Capital debate

May 27, 2014

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Just in time for the Friday afternoon news dump (on a holiday weekend!), the FT’s Chris Giles dropped a bombshell: Thomas Piketty’s “Capital in the Twenty-First Century,” he alleged, is full of data errors. After correcting the mistakes, he says (in a separate post), “two of Capital in the 21st Century’s central findings – that wealth inequality has begun to rise over the past 30 years and that the US obviously has a more unequal distribution of wealth than Europe – no longer seem to hold”.

Giles’ allegations boil down to three points, detailed in a long blog post: first, Piketty transcribed some numbers into Excel wrong. Second, Piketty made some unexplained changes to the data. Finally, Piketty used questionable methods to arrive at his conclusions. In addition, Giles takes very specific issue with Piketty’s data on wealth inequality in Britain, claiming that “once more reliable British results are included, there is no sign that wealth inequality in Europe is rising again”.

“That is a damning conclusion, and if it holds up to scrutiny, would significantly undermine the case Mr. Piketty mounts,” says Neil Irwin. Piketty, however, responded to Irwin: “Every wealth ranking in the world shows that the top is rising faster than average wealth. If the FT comes with a wealth ranking showing a different conclusion, they should publish it!” Paul Krugman adds that “the fact that Giles reaches that conclusion is a strong indicator that he himself is doing something wrong”.

Piketty’s response is slowly emerging. He published a robust, but fairly general, post in the FT. However, he also told Newsweek’s Leah McGrath Goodman that he was ambushed by the FT and not given proper time to respond. To AFP, he said the FT “is being dishonest is to suggest that this changes things in the conclusions I make”.

Being as Giles’ allegations accuse Piketty of major Excel errors, there’s a natural comparison to last year’s Reinhart and Rogoff debacle. But Mike Konczal says they are nothing alike (after all, Marketplace reports that 88% of all spreadsheets have some sort of error). Konczal breaks down the comparison piece by piece, noting that Piketty was much more transparent about his data than R-R, and Giles’ accusations were much more nitpicky than the R-R error.

The blogosphere so far seems unconvinced by Giles, with reactions ranging from Giles being too nitpicky to Giles being just plain wrong (see JĂ©rĂ©mie Cohen-Setton for a fuller roundup of the responses). “It will take future research to show whether the broad strokes of Mr Piketty’s book are correct or not. But that was true before the FT analysis was published as well”, says the Economist’s Ryan Avent. Justin Wolfers thinks that “in trying to put together its own series, the paper is at least as guilty as Mr. Piketty of making some pretty big assumptions about the comparability of quite different data sets”.

“For the moment, the FT’s strongest claims don’t seem all that clearly supported by their analysis”, writes Matt Yglesias. And finally, says Nate Silver, “People who are shocked when errors are uncovered in data probably haven’t spent much time actually working with data”. — Shane Ferro

On to today’s links:

Ouch
Geithner to Treasury was “the single worst political mistake Obama made” - Jesse Eisinger

Alpha
Radical anti-capitalist hackers fight for the right to a reasonable EV/EBITA multiple -Tim Fernholz

Takedowns
Michael Kinsley’s Glenn Greenwald review was neither fair, accurate, nor well-argued -Margaret Sullivan

Correlation of the Day
Inequality and political polarization - Wonkblog

Wonks
“We have been trying to distinguish between the ‘deserving’ and ‘undeserving’ poor for over eight hundred years” - Frances Coppola
“All studies of mobility across wealth percentiles should be sent straight to the trashcan” - Matthew Martin

Interesting But Wrong
How entropy explains inequality - Science

Billionaire Whimsy
Bloomberg says the Koch brothers and Alwaleed al Saud are self-made men - Matt Yglesias

Study of the Day
“Impact of Yankee Stadium bat day on blunt trauma in northern New York City” - NBCI

Welcome to Adulthood
Not going to college out of fear it’s a bad deal “is among the most economically irrational decisions” - David Leonhardt
Five reasons the young have it economically tough - Cardiff Garcia

Desperation
Starbucks will start selling burgers on croissants - Eater

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