May 23rd, 2014

Picking on Piketty

I’ve already written quite a bit about Piketty’s main thesis about growing income inequality, his suggestions for a remedy, and the praise his book has garnered.

But now comes the news that a Financial Times writer has accused Piketty of doing the math wrong:

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.

Contacted by the FT, Prof Piketty said he had used “a very diverse and heterogeneous set of data sources … [on which] one needs to make a number of adjustments to the raw data sources.

“I have no doubt that my historical data series can be improved and will be improved in the future … but I would be very surprised if any of the substantive conclusion about the long-run evolution of wealth distributions was much affected by these improvements,” he said.

This is the sort of thing that’s often duked out between academics in the pages of arcane economics journals. But this particular fight’s gone out into the greater world, because of the huge and admiring press and political reception Piketty’s work has gotten.

23 Responses to “Picking on Piketty”

  1. Roy Lofquist Says:

    ““a very diverse and heterogeneous set of data sources … [on which] one needs to make a number of adjustments to the raw data sources.”

    World famous chef demonstrates how to cook books.

  2. Beverly Says:

    Sounds like Mulligatawny Stew, doesn’t it? Also, lies and damned lies.

  3. Ymarsakar Says:

    Put it on a pike and bury it.

  4. Ymarsakar Says:

    of doing the math wrong:

    Intellectuals. They think they can fight evil with their brains or something, by doing math right. Pathetic.

  5. Oldflyer Says:

    Reminds me of another set of adjusted and “massaged” data used as the basis for predictions based on secret models which included closely guarded assumptions.

    To question the result is evidence of ignorance and anti-science bias.

    I hope that I can free my tongue which seems to be stuck in my cheek.

  6. DNW Says:

    Neo writes,

    “This is the sort of thing that’s often duked out between academics in the pages of arcane economics journals. But this particular fight’s gone out into the greater world, because of the huge and admiring press and political reception Piketty’s work has gotten.”

    ” … the huge and admiring press and political reception Piketty’s work has gotten”

    The fawning praise of so-called opinion makers and “intellectuals” with an agenda.

    Kind of reminds me of:

    “Arming America: The Origins of a National Gun Culture” tells us what he learned: that individually owned guns were not really in hiding; they were barely in existence.

    …Bellesiles has dispersed the darkness that covered the gun’s early history in America. He provides overwhelming evidence that our view of the gun is as deep a superstition as any that affected Native Americans in the 17th century. ” Garry Wills NYT Book Review “Spiking the Gun Myth Before the Civil War, a historian finds, guns were rare in the United States. “

    Whatever happened to Garry Wills, anyway?

  7. Sam L. Says:

    I am shocked, shocked to find this going on! He’s been studying the IPCC guys for tips.

  8. Cornflour Says:

    I don’t want to buy Piketty’s book, so I’m still on the interlibrary loan wait list. While waiting, I’ve been reading some of the reviews. After a while, the reactions are predictable and — even when I agree — a little tedious. Still, it’s easier to defend the more substantial critiques from the conservative and libertarian side, because they tend to emphasize the mounting technical, factual, and logical errors in the book itself.

    These critiques are easy to find with Google, but one recent review by Charles Gave, an investment fund manager, was particularly damning:

    “The extraordinary thing is that Piketty’s analysis is based on a massive logical error. His thesis runs as follows: if R is the rate of return on invested capital and if G is the growth rate of the economy, since R>G, profits will grow faster than GDP, and the rich will get richer and the poor poorer. This is GIGO (garbage in, garbage out) at its most egregious. Piketty confuses the return on invested capital, or ROIC, with the growth rate of corporate profits, a mistake so basic it is scarcely believable.”
    https://www.mauldineconomics.com/overmyshoulder/article/charles-gave-the-problem-with-piketty

    Unsurprisingly, people on the left don’t seem to care much about errors in fact or logic. For them, Piketty is an intellectual instrument to justify implementation of a wealth tax in the United States. Paying for Obamacare requires it.

  9. parker Says:

    Cornflour says, “For them, Piketty is an intellectual instrument to justify implementation of a wealth tax in the United States.”

    A rather blunt ‘intellectual instrument’ similar to the 97% settled science of AGW.

  10. Ymarsakar Says:

    They will soon make it mandatory to buy books, like insurance and cars and homes and a death ticket.

  11. rickl Says:

    What? You mean Communists will lie in order to further their agenda? I’m stunned.

  12. blert Says:

    Cornflour…

    1) You know going in that no where in his statistics does a capitalist LOSE MONEY.

    2) Bankrupt companies and individuals are normally culled from all such tabulations.

    The same bias occurred — lasting decades — in the tabulation of distressed securities. The tabulations stopped after the firms entered Chapter 11 or Chapter 7. No-one added back recoveries for when the firms were reorganized successfully.

    This insight lay behind the super-boom in high yield securities — thirty-five years ago.

    Whereas bankrupts — when reorganized — pulled the statistics UP for debentures…

    In Pinketty’s case, you know that he does not tabulate bankruptcies. His records/ databases are larded with operations from continuing operations.

    This bias is STILL with us. The current official earnings of the S&P 500 are wildly skewed UP because current GAAP permits every manner of write off / write down to be omitted from the tabulation of on-going operations.

    Many Fortune 500 firms have used these rules to persistently bury internal business contractions. Entire divisions get shut down — yet the associated write-downs are not folded into official earnings. Chronic losses are transformed into “one-time” write offs.

    Pinketty is GIGO in every dimension.

  13. Ann Says:

    There’s an interesting piece on Piketty in the WSJ (no subscription required) by a French writer and entrepreneur based in Paris that says French leftists are pretty much “meh” when it comes to Piketty — largely because he’s not radical enough:

    Just how radical is Mr. Piketty? In truth, not very. With his accent, easy erudition, unbuttoned shirt and thick, dark hair, he is every bit the French intellectual, but not every French intellectual is a radical. In France, honest-to-goodness actual Marxists are still at large, and the soft-spoken Mr. Piketty is hard to mistake for that sort. Perhaps that is why he hasn’t had the same impact on the public debate in France as he has had in the U.S. …

    It is an amusing reminder of the differences between France and the U.S. that, while Mr. Piketty’s views put him well to the left on the American political spectrum, in France, he has sometimes sounded like a conservative. He opposed the last Socialist government’s signature policy, the globally infamous 35-hour workweek, and he called for cutting payroll taxes. At bottom, Mr. Piketty remains that most familiar of characters in the policy debate: a neoliberal economist who sees many virtues in market forces but favors government redistribution to smooth out some of the market’s excesses.

  14. Ann Says:

    Piketty has now sent the Financial Times a much fuller response. He seems to be a fairly honest guy, and even says this: “if the FT produces statistics and wealth rankings showing the opposite [of his findings], I would be very interested to see these statistics, and I would be happy to change my conclusion!” That doesn’t sound like most climate warming/change researchers.

  15. IGotBupkis, "Si tacuisses, philosophus mansisses." Says:

    }}} “I have no doubt that my historical data series can be improved and will be improved in the future … but I would be very surprised if any of the substantive conclusion about the long-run evolution of wealth distributions was much affected by these improvements,” he said.

    So… “Fake but accurate”, then? Are we really surprised?

    I can’s speak for you, but … no, *I* am not. Not in the least.

  16. Ymarsakar Says:

    How about we tax Soros and Hollywood to death before we listen to the hypocrites talking about capitalism=bad.

  17. T Says:

    “This is the sort of thing that’s often duked out between academics in the pages of arcane economics journals.”

    I disagree here. What intellectuals duke out in arcane journals are disagreements of process and perhaps interpretation all the while based on the assumption of fundamentally honest research. The Financial Times has accused Piketty of dishonesty and fraud (implicit though the accusation may be). This is not to be buried in some seldom-read journal but appears, as it should in an broad international publication.

  18. neo-neocon Says:

    T:

    Actually, I’ve seen errors in math and in method (both accidental and possibly deliberate) duked it out in journals. It can get quite bitter and nasty.

  19. Ymarsakar Says:

    They’re just arguing over who gets more government funding.

  20. TFritz Says:

    Piketty supports a wealth tax to reduce income inequality. One problem with that is you can only burn down the rich once. You reduce the income gap by making everyone poorer, instead of making the poor richer. If Piketty’s numbers are discredited, they will still want their wealth tax.

  21. T Says:

    If anyone is still following this thread, I read an interesting sidebar to this discussion this morning regarding Diedre McCloskey (H/T Instapundit):

    http://www.spectator.co.uk/features/9211721/unequal-battle/

  22. T Says:

    One other notion that I realized this morning while reading the article on McCloskey (see above) is that the left always chastises wealth using the excuse that it had too large an influence on government and by doing so disenfranchises the unwealthy.

    In fact, it is govt, itself, that creates this problem. If the U.S. govt would hold to its Constitutional contractual purpose (defense and infrastructure) rather than acting as a vehicle to promote certain social outcomes, there would be much less reason for great wealth to influence govt policies. When the govt plays in the social arena, then those who can influence the outcome (on both sides of the issue) use their influence (in the U.S., that means “money”) to do just that.

    Let me simplify that: The left complains about a problem that it, itself, is responsible for because leftists promote the govt as THE vehicle for social change.

  23. Ymarsakar Says:

    The Left also makes a lot of money from Hollywood movies, to fund their violence and war on humanity.

    Check the co/sub producer of Hunger Games and what his son did.

    Those Hollywood productions are not taxed at a certain rate.

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