Those of you in the UK (or elsewhere) who read the Telegraph may have noticed an article recently called “How the Fed triggered the Arab Spring uprisings in two easy graphs”. If you want the gist of it, here is the first graph:
Now, as most economists learn, correlation does not equal causation. But let’s assume for the author’s sake that he has a point. What should we think when we see commodity prices rising (starting June 2010) and the Fed’s Treasury purchases rising after the fact (around Aug-Sept 2010)? Yes, if we want to read causation, then we’d say that the rise in food prices caused the Fed Treasury purchases, and not vice versa (as the article claims).
The second graph, which we show below, displays the correlation between, well, we’re not sure. Continue reading