March 7, 2012

Smoking wrecks the economy

Our Stat-of-the-Summer was a miscalculation of the individual costs of smoking.  A correspondent has pointed me to an international correlation on the same topic.  Economists at ConvergEx have found a strongish correlation across countries between debt:GFP ratio and smoking.  The economists went as far as saying

“The relationship is strong enough that counting the cigarette butts in the ashtrays of street-side cafes around the world could be safely called `sovereign credit research’,” said Nicholas Colas, chief market strategist at ConvergEx.

That’s clearly nuts, but is the correlation telling us something useful or even interesting?  Could it really be true, as the correlation would suggest, that sovereign debt is the biggest factor affecting smoking rates (or, almost equally plausibly, vice versa)?

One empirical indication that ashtrays are not the best place to find national debt data comes from looking at changes over time.  Public debt is a cumulative process, so even more than usual we can quote the biologist D’Arcy ThompsonEverything is the way it is because it got that way”.

Over time, in the US, Britain, Australia, New Zealand, and many other countries, smoking reached a maximum among people born at the start of the twentieth century and has now been decreasing in popularity (because it, you know, kills you and stuff).  The pattern of public debt in those countries has been quite variable.  In Australia, debt ballooned and has now shrunk again.  In NZ, debt is increasing.  In the USA then debt:GDP ratio went down to a post-war minimum in the Clinton years and has been increasing again.  Also, the reasons for the changes are different in different countries — US debt is up largely because of tax cuts, but Australian debt is down in part because of better commodity prices.

So, over time, there is no consistent correlation between smoking and sovereign debt:GDP.  That being the case, it’s hard to see how the correlation across countries right now could be anything other than a coincidence.

If you ask Google Correlate what is correlated with “sovereign debt” as a web search term, you find out that “html 5 browser support”, rather than “smoking” has the strongest correlation (0.82) among terms that aren’t specifically debt-related, as in the graph on the left.  That makes about as much sense.

 

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Thomas Lumley (@tslumley) is Professor of Biostatistics at the University of Auckland. His research interests include semiparametric models, survey sampling, statistical computing, foundations of statistics, and whatever methodological problems his medical collaborators come up with. He also blogs at Biased and Inefficient See all posts by Thomas Lumley »