Monday, June 26, 2006

The Most Expensive City In The World

This would be Moscow:

LONDON has lost its status as Europe's most expensive city in which to live, overtaken by Moscow, a global survey reveals today.

The Russian capital was found to be the costliest city on the planet by Mercer, the human resource consultants, who said that it was 12 per cent dearer to live in than London and nearly 25 per cent more expensive than New York City.

Cost-of-living comparisons can be difficult to interpret, though their basic idea is simple enough: Suppose that you currently live in Paris, France, and wish to find out how much your lifestyle would cost in Moscow, Russia. You could perform the calculations by making a list of all the things that you spend money on (the two-bedroom apartment with river views, the Saab convertible, the Chivas Regal whiskey, the pastrami sandwiches and so on), and you could then find out how much all of these things cost you in Paris and in Moscow. If you divide the total Moscow expenditure by the total Paris expenditure and multiply the result by a hundred you'd get a measure of how much more expensive (or cheaper) Moscow is than Paris. The value for Paris here would be standardized to 100 and anything higher than that for Moscow would mean that it's more expensive.

In reality the bundle of consumption goods and services that we price (the Saab and the Chivas Regal and so on) can't apply to just one person's habits, so a compromise bundle will have to be adopted, and in the study this article mentions it is the consumption habits of an American ex-patriate. Thus, strictly speaking what this study tells us is not which city is the most expensive in the world but which city is the most expensive for someone who wishes to continue consuming in a particular way, the way of most Americans living abroad and probably working fairly high-salary jobs.

But people who live in different cities of this world don't consume the same list of goods and services. Rice, say, is eaten more often where it's cheaper, and eating out in some countries is a luxury limited to birthdays and anniversaries, whereas in other countries it's a low-cost alternative to cooking at home. In short, people adjust the bundle of things they consume on the basis of prices, and this means that simple cost-of-living comparisons like the one discussed here don't give us some sort of a universally true rule about the priciness of different cities.

Just think of what the list might look like if we performed the same calculations from the point of view of a Chinese or Senegalese ex-patriate living abroad.