Fence Sitter -- By A. R. Samson

Fruit salad

Posted on June 06, 2011

Economists like to correlate different sets of variables to come to a conclusion like when interest rates rise, inflation is expected to go down as a result. But it is important to group variables that are common and therefore do not taint the conclusion. For instance, a connection can be made between the schedule of a boxing match of the nation’s favorite sports icon leading to light traffic, lower mass attendance, and a drop in crime rate.

But when this correlation between a boxing match and the attendant reduction of crime is applied to other boxers, the analytical observer will protest that you cannot compare this boxer to other pugilists. It becomes a case of mixing apples and oranges, as no other boxer is capable of inducing the Pacman Effect which is known to extend even to stock market rallies.

Another example of this fruity fallacy is the expectation that when there is an increase in money supply, the economically illiterate checks his savings passbook to wonder why his cash balances remain the same. Confusing macroeconomics with personal finance is yet another case of mixing apples and oranges.

Except if you count them both as fruits, apples and oranges are not supposed to be lumped together as if they are identical. Unrelated statistics being wrongly used together constitute the fallacy of mixing apples and oranges.

Are inflation rates between countries comparable? This can be argued as a case of comparing apples and oranges as each basket of goods and services counted in the Consumer Price Index (CPI) may vary from country to country. In Argentina, for example, even period-to-period comparison is not possible as the components of its CPI basket are changed periodically to manipulate the rate of inflation.

If a company leasing space in Singapore calls up its office in Manila to check rents in Global City in Taguig as a point of reference to rental rates on Orchard Road, is he right in concluding that his Singaporean landlord must be gouging him because the Singapore rent is far higher than Manila’s? Are leases in different places comparable? Or is this a case of mixing apples and oranges, not to mention lemons and pomegranate?

Differences in price between countries hold true for wages, cost of living, bottled water, massages, haircuts, noodle soup, cappuccino, and even apples and oranges. It doesn’t seem to matter where products are made. Japanese cameras can be cheaper in New York than in Tokyo. Movies can be seen more cheaply in Manila than in Hollywood. Swiss watches are sold cheaper in Hong Kong than in Geneva. These examples show that a product can cost more when bought where it has been manufactured than when purchased in a distant place.

It is simplistic, if not erroneous, to draw conclusions based on prices of a commodity in two countries. Economists came up with a concept called "purchasing power parity" where standardized goods, like a Big Mac, can be checked for prices in different countries to come up with the relative measure of a country’s currency’s value compared with others. Because of this novel yardstick (called the Mac Index) using a standardized product, prices can then be applied to non-standardized products like leases and massages.

Why does the metaphor for farfetched comparisons employ these two fruits which are more alike than not as they both provide Vitamin C? Why not, for example, use as simile "cactus and doorknobs?" These disparate objects can drive home the point of dissimilarity and lack of common ground more dramatically. The British equivalent to the phrase is more logical, pairing cheese and chalk. The absurdity of this combination seems more obvious.

But like the economic ideas they usually illustrate, our two fruits seem to have dominated the metaphor for irrelevance. Economists do not easily switch imageries. Why is the "invisible hand" (driven by greed and selfishness with no regard for the common good) used as the image for a free market which is unfettered by regulations save supply and demand and perfect information? Why not use the philosopher’s favorite image of the "absent clockmaker" to represent the sometimes chaotic functioning of the universe as if no one is in charge?

"Mixing apples and oranges" as a phrase suffices to dismiss the irresponsible use of statistics to make a point. But then again comparing apples to other apples can be too boring and may lead to equally pointless conclusions. Besides, not all apples are the same.

Apples and oranges in real life actually profit from their mixing. The combination after all is served up as fruit salad. But in economics and rational analysis, the salad is a metaphor for fuzzy logic.