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What can lipsticks, condoms and burgers tell us about economics?

Economic data is a mess. There’s so much of it, all the time, full of jargon, incomprehensible. That’s why everyone loves an index. There are lots of good, simple, proxies out there for economic activity that are far more understandable – and entertaining – than a 25 page economist report. Here are a few to tickle your fancy and put a spark into your next company presentation.

The Big Mac Index

One of the originals and still one of the best. Due to the proliferation of the McDonald’s franchise globally, Big Mac burgers are pretty much available in every single country with few exceptions. The Economist magazine cottoned on to the idea that this made the fast food confection particularly useful because it allows for the comparison of Big Mac prices between countries, capturing the relative value of a large array of inputs. This information is then used to compare the value of currencies and work out whether they are undervalued or overvalued. To take a topical example, if you could buy a Big Mac in the US for $US4 but for $US3 in China, the Yuan is undervalued by 25 per cent.

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The Lipstick Index

This index was devised not by an economist but by Leonard Lauder, chairman of Estee Lauder. Lauder’s theory was that during times of depression, people often buy products that are relatively inexpensive but make them feel happier. Studies and Freakonomics have shown the lipstick index to be more fiction than fact but the theory of escaping hard times holds true for the sale of lottery and cinema ticketswhich have an inverse relationship to economic growth.  Hardware sales have historically been resilient in difficult economic times as households renovate rather than buy new property.

Condoms and consumption

A recent edition of The Economist argued condoms are a good proxy for consumption, urbanisation, income and leisure time. Without wanting to search too widely on the internet, I am willing to accept “luxury” items in general are good proxies for shifting consumption patterns, just as the purchase of more expensive food and clothing also increases with the wealth of a population.

Correlation without Causation

The most famous is the correlation between ice cream consumption and shark attack. Always be wary of useless correlations that have no causative value. For example, when economists find a correlation between the number of films in which Nicholas Cage appeared in and the number of people who drowned in a swimming pool or a correlation between consumption of mozzarella cheese and civil engineering doctorates awarded, it is probably wise to actually look at the data. 

What other indices have you heard of – true or untrue?

Nicole Franklin - Corporate Communications at ANZ, coordinating the ANZ insight series.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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