The case for pirates ...

... is an interesting, preliminary digression from the main purpose of the site.   Consider the relationship between average global temperatures and the number of pirates roaming the high seas.  I first became aware of the relationship while reading www.venganza.org (a, no doubt, respectable website!) and then did my own econometric analysis on the data published there; the results of which include the following graph:

Those interested in econometric methods might be interested in the following equation estimated using OLS:

So, what does it all mean?  Let's just say the results are consistent with the following hypotheses:

• There is generally a negative relationship between pirates and average global temperatures (GT); as active pirate counts increase, GT begins increasing again. decreases until there are approximately 36,000 active pirates, after which
• The optimal number of active pirates on our high seas is approximately 36,000 in the sense that GT reaches its minimum at that level.

I know:  It's also consistent with all kind of other hypotheses as well (e.g., like I've misapplied econometric methods and violated the Gauss-Markhov Theorem, which is true).  But it really is not completely unreasonable that pirates (and for that matter, terrorists and terrorism) reduce average global temperature:  Maybe pirates make oil super-tanker shipping more dangerous, costly, and slower, thus reducing oil consumption ... .  You get the idea.

But now we come to the main point:  We'll likely never know whether pirates are good or not for global warming.  We can only estimate these things, and our ability to estimate them depends on understanding econometric theory and methods adequately and--quite as importantly--our theory of the causal relationships between global temperatures, pirates, and all the other important causal factors influencing them.  The same is true about relationships between, say, equity prices and financial statement data.  So ... Rock on Econometrics!

MMc
São Paulo