Having Fun with Economics

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In my experience, the most common question I get when I return from travelling in another country is: “how much does gas cost there?”  I realize that in all of these columns I have been remiss and have not answered that query.  So here goes.  In Uruguay, it ranges from about 35 to 38 pesos a litre, which is roughly $2 Canadian.  In Argentina, it is about 6.3 pesos, which is more like $1.50 Canadian.  However, if you have switched over to natural gas in your car (which many have done), then the cost of fuel is much lower – more like 40 cents Canadian.  

Argentina does have significant petroleum reserves, and in the past month they have been in the process of nationalizing the major oil company there (YPF, which is controlled by a Spanish corporation).  That action is making them quite unpopular in world trade circles, since they are forcing the company to sell 51 percent of the shares to the Argentinian government, at a price that the government deems to be fair (rather than the price that the parent company, Repsol, claims is the value).  Of course, one should remember that the company was originally a state-controlled company for most of its history.  It began in the 1920s and was sold off to the private sector only in the 1990s, during the height of Argentina’s romance with neo-liberalism (a dangerous relationship that led to the massive economic meltdown in 2000-01).

One hope that people seem to harbour is that gas prices will stabilize or go down once YPF is controlled by the federal government once again.  But Argentina thrives on hope, and this is one more example.  The same hope existed here in Canada in the 1970s, when PetroCanada was created.

Of course, there is also the issue of the large off-shore oil reserves near the Malvinas (also known as the Falkland Islands; the term you use for them will give away which side you are on).  Argentina and Britain are once again stoking up the conflict over who should control those islands (this year is the 30th anniversary of the Falklands/Malvinas war).  I do not think that it is any coincidence that this may relate to the increased oil exploration (and positive test wells) in that region.  Whoever controls the islands will have access to some significant resources.

At this point, I don’t care to weigh in to the whole debate over the Malvinas/Falklands, although I’ve been watching it closely here.  The more I read and hear about it, the more complicated it becomes. It is an incredibly passionate discussion in Argentina.  There are signs all over Argentina stating “Las Malvinas son Argentinas” (translated as “the Malvinas are Argentine,” and elementary school textbooks teach that they rightfully belong to Argentina (although Britain has controlled them since the 1830s).  

However, there is the thorny issue of what to do with the current residents of the islands.  They number just over 3,100 (and about 70% are of British origin).  They are quite independent-minded, partly because of their history of isolation, partly because of their environment and climate (the record high on the islands is only 24 degrees…) and partly because they are more than self-sufficient (they have had a continual positive balance of trade – more value exported than imported).  And this year, with just a bit of revenue from the oil company explorations, they are posting a 14.5 million pound surplus (which is a surplus of something like $9,000 for each resident of the islands, for this year alone).  Maybe our province should look to what is happening in the Malvinas/Falklands for economic inspiration?

I seem to have rambled on about those islands more than I anticipated.  But that may be symbolic of the political context in which I’ve been living.  One more thing, though.  I love the fact that the flag and the coat of arms for the islands both feature sheep very prominently.  How can you not like a place such as that?

Let’s get back to more economics though.  It is hard to do good international comparisons of prices and wages.  One way to try to do this is to look at the cost of a widely-available standard product across different currencies.  For example, there is the Big Mac Index, which tracks the cost of that delicacy around the world.  This was not developed by McDonalds, by the way, but by the sober folks at the Economist magazine.  The index is a way of not only comparing the price of a Big Mac in various countries, but it is also a way of determining if a country’s currency is over-valued or under-valued.  (Quite the feat for a humble 576-calorie burger.)  According to the latest chart I could find, the average price of a Big Mac, in US$, was 4.63 in Canada, and 4.64 in Argentina.  So that is incredibly close.  The lowest price on the chart is India, weighing in at $1.62.  However, this is for the Maharaja Mac, a chicken-based burger (since the beef-based Big Mac is not sold there).

By the way, there is also a Starbucks Tall Latte Index.  (“Latte” is Italian for “over-priced coffee.”)  I think it’s time for a Vienna Sausage Index or a Cod Tongues Index.

There are other ways to try to compare prices, such as looking at the relative value of different products.  For example, how many bus tickets does it take to buy a lunch in a particular country?  In Uruguay it would take about 10 bus tickets to buy a lunch, and in Argentina about 12-20 (depending on the city).  But in Corner Brook, only four bus tickets equals a lunch.  Thus, our buses are much more expensive, relative to the cost of other items.  Public transport in general is considerably more expensive in Canada.  However, the ridership is much lower as well.  It’s been awhile since I’ve seen 40 or 50 people in a nice orderly line waiting to get on Corner Brook Transit….

Or, you could compute how many minutes of labour it takes to buy a newspaper.  In Argentina, many public service workers make about 3,000 pesos a month.  So it takes about 18 minutes of work to purchase a newspaper (which can range from 4 to 8 pesos, depending on the day).  In NL, if you make $15 per hour, it only takes you 6 minutes of work to purchase a newspaper (which may be about the length of time it takes you to read it some days…).

Of course, the price of food in relation to the average wage is also an important equation.  In Canada, the cost of our food is among the lowest of all developed nations, and the proportion of our income that we spend on food is significantly lower than in many emerging economies.  According to Agriculture Canada, on average Canadian households spend about 10% of their pre-tax income on food and non-alcoholic beverages.  This is down from about 20% back in the early 1960s.  So the relative cost of our food has been dropping, even during times of high inflation.  

Compare this to central Argentina, where it was reported in March that the average household (of 4) spends about 1,840 pesos a month on food (up from about 1,540 pesos just last year!).  The statistics on the average income in Argentina are quite variable.  There is no federal agency in Argentina that makes such figures easily accessible, and when they do come out with official statistics (like inflation rates), they are widely distrusted as being politically biased.  Fortunately, we have Statistics Canada to help us (that is, until Harper guts that as well…).

So, the estimates of the average salaries in Argentina range from around 2,300-3,200 pesos per month (this is using the official labour force data, and does not take account of the large ‘informal’ economy).  As mentioned, civil servants make an average of about 3,000 pesos a month.  Some professionals make much more (lawyers can make 10,000 pesos per month – about $2,350 Canadian).  But there are many who make much less, including the large number of undocumented workers from other countries working in “unskilled labour” areas (like construction and food production).  

Thus, if there are two wage earners, each making 2,500 pesos a month, the family of four will spend about 37% of their income on food.  It is a significant difference from our situation in Canada.

Another related difference is that the cost of food in a restaurant here is much closer to the cost of food in a grocery store.  At home, there tends to be a significant difference between the two.  In addition, the service in restaurants is much better here than in NL, where surly service seems to be a trademark at too many locations.  I’ve been in a number of restaurants in my home province where I’ve felt like I am a major inconvenience to their day by having the gall to show up and give them my business.  Maybe you’ve been to those places as well?

Reasonably priced food and excellent service – no wonder we ate out a lot in Argentina!

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I mentioned the Malvinas/Falklands issue in the rant above.  There has been a very recent diplomatic flap (I’m not sure if “flap” is the right word) about this conflict which has pulled in the upcoming Summer Olympics.  As you know, they will be held in the UK.  So the Office of the President in Argentina took the opportunity to create a TV promotional spot with a prominent Argentinian athlete who will be participating in the Olympics.  However, he is shown training in Port Stanley, the capital of the Falklands/Malvinas.  The caption shown at the end reads (translated) “to compete on English soil, we train on Argentine soil.”  The International Olympic Committee is upset about the use of the Olympics for political purposes, and the parent company of the advertising agency that made the ad has apologized and asked the government to stop airing the ad.

If you’d like to see it, check out: www.youtube.com/watch?v=jLIUGfYgahs

There is a chance that might be taken down at any moment, so you can also try finding it at: www.youtube.com/watch?v=JTVLHu3JDP4

Don’t expect this all to go away anytime soon.  In Argentina, one gets used to anticipating the unexpected.

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