Correlation does not imply causation

June 28, 2009

The chief financial correspondent of NYT, Floyd Norris, citing an NBER paper by two economists says

Now two economists say they have found a reason that explains a large part of the increase. China has too many boys.

He quotes from the paper

“Across Chinese provinces, there is clear evidence that local savings rates tend to be higher in regions with more unbalanced sex ratios.”

This is clearly a classic example of how correlation has been conflated into causation. Countries like Malaysia and Thaland also have high savings rates and their is no unbalanced sex ratio in these countries.

In most of these countries the social safety network is low to non-existent, also all these countries are raising their incomes rapidly and most of the increase in savings simply can be explained that when incomes rise our propesity to consume does not rise at the same rate.

Shouldn’t it be the job of financial reporters to call such elementary mistakes out?


Sentence for the day

June 21, 2009

“The optimal number of lifetime speeding tickets is greater than zero.” – Steve Horwitz

This is converse of saying if you never miss flights you are wasting too much time at airports.