What the Piketty Errors Mean


PikettyRemember the Reinhart/Rogoff spreadsheet error? In the event that you do not, here is a summary. Those who follow debates between economists will recall that the spreadsheet error led to all kinds of excoriations of Carmen Reinhart and Kenneth Rogoff on the part of liberal economists, who claimed that they were responsible for austerity policies that killed off economic growth. Even Stephen Colbert got in on the act. Their spreadsheet error was considered to be the worst tragedy that befell the planet since that one time when Oedipus and Jocasta had a super-awesome first date.

Of course, the excoriations were vastly overstated, but that didn’t stop intellectual opponents of Reinhart and Rogoff from engaging in hyperbole on a grand scale. Now that Thomas Piketty has been caught making his own significant errors, comparisons have naturally been made between Piketty on the one hand, and Reinhart and Rogoff on the other.

These comparisons fail. Reinhart and Rogoff may have made a spreadsheet error, but there is a very plausible argument that the error did not affect their conclusions, and there was no serious accusation on anyone’s part — not even the most severe critics — that Reinhart and Rogoff engaged in intellectual or scholarly fraud.

Piketty’s case is quite different. To be sure, there are a number of errors that Chris Giles and Ferdinando Giugliano caught that have been deemed “fat finger errors,” meaning that they were honest mistakes. But there are other errors that cannot be explained away as honest mistakes — at least not at this point. Maybe Piketty will be able to prove they were. But maybe not and, at this point, accusations of fraud leveled against Piketty are very real and a source of serious concern. Reinhart and Rogoff, for all of the grief that they got over a spreadsheet error, never had to deal with anything so severe.

Meanwhile, Paul Krugman tries to engage in some pushback against Piketty’s critics. Krugman acknowledges that “Piketty will have to answer [questions regarding his data] in detail, and we’ll see how well he does it.” He stresses again at the end of his post that Piketty “need[s] to respond to each of the individual questions.” But Krugman insists that “Giles is proving too much; if his attempted reworking of Piketty leads to the conclusion that nothing has happened to wealth inequality, what that really shows is that he’s doing something wrong.”

There are several points that need to be made in response to all of this.

The first is that admitting that “Piketty will have to answer [questions regarding his data] in detail, and we’ll see how well he does it,” and Piketty “need[s] to respond to each of the individual questions” is certainly quite a journey from claiming — as Krugman initially did — 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!” Of course, Krugman doesn’t make mention of that latter statement, because he doesn’t want his readers to remember that he all but declared Piketty to be infallible before this entire brouhaha started.

The second point that needs to be made is that Giles and Giugliano were not arguing that “nothing has happened to wealth inequality.” Although the two state that “once the FT cleaned up and simplified the data, the European numbers do not show any tendency towards rising wealth inequality after 1970,” they also state that “[t]here is some evidence of a rise in the top 10 per cent wealth share since 1970.” So Krugman is misrepresenting Giles’s and Giugliano’s conclusions. Quelle surprise.

The third point worth making is that, as Tyler Cowen argues, Krugman’s claim that “[w]e all know that wealth inequality has gone up” may not itself be correct. As Cowen writes, “Keep in mind that the “new and improved numbers,” as produced by Chris Giles, are showing doubts about the course of measured wealth inequality in the UK. Maybe wealth inequality hasn’t gone up.” Cowen continues:

Now maybe that does “have to be wrong.” But if the “new and improved” numbers are wrong, it is hard to then argue Piketty’s wealth inequality numbers can be trusted. In which case we are back to knowing that income inequality has gone up, but not knowing so much concrete about wealth inequality. (That is one reason why my own Average is Over focuses on income, and on labor income in particular, because that is where the main action has been.) The data section of Piketty’s book, which has gathered so much praise, then is not so useful, though by no fault of Piketty’s. We might think it likely that wealth inequality has gone up, but if we are going to do these selective overrides of the best available data, we cannot trust the data so much period or otherwise cite it with authority. We also could not map wealth inequality into particular measures of the r vs. g gap at various periods of time.

If there is one big lesson of the FT/Piketty dust-up, it is that we don’t have reliable numbers on wealth inequality.

Do read the whole thing. Note as well that there are other forms of inequality that we might want to focus on instead, but we are fixated in Ahabesque fashion on wealth inequality. And again, it is worth noting that there were plenty of problems found with Piketty’s claims even before Giles and Giugliano issued their blockbuster findings.

So let’s please stop with the comparisons between Piketty on the one hand, and Reinhart and Rogoff on the other. The Piketty imbroglio is far more serious. And neither Piketty, nor Krugman, nor any other defender of Piketty have provided satisfactory response to the charges raised by Giles and Giugliano.

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  1. Manfred Arcane Inactive
    Manfred Arcane

    Very interesting stuff.  This provides much needed intellectual meat to supplement the high carbohydrate, personal reflection-heavy diet Ricochet has been serving up recently.  Many thanks, Sir.

    • #1
  2. King Banaian Contributor
    King Banaian

    Pejman, don’t know if you’ve seen Piketty’s latest reply.  He is now accusing Giles and Guigliano of ‘dishonest’.  Again, quelle surprise.

    • #2
  3. user_82762 Inactive


    Of Hockey Sticks and Hacks.

    Of Spreadsheets with Clay Feet.

    You can keep your Plan and blame it on the Video Man.

    Fast and Furious resentment, why not just take the Fifth Amendment.

    Oh Gd, please protect us from the Lefty Flacks.



    • #3
  4. AIG Inactive

    Neither Reinhart and Rogoff nor Piketty created any sort of econometric model to test any particular relationship, and certainly nothing to support causation. 

    What they both did was collect data to create some time series. On their own, these mean nothing. 

    So regardless of any “errors” or whatever, in either cases, the main issue is that they do explicitly make causation arguments, but in neither case do they actually create econometric models to support anything they say. 

    So why all the big noise? 

    In the case of R&R at least, other people have run econometric models based on their data, and in some cases have found even support for their arguments.

    • #4
  5. user_86050 Inactive

    Giles is proving too much; if his attempted reworking of Piketty leads to the conclusion that nothing has happened to wealth inequality, what that really shows is that he’s doing something wrong.

    This is just Dan Rather-style “trutherism,”  i.e., assuming what you’re trying to prove. It’s a classic case of circular argument. If Piketty is is part of the evidence of income inequality, you can’t defend Piketty on the basis that he agrees with the assumption of income inequality. Logic forbids.

    It’s part of the same argument about global warming; the evidence is validated because it agrees with the desired conclusion. 

    Now of course, that doesn’t mean that the conclusion is necessarily false. It does mean, however, that you can’t use this argument to prove the conclusion. That’s the part that the Rathers, Krugman, and global warming scientists don’t grasp. They put out circular arguments that the rest of us find suspicious. But when the rest of us refuse to accept those arguments, these ideologues wrote it off to our intransigence … when the whole episode reveals their own.

    • #5
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