Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
Facts Are Stubborn Things . . . As Thomas Piketty Is Beginning to Find Out
I have bought Thomas Piketty’s book Capital in the Twenty-First Century, and while I have posted many an item that takes issue with the books claims and conclusions concerning wealth inequality, I do plan on reading Piketty; his book has made quite the intellectual and cultural impact, and although I know what his basic arguments are, I want to be sure that I read the whole of the book to be fully aware of his claims.
But even before reading the book, one can conclude certain things about Piketty, as my previous blog posts indicate. And today, we learn that we may well be able to conclude one more thing still about Piketty, his research, and his arguments: They may be completely wrong. And yes, those words were worth emphasizing.
The Financial Times has engaged in exhaustive research regarding Piketty’s book, and it has found serious errors. Let us give the microphone to Chris Giles and Ferdinando Giugliano:
Thomas Piketty is in no doubt that data underpin the conclusions of his best selling economics book, “Capital in the Twenty-First Century” .
He writes, in the introduction: “Compared with previous works, one reason why this book stands out is that I have made an effort to collect as complete and consistent a set of historical sources as possible in order to study the dynamics of income and wealth distribution over the long run”.
While the conclusions of his work, including his call for an international wealth tax, have stirred controversy among academics, commentators and policy makers, even his critics have generally praised the ambition and quality of the data presented in the text.
Reviewing the book this month, Lord Mervyn King, former governor of the Bank of England, said, “the principal weakness of the book is that the carefully assembled data do not live up to Piketty’s rhetoric about the nature of capitalism”.
The sense of diligence in Professor Piketty’s compilation of trends in wealth is bolstered by an online technical annex and spreadsheets containing the data, with sources.
An investigation by the Financial Times, however, has revealed many unexplained data entries and errors in the figures underlying some of the book’s key charts.
These are sufficiently serious to undermine Prof Piketty’s claim that the share of wealth owned by the richest in society has been rising and “the reason why wealth today is not as unequally distributed as in the past is simply that not enough time has passed since 1945”.
After referring back to the original data sources, the investigation found numerous mistakes in Prof Piketty’s work: simple fat-finger errors of transcription; suboptimal averaging techniques; multiple unexplained adjustments to the numbers; data entries with no sourcing, unexplained use of different time periods and inconsistent uses of source data.
Together, the flawed data produce long historical trends on wealth inequality that appear more comprehensive than the source data allows, providing spurious support to Prof Piketty’s conclusion that the “central contradiction of capitalism” is the inexorable concentration of wealth among the richest individuals.
Once the data are cleaned and simplified the European results do not show any tendency towards rising wealth inequality after 1970.
The US source data are also too inconsistent to draw a single long series. But when the individual sources are graphed, none of them supports the view that the wealth share of the top 1 per cent has increased in the past few decades. There is some evidence of a rise in the top 10 per cent wealth share since 1970.
More:
Prof Piketty, 43, provides detailed sourcing for his estimates of wealth inequality in Europe and the US over the past 200 years. In his spreadsheets, however, there are transcription errors from the original sources and incorrect formulas. It also appears that some of the data are cherry-picked or constructed without an original source.
For example, once the FT cleaned up and simplified the data, the European numbers do not show any tendency towards rising wealth inequality after 1970. An independent specialist in measuring inequality shared the FT’s concerns.
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.
Without these results, it would be impossible to claim, as Piketty does in his conclusion, that “the central contradiction of capitalism” is the tendency for wealth to become more concentrated in the hands of the already rich and
“the reason why wealth today is not as unequally distributed as in the past is simply that not enough time has passed since 1945”.
This long post will outline the classes of data problems I have found in Chapter 10 of Piketty’s book, which deals with the inequality of capital ownership. I will then show why these problems matter for each one of the four countries prof Piketty studies – France, Sweden, UK and the US.
Finally, I will put all the revised data together to show that, based on the sources Piketty cites, the conclusions that (a) wealth inequality rose after 1980 and (b) wealth inequality in the US is larger than in Europe no longer seem to hold.
Read the whole thing. Read this, this, and oh, yes, this as well, and note that the last link makes the following entirely accurate statement about what the gravamen of the Financial Times’s charges against Piketty is:
Giles says there are clear examples of some “fat finger” mistranscriptions and compares the situation to omissions found in Reinhart’s and Rogoff’s data on debt levels and growth.
But while the two Harvard professors’ errors seemed to have been unintended, Giles levels a more serious critique: that Piketty actively manipulated his data.
His most damning claim: Piketty altered U.K. data to show that wealth distribution there is worse off than it appears to be.
Piketty says the share of income going to the top 10% never fell lower than 60%, and since the end of the 1970s has returned to 70%, a level not seen in 70 years.
But the data Piketty himself cites shows the top 10% share of wealth is no greater than 50%, and may be as low as 42%.
Giles writes: “This appears to be the result of swapping between data sources, not following the source notes, misinterpreting the more recent data and exaggerating increases in wealth inequality.“
Below is the chart. The right-most portion of Piketty’s blue trend line showing the share of wealth owned by the top 10% of Britons ends up well above what’s suggested by the data, in red, that Piketty himself cites.
Meanwhile, just one official data point for the top 1% share of wealth aligns with Piketty’s blue line. But Giles said the source of that data said it was not suitable for the kind of calculation Piketty is trying to make.
“Prof. Piketty ends his series taking at face value the level of the HMRC data, despite HMRC saying clearly the data is not suited for that purpose, nor is it consistent with the old Inland Revenue Series which Prof. Piketty uses for earlier years. This latter point is also clearly stated in the notes to the source data.”
The charges are devastating, and there is plenty to back them up. And again, let’s be abundantly clear: The Financial Times is accusing Thomas Piketty of dishonesty, of making up his arguments, of actively trying to mislead readers and actively trying to mischaracterize inequality trends. This mischaracterization leads to policy prescriptions on Piketty’s part that are both entirely unrealistic in their design and implementation, and, more importantly, are wholly unsupported by the actual data on inequality. The main thrust of Thomas Piketty’s book is entirely undermined, and his arguments and conclusions are annihilated. It is hard to imagine a more comprehensive refutation.
Having established that Piketty’s conclusions are shredded and unbelievable, it is important now to note two things. The first is that the Financial Times–and Chris Giles and Ferdinando Giugliano in particular–deserve kudos for the scholarship and for shining a light on Piketty’s mistakes and dishonesty. For those who are wondering how journalism ought to be done, look no further than the example set down by Giles, Giugliano and the Financial Times in general. They have truly done excellent work. Would that more media outlets followed the example that Giles, Giugliano and the Financial Times have set.
The second thing we ought to note is that neither Giles, nor Giugliano, nor the Financial Times would have discovered that Piketty’s books is fundamentally flawed if they listened to Paul Krugman, who famously said on his blog that “if you think you’ve found an obvious hole, empirical or logical, in Piketty, you’re very probably wrong. He’s done his homework!” Yes, that was a real statement by Paul Krugman, and yes, it ought to haunt him for the rest of his life–and beyond. We now know that it is more accurate to say that Piketty fudged his homework. I doubt that Krugman knew that Piketty’s conclusions were pretty much made up out of thin air–if he did, there is truly something rotten in the state of economics–but the point is that Krugman tried his damnedest to ensure that no one would take a critical eye to Piketty’s data and conclusions. It’s a good thing that the good people at the Financial Times were more intellectually honest and rigorous than Krugman would have wanted them to be, but it should scare us more than a little bit that a leading economist who won a Nobel Prize and who has a big megaphone provided to him by the New York Times was trying as hard as humanly possible to prevent good journalists and scholars from poking at Piketty’s data and arguments to see whether or not they passed the laugh test.
And of course, as of this writing, and with this scandal having fully erupted into public view, Krugman has nothing whatsoever to say about the debunking of Thomas Piketty–though of course, he has time to post a music video. Because, you know, priorities. As for Krugman’s Mini-Me, as of this writing, nothing on Brad DeLong’s eponymous blog (though again, music video!), and one thing on an alternative blog pointing to a graph prepared by Matthew Yglesias (of all people) that tries to pretend that there is nothing to see here, and that we should all just move along.
Sorry, but that dog won’t hunt. In light of the allegations against him, Thomas Piketty has a lot of explaining to do, and given the nature of the allegations and the detail which backs them up, it is hard to see how any amount of explaining will persuade anyone who isn’t already a hack that Piketty is in fact in the right.
Published in General
Fantastic overview of the FT article and appreciate the links.
Even with overwhelming evidence of Pikettys shoddy work, a majority of the Left willingly share collective ignorance of the indisputable fact: Giles proved the numbers were incomplete.
Economics is the science of measuring statistics meaning one cannot arbitrarily determine which data are to be utilized. The one person who should agree with that statement, Krugman, confirms his ideological malfeasance and further ruins his own exhalted economic bona fides.
This 43 year old is an artificially created emperor with no clothes demonstrating the absurdity of the Left: Politics determines truth – facts be damned.
None of the above points however, will prevent Piketty’s work from being required freshman reading in college in a few years.
“A lie can be halfway around the world before the truth gets its boots on”
While this quote is variously attributed to Mark Twain or Winston Churchill, it apparently is originally from on page: 130 of “Sermons delivered in Exeter Hall, Strand, during the enlargement of New Park Street Chapel, Southmark” (1855) by Charles Haddon Spurgeon.
Thus it applies to this discussion in layered ways, illustrating both the difficulties in rooting out errors, once they get accepted as truth, and the difficulties encountered conducting research.
Seawriter
Since when did facts ever get in the way of a good story?
Speaking of college textbooks:
http://www.cracked.com/article_21131_6-disturbing-things-i-learned-writing-your-textbooks.html
Here’s another illustration of this principle:
Everybody who has taken Introduction to Psychology will recognize the name Phineas Gage. Every Intro to Psych textbook tells us that his personality was changed completely after a tamping rod was driven through his brain.
So, someone noticed that none of the textbooks provide citations to original sources about Gage, and decided to research the original story.
Turns out, what we’ve all read in our college textbooks is based mostly on urban legend:
http://news.nationalpost.com/2014/05/16/how-phineas-gage-survived-a-horrific-brain-injury-to-become-one-of-the-most-famous-names-in-medical-history/
The Phineas Gage story is a foundational factoid from university that nearly every student is taught as absolute truth. If the Phineas Gage section of your Intro to Psych textbook is based on malarky, how can one trust anything one is fed at college?
This is giving me goose bumps. My thanks to the Financial Times and the authors for the analysis and Pejman for bringing it to Ricochet.
have you heard the one about the French economist?
Whenever I mention the name “Paul Krugman” my style guide requires that I do it in some fashion that references both his Nobel and his work for Enron. If you are going to link to his “I Love Me Wall” it might do to give the reader both bookends of his work.
The main criticism of Piketty’s book (which, as all of you, I have not read nor intend to read) is that there is no possibility of making the logical leaps of causation that he makes, from the simple descriptive statistics he uses.
Trend mean nothing, whether they are correctly adjusted or not. He’s making a causation argument, which he cannot support with analysis.
PS: The stuff the FT showed is actually pretty insignificant stuff. I wouldn’t hang my hat on that.
Pinketty was complete transparent in stating that he is a french economist. Was that not enough?
I’m pretty sure this guarantees Piketty the Noble Prize.
Are we re-living the “defenestration” of Michael A. Bellesiles over his book, Arming America?
Pej,
The VA, Benghazi, Michael Mann, and now this. To paraphrase Darrell Issa when the interviewer asked whether the Administration was communicating properly. “This Administration doesn’t have a problem communicating, this Administration has a problem with the Truth!”
Regards,
Jim
“What difference, at this point, does that make now?”
Pickety’s bollocks is in the Lefties’ echo chamber, and will be cited as unassailable fact for years to come.
This is a prime example of media glee. Stupid socialist pseudo intellectual something and yay the ‘other side’ gets to respond. See http://www.bookwormroom.com/2014/05/24/americas-progressive-elite-wannabe-europeans/#comments
Frederic Bastiat was a French economist.
Likely switched at birth. Review the list and he becomes all the more exceptional. After Bastiat and Jean Baptiste Say its a quick descent down to Dominique Strauss Kahn.
Probably right Nick. Though it’s a breath of fresh air to see the slightly uncomfortable rumblings in those echo chambers:
It’s amazing how today’s scholars seem to propose consistently that the whole world turned for the worse after 1945.
Well, it did. For elitists. All their predictions proved wrong. What could possibly be worse than that? After all, what is more important? The well-being of billions around the world or scholars’ good opinions of themselves.
Seawriter
Liberals/leftists/progressives create the best and worst of all worlds. They argue that things are getting worse because of evil capitalism, but they’re been running most of everything for most of the past 50 years. Schrödinger’s Fat Cat?
It is one slimy thing to seek millions in grants to produce computer models with the predictive power of a water damaged ouija board, it is a whole nother thing to turn to the historical data and mangle it so badly that it is unrecognizable. If his current gig flames out, Piketty has a bright future in the Global Cooling/Global Warming/Climate Change/Climate Disruption/Grant Proposal Writing industry.
Sisyphus, actually, I think the two are comparably evil and destructive. Both undermine the idea of “factual” and make you need to doubt everything you are told (facts asserted and not just opinions).
You know much of what you need to know in listening to how Piketty wrote his book. He had his conclusions well before he finished he research.