

dyerware


Of course, minimum wage workers/immersionists rarely take taxis and even if they did, what does it matter? Isn’t what something is worth in US dollars all that’s really important?

Au contraire mon ami(e). Purchasing Power Parity is the name of the game.

On the above graph, if we use St Petersburg as an example, we see that taxis are expensive for locals, but not US tourists. In Zurich, we find that while taxi fare is hideously expensive for US visitors, locals are paid enough even at the most basic level to afford a ride easily. This despite the Swiss franc to US dollar exchange rate being practically par.

Life lesson: If you are going to hang out in Russia, earn as much as you can in the US before you leave. If La Suisse is calling your name, get there and get a job as soon as.

[Tip: If you’re really on reading this for the zombie stuff, skip down to the last chart.]

A real life example: When Miss Mussel lived in England the exchange rate was $2.50CAD to the pound but not everything cost 2.5 times as much. Some things, like electronics and rent, were more expensive that they were in Canada but other things –bus & taxi fare, food and clothes (as long as they weren’t American imports)– were cheaper or the same.

An example: A loaf of bread in 2003 cost around 70p, which worked out to $1.75CAD. If bought in Canada, the same loaf would be about $2.25CAD, a difference of nearly 30%.

[If you’re glazing over already, substitute the word gun, grenade or rocket launcher for bread]

Minimum wage in Ontario in 2003 was $6.85, which means it would take 20 minutes of work to buy that loaf of bread priced at $2.25. In the UK, minimum wage was £4.50, so only 9 minutes of work was required. Even though the actual number is less, the UK earner had double the buying power – at least in the bakery.

In 2010, the exchange rate is $1.65 to the pound. Food prices are inflated and minimum wages have gone up.

Now, in the UK, a loaf of bread costs around £1. According to the exchange rate, that works out to $1.65CAD. Buying that same loaf in a Canadian shop would cost about $2.75.

In another shift, minimum wage in Ontario is now $10.25, so it takes only 16 minutes to buy a loaf of bread. The UK exchange rate has gone up to £5.83 which means 10 minutes of work are needed to buy the bread.

Even though the currency has been devalued by a third, (thank you very much global economic meltdown) the UK buyer still has 50% more purchasing power per unit of currency.

This, of course, is a long winded way of saying that although they don’t have it quite as good as they used to, British people still enjoy a considerable economic advantage over North Amerikaaners in a survival situation. As in, a situation where you would be buying staples instead of iPhones.

Also, and not inconsequentially, the above example show how the exchange rate doesn’t really tell you what things are actually worth.

The most famous example of Purchasing Power Parity is the Economist’s Big Mac Index, in which they compare the cost of a Big Mac in countries all over the world and see how that matches up to the market exchange rates.

“In the long run, the exchange rate between two countries should move towards the rate that equalises the prices of an identical basket of goods and services in each country. Our “basket” is a McDonald’s Big Mac, which is produced in about 120 countries. The Big Mac PPP is the exchange rate that would mean hamburgers cost the same in America as abroad. Comparing actual exchange rates with PPPs indicates whether a currency is under- or overvalued.”

Let’s leave the intricacies of currency trading alone for a couple of infinite minutes and have a look at how the Big Mac Index rates the countries Miss Mussel used in the Taxi Rate exercise.

dyerware


First thing’s first: the shape of the Big Mac prices does not match the shape of the taxi fares. This is not entirely a surprise, since commodities trade at different rates in different countries. Plus, taxis are a service and Big Macs are goods.

The disparity also highlights the weakness of the Big Mac Index, namely that in some countries, McDonald’s isn’t as popular or is considered an imported specialty, so prices are higher comparatively than they would be in the US.

Fast forward to 22nd December 2012. It turns out that the Mayans were right and you find yourself situated thusly:

Everything has gone awry and zombies have taken over [the city you chose 3 days ago when you started reading this]. You managed to get one hour’s work in before your manager got bitten and therefore have one minimum wage unit in your pocket.

There is one McDonald’s still open and one taxi available to get you out of Dodge. If you don’t eat, you will die in the taxi. If you don’t get in the cab, the zombies will most certainly swarm you while you decide if an extra helping of Special Sauce is really worth the calories.

You will get bitten either way but you know it will please your mother when she finds out that, for once in your life, you chose the path that offered the most value for money. What should you do?

dyerware


Leave a Reply

Your email address will not be published. Required fields are marked *