Perhaps living in the city of Adam Smith, who wrote the Wealth of Nations in 1776, the year my forefathers signed their names to a declaration to King George III declaring their intentions to sever ties with the colonizing power, has sparked an interest in economics and the interaction with law. Prior to Christmas 2010 I was in Marrakesh, Morocco and met four students from Malaysia, who, were finishing their degrees in London, respectfully in medicine, economics and international trade. Our conversation on a train ride to Rabat sparked my interest in the Coke Index, which was promulgated in the affirmative by two of the four. First, I will explain the index and then contemplate UK tax law with a comparison to the health care. This latter point was prompted by recent discussions with fellow course mates about the Republicans in the US House of Representatives voting last week to repeal “Obamacare” (US National Health Care Act (H.R. 676)), which is the American version of socialized medicine, signed into law by President Obama in 2010 and set to take effect in 2014.
The Coke Index is a variation of PPP (purchasing power parity), an economic theory of long term equilibrium exchange rates is based on the relative price levels in two different countries. The theory has an absolute and a relative model. In the former, the purchasing power of different currencies is equalized for a given good. Whereas the latter is the difference between the prices, in say a can of Coke, between country A and B. The difference in the inflation rates will be more or less equal to the percentage of appreciation or depreciation in the exchange rate. The Coke Index can therefore give you an on-the-ground indication of the “real exchange rate”, because you know that a can of Coke costs $0.50 in Denver and 5dirhams in Marrakesh. According to XE.com the exchange rate is $1.00 = 0.12149 Moroccan dirham, so the “real exchange rate” is actually a little worse than quoted, as the can of Coke actually cost $0.61. Where the Coke Index breaks-down and becomes subject to volatility is in the arena of non-traded goods and services, in other words, I could have purchased a haircut for the same value as a can of Coke or hired a driver for a similar price. The Economist popularized the “Big Mac Index”, which I personally reject as the magazine is a bit too pretentious and arrogant for my tastes, though it is the exact same principle. Both the Coke and Big Mac Index are criticised in developing countries because those two goods are seen as luxury items. Coke is less so, as it is found even in the most rural of regions – according to Jessica Stern’s book, Terror in the Name of God, members of al-Qaida and the Taliban always served Coke as an aperitif. All this said, a 1,5 litre bottle of water in Marrakesh cost me the equivalent of £0.04 – a bit shocking since a similar bottle would cost between £0.34 and £0.65 in Edinburgh! I still drank a lot of Coke, because a medical doctor (single & female) I befriended said Coke kills any bugs which might have been on the Moroccan food – good advice – I didn’t get sick!
In regards to tax law in the UK, I have been reaking Tolley's Yellow Tax Handbook 2010-11 and Revenue Law: Principles and Practice. These books, along with lectures indicate the UK-US comparison is actually not that much differnt as far as revenue collected per capita, The US still has over-all lower taxes, but not by as great a differnce as existed in the 1980s. The textbook authors seem to insinuate Americans perceive themselves as paying fewer taxes and receiving fewer benefits, though the lecturer of the course commented that Americans contribute slightly less (when considering federal and state income tax, plus sales tax and property taxes), but receive tremendously fewer benefits. I almost stood up and said, “I’d gladly pay minimal taxes and receive limited equivalents.” Though I can tell my Republican ideology doesn’t exactly flow with the average Brit. The largest tax increase in American history was signed into law by President Obama in 2010 - the National Health Care Act - which binds all citizens into a single federal scheme (in my opinion usurping the concept of dual-federalism and the autonomy of the states) Europeans love the concept of 'free health care' (though if they thought about it, they are paying for it and even if it is less than most American insurance plans, the quality of service, expertise and facilities are considerably behind the US). Take all the factor which create value and Americans have BMW plans compared (using the auto analogy) Vespas in the UK. Cost wise, there should be a more affordable plan, but it should also carry a linear equivalence as far as value. I wouldn’t expect to buy a real BMW at a Vespa price, nor would I suspect the showrooms look similar. Yet both should take me from point A to B. I also dared to say that the free market should guide these prices and services, not the government – I was called a few cute and short names for what seem to be rather reasonable ideas. Much of my reasoning comes from observing how my fellow law students act at an “open-bar”, as opposed to a “cash-bar”. They’re sloshed in the former instance and reasonable in the latter (mind you, they’re British, students and in the faculty of law – all of which have high drinking propensities).
The Coke Index is a variation of PPP (purchasing power parity), an economic theory of long term equilibrium exchange rates is based on the relative price levels in two different countries. The theory has an absolute and a relative model. In the former, the purchasing power of different currencies is equalized for a given good. Whereas the latter is the difference between the prices, in say a can of Coke, between country A and B. The difference in the inflation rates will be more or less equal to the percentage of appreciation or depreciation in the exchange rate. The Coke Index can therefore give you an on-the-ground indication of the “real exchange rate”, because you know that a can of Coke costs $0.50 in Denver and 5dirhams in Marrakesh. According to XE.com the exchange rate is $1.00 = 0.12149 Moroccan dirham, so the “real exchange rate” is actually a little worse than quoted, as the can of Coke actually cost $0.61. Where the Coke Index breaks-down and becomes subject to volatility is in the arena of non-traded goods and services, in other words, I could have purchased a haircut for the same value as a can of Coke or hired a driver for a similar price. The Economist popularized the “Big Mac Index”, which I personally reject as the magazine is a bit too pretentious and arrogant for my tastes, though it is the exact same principle. Both the Coke and Big Mac Index are criticised in developing countries because those two goods are seen as luxury items. Coke is less so, as it is found even in the most rural of regions – according to Jessica Stern’s book, Terror in the Name of God, members of al-Qaida and the Taliban always served Coke as an aperitif. All this said, a 1,5 litre bottle of water in Marrakesh cost me the equivalent of £0.04 – a bit shocking since a similar bottle would cost between £0.34 and £0.65 in Edinburgh! I still drank a lot of Coke, because a medical doctor (single & female) I befriended said Coke kills any bugs which might have been on the Moroccan food – good advice – I didn’t get sick!
In regards to tax law in the UK, I have been reaking Tolley's Yellow Tax Handbook 2010-11 and Revenue Law: Principles and Practice. These books, along with lectures indicate the UK-US comparison is actually not that much differnt as far as revenue collected per capita, The US still has over-all lower taxes, but not by as great a differnce as existed in the 1980s. The textbook authors seem to insinuate Americans perceive themselves as paying fewer taxes and receiving fewer benefits, though the lecturer of the course commented that Americans contribute slightly less (when considering federal and state income tax, plus sales tax and property taxes), but receive tremendously fewer benefits. I almost stood up and said, “I’d gladly pay minimal taxes and receive limited equivalents.” Though I can tell my Republican ideology doesn’t exactly flow with the average Brit. The largest tax increase in American history was signed into law by President Obama in 2010 - the National Health Care Act - which binds all citizens into a single federal scheme (in my opinion usurping the concept of dual-federalism and the autonomy of the states) Europeans love the concept of 'free health care' (though if they thought about it, they are paying for it and even if it is less than most American insurance plans, the quality of service, expertise and facilities are considerably behind the US). Take all the factor which create value and Americans have BMW plans compared (using the auto analogy) Vespas in the UK. Cost wise, there should be a more affordable plan, but it should also carry a linear equivalence as far as value. I wouldn’t expect to buy a real BMW at a Vespa price, nor would I suspect the showrooms look similar. Yet both should take me from point A to B. I also dared to say that the free market should guide these prices and services, not the government – I was called a few cute and short names for what seem to be rather reasonable ideas. Much of my reasoning comes from observing how my fellow law students act at an “open-bar”, as opposed to a “cash-bar”. They’re sloshed in the former instance and reasonable in the latter (mind you, they’re British, students and in the faculty of law – all of which have high drinking propensities).
