What do the Piketty data problems really mean?

In some ways the new FT criticisms may not matter much, although I think not in a way which is reassuring for Piketty.  There were already several major problems with Piketty’s analysis and also empirics, including what Alex has called the asset price problem.  He wrote:

According to four French economists, Piketty’s measure of the capital stock is greatly influenced by the Europe-US housing bubble that preceded the financial crisis.

Adjusting for that factor seems to make the main results go away, and that is a purely empirical problem which has not been answered, at least not yet.

Another pre-existing empirical problem is that 19th century data seem to indicate that a “Piketty world,” even if we take it on its own terms, far from being a disaster, would likely be accompanied by rising real wages and declining consumption inequality, albeit rising wealth inequality.

That hasn’t been answered either, although a few people have suggested (without serious back-up) that if wealth inequality is going up that has to lead to political problems, or problems of some kind or another, and thus it can’t be something we can approve of or accept with equanimity, because inequality is really really bad, and therefore Piketty is somehow right anyway.  That’s a weak response to begin with and furthermore it doesn’t fit the available data.

Empirically, inheritances aren’t nearly as important as Piketty seems to suggest.

On Twitter Clive Crook wrote of the:

…distance between treacherous data and super-bold conclusions an issue at the outset. This underlines the point.

Now, when you cut through the small stuff, the new empirical problem seems to be that UK revisions, combined with a population-weighted series for Europe, contradicts Piketty’s claim of rising wealth inequality for Europe.   I would call that a serious problem.  I am not impressed by the “downplaying” responses which focus on coding errors, Swedish data points, and the other small stuff.  Let’s face up to the real (new) problem, namely that robustness suddenly seems much weaker.  You can’t argue that population-weighting is “the right way to do it,” but it is an entirely plausible way to estimate the wealth inequality trend.  If Piketty’s results don’t survive population weighting (and what are apparently the superior UK numbers), that suggests the overall rise in European wealth inequality is not very robust to how the pie is carved up and also that it is not backed by dominant, “rule the roost” sorts of forces.

It should be noted that Piketty’s response to the new criticisms was quite weak.  Maybe he’s not to be blamed for what was surely a rapid and caught-off-guard response, and perhaps there is more to come, but it doesn’t reassure me either.  He also should have run it by a PR person first (for instance, don’t start your response with a sentence ending in an exclamation point.)

That said, don’t focus on Piketty.  When evaluating debates of this kind, never ever confuse a) is he right? with b) “how much should we raise/lower the relative status of the author as a result of the new exchange”?  So responses like “he made all his data freely available,” or “he admits all along how complicated this all is,” address b) but not the more important a).  And if you are seeing people focus on b) rather than a), they have a problem themselves.  On empirical grounds it does seem we have another reason for thinking Piketty’s central claim isn’t quite right, at least not for the reasons he sets out, and perhaps not quite right altogether.

Addendum: Ryan Avent has a good survey of some key issues and responses.


Adjusting for rising property prices make the main results go away? I'm sure it would. So what? You can make any portfolio performance look crappy by removing the best-performing assets.

Maybe you have a better point than that. If so please make it.

Property values removed themselves from the 'best-performing assets' category.
Does Piketty require a temporary, severe bubble to make his point?

Of course Tyler is right -- there were illusory capital gains during the bubble. After a few years the prices turned to "real." We bought a house on a short sale for $600k. The first buyers, swept up by he mania, had bought it for $815,000. Five years down the road the house is valued at about $640,000. Anyone using the bubble numbers has to readjust them.

The real question is who lost that wealth? Piketty's argument is that the people with the best ability to avoid and diversify their holdings are most likely to survive a shock like that. He discusses in relation to Bonds in the post-war period - that wealth moved from assets to assets. Many of the people that lost the most were the people with the least amount of wealth. I'm thinking of the cities and retirement funds that lost most of their wealth when the bubble burst. However, people made a lot of money on that burst and the wealthiest are doing well today.

I believe that Piketty actually does a good job address some of these not in his data, but in this analysis of the data. I'm not completely through the book, but he specifically calls out issues like this in the first part of his book.

Anyone who had a government pension of relative significance was already among the richest people in the world. Is his argument really that rich people have extraordinary talent in choosing successful investments?

Also, try selling all the wealth at once.

"He also should have run it by a PR person first"

I think that says a lot about Tyler.

«Le FT se ridiculise car tous ses confrères reconnaissent que les hauts patrimoines ont augmenté plus rapidement» -- Piketty

Not a taker for the Tyler Cowen approach to PR then.

So Kevin understands French but not English

What are your erroneous thoughts this time out?

"I think that says a lot about Tyler."

He lives in the real world?
He's commenting on people's reactions, effected by Piketty's response?

He started with an exclamation point! Get out the guillotine!

Just Another MR Blogger May 9, 2014 at 1:28 pm

"#6 Brilliant critique! I particularly liked the part where Rogoff pointed out a simple spreadsheet error Piketty made in Excel."

I think you meant to say:

"I think that says a lot about Tyler!"

It's say a lot about income inequality between American and French economist.
Also, I never heard of a French scientist using PR in academic debate, whatever his wealth.

this is a low-information debate to begin with, seeing as that the central theoretical conceit is the Solow growth model, which nobody thinks captures some underlying reality, inasmuch as possibly approximating the underlying processes. Or worse.

the relevance of Piketty is therefore not to 'be right'; the relevance is to shift the priors in public debate, i.e., to make non-rigorous default assumptions that favour low wealth taxes harder to sustain - to make the question 'is he wrong?'. All Piketty needed to do was sketch a plausible model with appropriate rhetorical resonance and toss it into the public imagination. This is what Capital did; therefore, mission accomplished.

the left says Bush lied about weapons to scare congress to vote for war. But somehow forging economic data is admissible because this advances a cause the left supports?

This isn't new to either side of the fence in economics. Economists have trouble convincing each other via econometrics alone, so they appeal to the wider literati using lots of data and a narrative, but shoddy theory. The most famous example of this, of course, is Friedman and Schwartz's A Monetary History of the United States, which sidestepped the (never rigorously solved) causality debate by simply displacing the previous default assumptions.

The answer to "wait, why do we assume money causes output but not vice versa" is "because that's the reigning assumption", not "because there are some undeniable econometric studies, conducted to the bleeding edge in data revision and theoretical apparatus, that show that this is the case".

In a popular independent book store in very conservative Chehalis, WA, pop. 7936, I saw a copy of Capital on the shelf, listed as #3 on the non-fiction best-seller list. I didn't ask whether any copies had sold, but its presence and prominence is a huge polemical success, whatever the integrity of its analysis.

It's an interesting observation, but does the bookstore reflect Chehalis's conservatism, or does it serve the independents and whatever small number of leftish types might be residing in Chehalis? I've been in Chehalis many times, but have no real knowledge of it because I'm zipping through on I-5 rather than stopping there. Yeah there's the Uncle Sam billboard, but one loudmouth doesn't necessarily represent a whole town.


Stephen Jay Gould remains the go to guy for most intellectuals, despite being wrong about everything. Piketty is now the go to guy for the usual suspects on economics.

It means his critics were right and his book will be discarded to the dustbin of academic flimflam, like Stephen Jay Gould's The Mismeasure of Man that was also rife with errors which were later debunked.

Sadly that Gould story will not die, I heard it at a required seminar this uear, I read it in a paper last fall, etc... It is too much what people want to believe.

Gould lied. If Picketty were at the same game he wouldn't have documented his data and made his spreadsheets easily available. (Contrast his behaviour with the "Climate Science" crooks'.)

Mr Cowen is wrong about "responses like “he made all his data freely available” or ... address b) but not the more important a)" if he means that we should dismiss (b). It's because Picketty has risen to a high standard on (b) that he has earned the right to be taken seriously so that (a) is worth consideration. In other words, he is promoted from "not even wrong" to "wrong, alas". ("Alas" because we should take no joy in the chap making some blunders: there but for the Grace of God ….) Since almost everything in macroeconomics seems to be wrong he is in ample company. (Perhaps I should have said either wrong or an accounting identity?)

Whether he is paying a price for not working in the USA and not being a member of any American economists' mutual back-scratching clubs I couldn't say. It's not inconceivable; man is a social animal.

Basically, there is a lot of money on the side of making Piketty look bad. There's practically no money in the business of pointing out Gould was wrong.

Great comment! You think like an economist.

Wait. Is someone trying to claim that the ratio of asset prices to GDP hasn't exploded since 1970?

Are you serious?

Nobody can really dispute that. Instead, people are throwing rocks at Piketty because its really hard to collect data on wealth.

Make that more like since 1980. See Figure 1 here:


One would be blind not to see a correlation between lower interest rates and higher asset prices, particularly equity prices, over this period. But, I'm puzzled as to why Tabarrok would single out housing for correction.

because it contradicts his narrative?

It illustrates the issue of what "wealth" is and how we measure it (not to mention "income"). It also illustrates that, especially in this debate, one can easily and plausibly come up with the answer that satisfies ones ideological prejudices.

1980 actually fits Piketty's hypothesis better (reduced taxes on capital), and if he chose it instead of 1970 his argument would have been even stronger.

@Nick Bradley to me the yields that matter more that the rising the asset prices. If I have to pay more for yield and I may have to sell assets for money to live on that is not good. I am better off with lower asset prices so that I can buy yields to live off cheaper.

housing in high wealth areas of the US is already more expensive than it was at the bubble peak, so what is there to adjust for?

household net worth went up 14% last year.

real estate assets are still 6% below the bubble peak, but that will probably be gone next year.

corporate equities are up nearly 40% from bubble peak.

From bubble peak...

USA equities are up: ~ 18-22% (Dow and S&P)
Global indices are up: ~10% (Vanguard VHGEX)

Those are nominal pretax gains.

Doesn't Piketty use pretax and pre distributional income?

So your point is: there wasn´t such a thing as a bubble?

i don't know whether there was a bubble or not. some areas certainly seemed like a bubble in 2007. but where i live in brooklyn, housing prices are higher than ever, and it doesn't seem like a bubble to me.

It's the rate of return which is important, not the absolute value.

A house going from $500k to $1m in five years is different from the same change over eleven years.

"a few people have suggested (without serious back-up) that if wealth inequality is going up that has to lead to political problems"

I have suggested (with extremely heavyweight theoretical back-up plus the simple empirical example of Sec of State John Kerry) that if wealth inequality is going up that might - in fact - help bring about political solutions. Read my 'Good Rentier', relax, and the idea will grow on you I promise. I think I'm the only and first person to have made this argument in relation to Piketty.

There is certainly no reason to think wealth inequality causes political problems. If there's a political problem it's a political problem, so you fix the politics (if possible with the help of wealthy politicians). Destroying wealth won't do any good. Destroying (or redistributing) the wealth would make the situation much worse.

I think Piketty is quite a likeable character. I've heard him speak. Most pleasant. I've called him Monsieur Humpty-Piketty with the thought in mind that he was heading for a fall like Humpty-Dumpty, and then will find it difficult to put himself back together again. Poor man (I refrain from saying egghead). But he must bear responsibility for his own irresponsible political ideas (as must all the egg-on-the-face economists who said Piketty's book is brilliant).

Anyway, thanks to the FT for helping to put the Piketty episode behind and to get on once again with more important matters related to saving the world. From now on Piketty will just be a data battle, over to you guys.

'There is certainly no reason to think wealth inequality causes political problems.'

Oddly, a couple of Bourbons and Romanovs might take exception with that. Not to mention numerous aristocrats who swore allegiance to such royalty.

Bad institutions in both cases. Did you think my argument was contained in blog comment? Dumbo, read The Good Rentier, it would do you good.

Clearly you didn't see that Citizens United now allows the ultra-wealthy to single handedly fund politicians that have no chance of winning anyway, like Newt Gingrich.

The super rich single-highhandedly funding politicians with no chance of winnings seems to be of no consequence for our polity except perhaps to make them slightly less super rich.

"Bad institutions"? We need good institutions certainly, but blaming it on the design of institutions is way too easy, because institutions need not be fixed, and the better designs (like the U.S. Constitution, in my opinion) are mostly concerned with making sure to provide a stable system in which all voices will be heard, and upon which most other resulting institutions are to be kept contingent and amendable.

It may be necessary to point out here, because otherwise you may not follow my argument, that I do not believe that increasing inequality is NECESSARILY a political problem. Although it certainly could become one for various reasons, and of course it is exhibiting such signs now: for example, as Urstoff intimates, in the massive private spending on propaganda against attempts to have universal access to healthcare and against climate change mitigation. For, as Schumpeter wrote, "the mass of people are not in a position to compare alternatives rationally and always accept what they are being told."

Further, whether an institution is to be "good" or "bad" may never be knowable beforehand. This is because good institutions reduce transaction costs (from Coase, via Douglass North) but we don't know what the dynamic and N-dimensional future of thse changes will be. Additional institutional designs introduced to prop-up the old institutional designs, to ameliorate the worst effects of inequality, may also introduce more new transactions costs than are really necessary -- when the simplest and easiest solution might be to increase progressive taxation enough to cover the fiscal deficits.

Then practically, it is really not a lot of money anyway. We recently floated much more money than that to the financial system to save their butts; printed about US $20 trillion (?) over the last few years for QE and other “facilities” (love that term!). Why? Well, to allow the private financial system to unwind their trades in the interbank markets (i.e. repo), in order to preserve the structure of the ownership of assets among the Great and the Good, in order to prevent throwing the rest of us out onto the street.

But notice that we were forced to bail-out the elite essentially because they were UNABLE to finance proper, sustainable economic growth that would benefit everybody. And this is not the first time in recent memory: Finance capitalism shows a weird sort of masturbatory impotence in blowing serial bubbles while proclaiming the salutary results for full employment: savings and loans under Reagan, tech stocks under Clinton, housing prices AND mortgage derivatives under "Double Bubble" Bush, and now, it looks like the stock market may become the focus again.

Schumpeter may have been a conservative, but this didn't fool him. He thought that higher taxes might reduce the entrepreneurial spirit, but there is no evidence he would have thought that small changes in rates at 2014 levels would make much difference. He was a conservative but foremost he was an honest observer and a scientist. Indeed one wonders what his thoughts would be now, if he knew that the research evidence of his own time, which said that capitalism was not increasing inequality, would be overturned.

I think it far more likely that Schumpeter would now agree that this incessant drumbeat that higher taxes will defeat the entrepreneurial spirit appears to be a psychological malfunction on the conservative side, largely coming from the cosmological ideal of individualistic ascension through a hierarchy based on merit and effort.

Note in passing that this psychology is a predisposition which appears to be a holdover from the Great Chain of Being, the overwhelming religious cosmology which came from the Neoplatonists and ruled Western philosophy. It was transmuted in the 17th-18th centuries from belief in a static entity (wherein you accepted your station in life) to a belief in individual effort to propel oneself upward through the natural-law hierarchy (see Lovejoy). Schumpeter was a conservative, thus appeared to believe that this predisposition was a good thing, but he never let it get in the way of his intellect, and indeed he thought this mindset would collapse under the results of capitalist development, due to corporatized R&D (and he might have added, "automated"), due to the distancing of the people from the psychology of the system, and due to the disappointing, unheroic personal character of the captains of industry.

A close reading of Capitalism, Socialism, and Democracy will reveal that Schumpeter imagined that capitalism was doomed, due to a small set of reasons which appear to be coming true. He was a conservative, but he was foremost an honest observer and a scientist, and he did not mistake any personal hope about institutions to be an explanatory law about the system.

Lee A. Arnold, many thanks for your comment. You’re right to suggest that ‘bad’ and ‘institutions’ are two words unlikely to be found sitting next to each other in Schumpeter’s writing. Schumpeter did not blog, and he did not write books with titles like ‘Good Capitalism, Bad Capitalism’ !

But I think Schumpeter would not have agreed with your view that the positive or negative consequence of an institution can’t be known in advance. He was as you point out a scientist, and for him the scientific method meant assembling facts, comparing new facts with old facts, theorizing the relations between facts, and creating concepts to organise the facts, checking their consistency and adequacy and creating demand for more facts to be gathered (like you, Lee A. Arnold, do on You Tube?). Note that all this worthwhile rationality follows AFTER the initial “ideological vision” as the test of whether the hope thing (e.g. the institution) really is good or bad.

You and I may not like it, but value judgements are part of economics. Here's Schumpeter talking -- "When the modern economist speaks of ‘value judgments,’ he refers to moral or cultural appraisal of institutions." In Piketty Mania one finds too many 'value judgements' and not enough science... in my opinion.

Institution builders also learn from history. A ‘good’ institution does not only lower transaction costs, since an institution could achieve that goal while having other much less desirable intended or unintended consequences. So there’s institutional learning. On that basis Schumpeter arrived at a whole number of conclusions for example about 1. the inadvisability of taxation schemes that go beyond the essential function of raising revenue, 2. the existential dangers governments run when trying to ‘engineer’ an economy away from recession or depression or when trying to breath life into dying firms and industries.

I disagree with your wishful thought that Schumpeter if alive in 2014 would have changed his mind about the sustainability trade-off between taxes and growth. I only imagine him being horrified that the ‘socialist’ trends he complained about in advanced economies have not been caught and deliberately reversed by sensible government leaderships.

In the Walgreen Lectures Schumpeter set out his belief that institutions are actively reformed in the same way that an entrepreneur reforms the firm, to improve performance. Exceptional leaders in adaptive societies deliberately create or exploit disequilibrium conditions to create “autonomous institutional change” driven by motives and interests that may be “entirely different from those of the people for whom these groups speak”. He explicitly identified the similarities between business and institutional innovation. The “leading personnel” drawn on “the qualities of the human material, the intelligence, foresight, endurance that are present in society” to produce “institutional progress”. Details can be found in my book.

Of course there’s no ‘law’ determining the institutional outcome. But there is talent and intelligent choice. Note also that Schumpeter’s foreboding about the future of capitalism rested not only on his insight about the ‘automation’ of innovation, but also intellectual hostility to capitalism, and the socialist tendency which in April-May 2014 is most evident in Piketty Mania (I wrote about this in the ‘Fable of the Piketty Goose’).

Note finally that in his book Piketty explicitly disavows the scientific method in economics, which is odd for someone who places such importance on statistical data ! (am I allowed to finish with an exclamation mark, or do I need to hire a public relations agent ?)

Please give the quotation and page number where Piketty "explicitly disavows the scientific method in economics".

Lee A. Arnold, Piketty quote of the day: Loc 10144 (approx pg 575) “I dislike the expression ‘economic science’ … I much prefer the expression ‘political economy, which … conveys the only thing that sets economics apart from the other social sciences: its political, normative, and moral purpose”

You might say it is not explicitly a disavowal of scientific method. But if a person says economics is distinguished from other social sciences by it’s ‘political’ or ‘moral purpose’ it is to me at least quite indicative of an immaturity and a confinement in their scientific and world view. From a Schumpeterian viewpoint.

It certainly is not an explicit disavowal. You omit the context that clearly determines Piketty's meaning:

"I would like to conclude with a few words about economics and social science. As I made clear in the introduction, I see economics as a subdiscipline of the social sciences, alongside history, sociology, anthropology and political science. I hope this book has given the reader an idea of what I mean by that. I dislike the expression 'economic science,' which strikes me as terribly arrogant because it suggests that economics has attained a higher scientific status than the other social sciences. I much prefer the expression 'political economy,' which may seem rather old-fashioned but to my mind conveys the only thing that sets economics apart from the other social sciences: its political, normative, and moral purpose." (Piketty pp. 573-4)

Again, so we do not miss his meaning, the reason that Piketty "dislike[s] the expression 'economic science'" is because, "it suggests that economics has attained a higher scientific status than the other social sciences."

Couldn't be clearer than that. And despite this, Piketty's entire book is concerned with bringing a set of data for inspection, for historical narrative and for theorizing, all to be falsified. Doesn't get more like science, than that. Schumpeter: "a science is any kind of knowledge that has been the object of conscious efforts to improve it." (History of Economic Analysis, p. 7)

Your objection continues, that Piketty characterizes economics as having "political, normative, and moral purpose." Well, that also need not constitute a disavowal of the scientific method... But, lest we are led to misinterpret this comment too, Piketty's very next paragraph explains that economics began in the subject of political economy, and its purpose was to find the conditions for a better society, and that the modern divorce of economists from this role is, in Piketty's opinion, a dangerous mistake.

Yet your judgment is that this is indicative of immaturity and confinement of view? I imagine that many other people would judge it to be the exact opposite. "Political, normative, moral purpose" may be the shortest description of Schumpeter's book, Capitalism, Socialism, and Democracy.

British Columbia politics in years past has seen politicians who are needing to win an election demonizing whatever is handy. The Chinese immigrants were a favorite for a long time. The fomenting of popular feeling for political gain. When someone does that now they are booed, but it still works. It is a base strategy playing on the prejudices and fears of people.

The Vichy French did the same with the rich upper class people they didn't like, and stole all their assets when they had the chance.

The US top 1% is a constantly changing group of people. The only people who have looked down their nose at me are self righteous socialists.

Sovereigns of past do not help your argument.

They used politics to build riches, not the other way around.

Extremely wealthy traders of yore had relatively little political power given their weatlh - they frequently would buy titles, but still were quite weak, politically, than their poorer yet better connected counterparts.

Indeed. Is the war between the bureaucrat, academic, and cultural-figure allegience of well-paid, but not-quite rich Progressives, against nouveau riche not proportional to mercantilism versus the trading class? Ivy-educated Progressive women and minorities tell impoverished white men to check their privilege. Ivy-educated bureaucrats who rule by 'rules' warn us of the political power of doctors, lawyers, lottery winners, and any other transient 1%er. Would-be class warriors who have the resources to drop out of society and occupy a park for a year to 'fight' against the capitalist class? They are transparent.

David raises best point in comments. it would HELP if Capital were more rigorous but the bottom line IS about the debate. Make all sides step up their game. In my field, it's almost impossible to use any data older than 1960. The world changes as do the data. Long, cross country data series are always rife with errors so it's rare they can prove anything. That's not the test. The challenge is the policy ideas. It's hard to ignore Capital even tho I disagree with its conclusions and recommendations.

The bottom line is about the debate, of course, but data is the attempt to connect the debate to reality in some way. Without that, everyone is just making up stories.

If the truth of the data supporting the main argument doesn't matter, then that argument is not very worthwhile; "policy ideas" for which the supporting data doesn't matter are dangerous.

I'm not saying that Piketty should be ignored, but whether the data supports his arguments really matters, and the attempt to shift discussion away from that is not a good point, in my opinion.

Household net worth doesn't capture all wealth, but its ratio to GDP has gone up by quite a lot.

1970 (in billions) household/nonprofit net worth / US GDP

3849/1090 = 3.5x GDP

2013 (in billions) household/nonprofit net worth / US GDP

80663.7/17150 = 4.66x GDP

Which proves what? Nothing? Less than nothing?

You've gone too far. Not 'less than nothing'

The data problems dont really matter because the data didnt really matter. Neither did the book, for that matter. Was anyone's mind changed after this book was published? Has anyone's mind has been changed because of the data issues?

The sole purpose of this whole "Picketty" discussion, as far as I can tell, was to elevate that word to annoying-as-**** status.

We should now get back to the newer, and even more pointless discussion about Reparations.

I made a graph of net worth/GDP. by the mid-1980s, Capital recovered its losses from the 1960s and 1970s, when real wage gains ate away at profits. NW/GDP bottomed out in 1978. That year, Carter slashed capital gains taxes as well.

In all, since neoliberalism took over in the US and western europe in 1978/9, US net worth/GDP has gone from 3.2x to 4.75x now. dotcom bubble was 4.4x, 2007/8 bubble was 4.77x.


Doesn't this sort of chart show that overall returns to capital are actually decreasing? That it takes more dollars of wealth to purchase the same income?

It proves absolutely nothing. It is a simple observation with explanations approaching infinity. It is worth less than nothing as it's author would use it to disingenuously push his ideology. And, this is from a professional economist. Shame.

Couple of points that will clear the air on Piketty once and for all:

Re Piketty's alleged mistakes: Exhibit A below shows "weighted average" is not necessarily everything, since Rogoff et al also did NOT use weighted averages in their book "This Time Is Different". The point being: every country, regardless of population, is a 'natural experiment' in inequality that has relevance, regardless of population size. Hence no need to average. Ditto (by analogy) for removing best performing assets like housing. Me and my family are comfortably in the 1% due to being DC landlords--why quibble with the facts? Real estate is a great way to feed off the population, classic rent-seeking in every sense of the word.

Exhibit B speks for itself: shows, graphically: (1) historically some inequality in UK, France, none in the USA. But keep in mind Piketty is arguing that inequality disappears during and after wars, and reappears afterwards. He is making a *future* prediction that this will happen again (absent a war). He's not necessarily saying inequality is a problem now, just an incipient problem.

Exhibit A:

The NY Times today (after this post by TC) has an economist who opines along the same lines: that the errors pointed out by FT are rather small and also subject to interpretation, except the ones that are obvious, like not taking a weighted average by country population in Europe but just summing large and small countries, which, BTW, Rogoff et al in their book “This Time Is Different” did the same thing for financial panics, and explicitly said that (paraphrasing) ‘it’s OK to take a numeric average rather than weighed average by population, since both large and small countries responses to financial panics are the same, and there should *not* be a correction by population, since small populations are as representative as large populations’. - See more at: http://marginalrevolution.com/marginalrevolution/2014/05/piketty-update.html#comments

Exhibit B: (graphs):


I have not read that Rogoff book, but if they are measuring government responses, then of course the should not use a weighted average--the unit they are measuring is governments, not individuals in the country's population. Piketty, on the other hand, is measuring the wealth of individuals.

The choice of whether to weight an average depends on that distinction: Are you combining different populations that behave in distinct ways (and the population-level effects are interesting), or you are just adding up a whole bunch of similar individuals from different sources? In many cases this is a debatable choice. However, I think an unweighted average is quite suspect in Piketty's case.

First of all, there is a lot of movement between countries in Europe, and this movement is associated with wealth: some of the countries act as havens for wealthy people. Thus, considering each country as a distinct phenomenon is suspect, and the data is likely to be skewed by the sorting of wealthy people into certain countries.

Secondly, there are just huge population differences between countries in Europe, meaning the potential effect of not weighting is huge, and you really need a good justification for that when looking at an individual effect.

Thirdly, even if one thinks the unweighted average was defensible, these claims about wealth inequality, should be supported by the weighted average as well. If wealth inequality in Europe is going up, we should see that in the data when we give each individual in Europe equal weight. If we do not, it casts doubt on the claim, even if there was nothing "wrong" with analyzing it the other way.

Dan, I don't know whether weighted or unweighted is correct, but each country could have a different income, wealth and inheritance tax which could affect wealth accumulation over time. I would sooner see individual country wealth data, given these choice variables involving taxation. With different tax policies across countries, which can affect wealth accumulation or retention, I wonder whether weighted or unweighted averages lumping countries together without tax policy adjustments makes sense.

As to the point that weighted averages should show this, I don't know if that is a correct argument. I think weighting makes more sense if the tax policies across jurisdictions were uniform, in that tax policies affect wealth accumulation and this variable would thus be controlled, but when it is not, I wonder. Moreover, from what I've read, Piketty is looking at directional evidence...changes that are occurring over time regardless of initial condition, and, I suppose, presuming few changes in tax policies, at least in Europe. In the US, tax policy most decidedly changed with respect to cap gains and dividend income.

Thanks for the learned reply. On your 1st point, "there is a lot of movement between countries in Europe" - I doubt it, it's more like movement of money into Swiss banks. Most Europeans stick to their home country, even the 1%. Perhaps not the 0.1% (they are in Switzerland and move around a lot). On your 2nd point, the justification for using non-weighted averages is that we are not studying 'rich folk' per se, outside their society, but rich folk in situ, in their society. So, we are indeed measuring "countries" not "individuals". On your 3rd point, "should be supported by the weighted average as well", I think Pikety's data is supported by either data set, but that his most forceful claims are when you look at the unweighted averages.

Finally, my last point is my personal opinion: though Pikety offers policy proscriptions, he is a bit premature in that he is trying to prevent future inequality from manifesting itself. So the most forceful Pikety reply might be the same as leveled against the AGW (man made global warmers): 'it's too early to tell, wait and see if there are pernicious effects'. I do believe there is inequality, and it may be increasing, but like TC says, "so what"? As long as the population does not riot, it's not a problem. When and if they riot, you can either buy razor wire or broken glass topped 3 m fences and/or armed guards, like they do in Latin and Central America, as well as the Philippines, or, you can try taxing the rich. But it's too premature to do that now. I think Piketty is probably right about the rich getting richer. Thought experiment: pile sand higher and higher (wealth accumulating through the ages). Notice the 'edges' (the 0.1%) get further and further from the center (the masses). Simple Central Limit Theorem Gaussian statistics at work. Absent war (the 'great leveler' of fortunes, akin to leveling the sand pile), you will see the super rich get even richer.

From the Economist:
"The fourth question is whether the book's conclusions are called into question by Mr Giles's analysis. If the work that has been presented by Mr Giles represents the full extent of the problems, then the answer is a definitive no, for three reasons. First, the book rests on much more than wealth-inequality figures. Second, the differences in the wealth-inequality figures are, with the exception of Britain, too minor to alter the picture. And third, as Mr Piketty notes in his response, Chapter 10 is not the only analysis of wealth inequality out there, and forthcoming work by other economists (some conclusions of which can be seen here) suggests that Mr Piketty's figures actually understate the true extent of growth in the concentration of wealth."

Question of the Day:

How much time did the FT give Piketty to respond?

Answer: 1 day.

How much time did the Amherst students give Reinhart and Rogoff to respond before publishing?

Answer below.

I have a basic methodological question that goes beyond the specifics of the case. What is the practice in going from data to conclusions in economics? Does someone check the initial work, including the data used and whether it has been entered/input properly? Does someone do a smell test to check whether the conclusions seem consistent with the data and calculations?

In my line of work before retirement, pension consulting, we typically conducted numerical projects in three phases: a staff member assembled the data and produced the basic calculations, a more senior member checked the work, both computationally and conceptually, and a consultant reviewed the results for reasonability and compliance with the client's needs and the applicable law. In many cases, an additional level of peer review was done by another consultant not directly involved, to detect errors or at least determine whether any error was below a de minimis threshold. I have found errors in work as a peer reviewer and have had my own errors uncovered in peer review. The consequences of error could be dire - lawsuits, government action, embarrassment. I know of firms that went under due to errors that were not detected until too late.

I do not know if these criticisms of Piketty are substantive and I do not believe that many of the defenders/critics do either. I do wonder how much error lies under the research and conclusions that is used to justify personal beliefs and public policy - even when the actors are not trying to mislead.

It's called peer review.

Supporting work for Pikettys book has been peer reviewed, but books aren't. Work by Saez et al finds the same conclusions with better data sources.

Carmen and Reigoff explicitly skipped the peer review process.

They got their paper put in a peer reviewed journal as a proceedings and skipped actual peer review.

This gave people the impression of rigor and review when there was none...

Peer review is typically not enough to catch this sort of thing, because, unless one happens to get particularly interested reviewers, they just don't have time to check the nuts and bolts of the data processing and analysis. They will consider whether you used appropriate high-level methods, but they don't have time to check cells in Excel spreadsheets.

Many fields of science would benefit a lot from more rigorous review and testing of their data and methodologies before publication. As a software engineer who has moved into epidemiology, I would like to see formal testing become part of the process.

Science does much less number-checking than Law or Accounting, and that's as it should be. Every individual project matters in "the real world", but in science, 90% of research ends up being useless. That goes for commercial science too---- it's the nature of the projects. Peer review doesn't replicate a study, or even check all the mathematical proofs; it looks at plausibility, originality, and importance, and in economics it makes voluminous requests of the author to do extra work to improve his study. Checking starts to happen once people read an article and decide it's important, and happens, especially, if the results are surprising or controversial. That's what is happening here. Piketty should *not* have been more careful. He does not have $200,000 to spend on reliable assistants to check what his student assistants have done, and we don't want him to spend five years checking his results himself before he releases his findings. Instead, we want scholars to release their results quickly, and then *other* people will check the results if the paper is important enough. That's what happened here, and there will be a lot more checking over the next two years. If Piketty has rigged his results, his reputation will be ruined. That's highly unlikely, since he has made his data public in an admirable way. If his results are simply wrong because of mistakes, econ researchers will still admire him for having broken new ground by making the first try, the one everybody else improves on.

"90% of research ends up being useless"

And if you don't bother to check that your data is correct, you are greatly increasing the odds that you will be part of that 90%.

"Piketty should *not* have been more careful. He does not have $200,000 to spend on reliable assistants to check what his student assistants have done, and we don’t want him to spend five years checking his results himself before he releases his findings."

$200,000??? This is a task that should take a few hours to a couple of weeks, depending on the complexity of the problem. It didn't take FT $200,000 worth of effort to find errors in Piketty's work. Further, checking the correctness of data nearly always savestime, because:

1) In a multi-step analysis process, a practice of checking what you do will cause you to find errors earlier, reducing repeated work later.

2) You won't waste time making inferences and interpretation on a faulty basis.

"*other* people will check the results if the paper is important enough."

Counting on this is foolish. Mistakes won't necessarily be found, and mistakes that are not found can be hugely damaging.

And why would any scholar want mistakes to be found in this way? Despite what you say about Piketty still being admired despite honest mistakes, it's hard to see these revelations as anything other than a significant hit to his reputation and the influence of his theory. The discussion has moved, and it's not going to fully move back again, even if the issues turn out to be relatively minor. Maybe it won't matter to the scholarly debate in the end, but in the public arena it will--critics now have major ammunition to discount the work, and that is significant, given that it aims to influence policy.

I agree peer review in economics seldom includes replication or data checks. (Replication is not held in high regard by economists, so it is rare in general. Very few economists are even qualified to assess the statistical quality of data.) No matter how data-driven economic analysis appears, it is about the ideas not the data.

Sure, when someone has given you a sword with which to smite the "Neoliberals", you don't ask whether the blade is sharp or dull.

Picketty's book was a conclusion in search of evidence.

This is not unusual in the profession, but seldom is so much fuss made over it. "Income inequality" has been a running theme for several years from Occupy Wall Street to Robert Reich to Paul Krugman, yada yada.

If the data had not been collected at all, would anyone even perceive this "problem?"

I agree. This whole "income inequality" discussion is tiresome.

Poverty matters. That is something worth trying to address (though obviously we don't all agree on how to do it).

Income inequality might matter if it is tied to poverty. But mostly it is discussed as if it is a problem in itself, which muddies the debate and distracts from the real issues.

Dan, Poverty does matter, I agree on that point, but middle income matters as well, given that parents in the middle income are the ones who support their kids getting education. The strength and depth of the middle class really matters.

Inequality does not mean poverty. Inequality is where someone has more than me, poverty is when I don't have enough to eat or a place to live. Political environments that try to fix the second by decreasing the first make the second worst. And that is empirical.

"And that is empirical."

What do you mean? For example, among OECD countries, there isn't any evidence of a strong negative correlation between income inequality and poverty rates.

You are Godwin's Law.

"Income inequality" implies income should be equal, which is tantamount to saying the world would work better if the workers who assemble iPods controlled the same economic resources as Steve Jobs. The Maoists tried something like that once, having everyone forge iron at home in their fireplaces (rather than work for some rich, crooked iron baron).

These troublesome income distributions are set by people freely choosing to make Sam Walton, Mark Zuckerberg, Michael Jordan, etc. wealthy for reasons that make no sense to other people. To claim to know which income distributions are better than others reeks of fatal conceit.

Piketty's thesis really makes very little sense empirically, too much wealth has been created with very little initial capital.

@Bill, I agree that "the strength and depth of the middle class really matters", though, again, I think income inequality is a poor proxy for this issue.

If increasing inequality means decreasing median incomes as mean incomes increase, does that inequality matter?

Why is decreasing median income a problem?

Has it decreased to poverty levels?
Is it expected to continue decreasing?
Is it reflective of decreasing productivity?

Income inequality is a manufactured issue, especially in a wealthy, industrialized service economy where the chief concern is a new life for Candy Crush.

'And if you are seeing people focus on b) rather than a), they have a problem themselves.'

As so often the case, a metafilter comment provides a response - 'At the same time, as any academic knows, research is half the battle. The other half is marketing. Any scientist who markets with scientific restraint is destined to never make it to the policy world, where they CRAVE certainty. And feigned certainty counts in this game!' http://www.metafilter.com/139334/Piketty-findings-undercut-by-errors

'On empirical grounds it does seem we have another reason for thinking Piketty’s central claim isn’t quite right, at least not for the reasons he sets out, and perhaps not quite right altogether.'

From the same comment - 'With Reinhart and Rogoff, and now Piketty, I don't think many of my peers or economists will think less of his findings. That's because we already assumed stuff like this existed. So we have noticed a few calculation errors? So what? I guarantee those errors are still small compared to methodological and omitted variable bias. So it remains a reasonable theory, given the massive constraints of economic history and past-data analysis (hell, even with current data we have loads of issues!).'

The absolutes are for people interested in driving policy - which is why it is so funny to see the suggestion that a PR person should have been involved in formulating a response to a data/calculation based critique. Obviously, choice a) is not something that someone making such a suggestion cares about primarily.

I'm always fascinated by the dynamics of reputation. For example, when Foote and Goetz demonstrated in late 2005, a half year after the publication of Freakonomics, that Steven D. Levitt's most famous theory -- that legalizing abortion cut crime -- was the result of Levitt's sloppiness in writing Stata code, the impact on Levitt's career was negligible. His reputation only started to decline a few years later with the publication of SuperFreakonomics in which Levitt didn't demonstrate complete fidelity to the climate change orthodoxy.

Malcolm Gladwell's reputation took a major hit from tangling with Steven Pinker over a bad NYT review, when Gladwell insisted on defending an overstated article he had written about how it was impossible to predict a college quarterback's performance in the NFL. But what really hurt Gladwell was misspelling a statistical term.

Nobel-winning Chicago historian Robert Fogel once told me, "Only your home runs count". In economics, your reputation is built on your best papers; it's not an average of all your papers. We forgive scholars for crazy ideas that turn out to be wrong, because until a little time has passed, they're hard to distinguish from crazy ideas that turn out to be right.

p.s. Fogel actually is a good example of your next comment, about Jensen. Fogel wrote a book about the economics of slavery around 1970 that got him in as much hot water as Jensen, because he showed things such as that working people in slave gangs picking cotton has very high productivity (unsurprisingly--- it should have been obvious that being able to whip people makes them work harder in easily observable, simple, tasks). But around 2000 or so, Fogel received the Nobel Prize in economics.

Fogel was merely analyzing the past. Jensen in his 1969 Harvard Education Review meta-analysis, "How Much Can We Boost IQ and Scholastic Achievement?", made a major prediction about the future that turned out to be right for the remaining 43 years of his life. That's one of the truly great accomplishments of 20th Century social science.

It sure didn't win him a Nobel Prize.

There is no Nobel Prize for Tests-and-measurements Psychology.

So Daniel Kahneman has to give his Economics (quasi-) Nobel back?

Khaneman's work concerned decision-making in markets.

But I pointed out how implausible Levitt's theory was to him in our debate in Slate in 1999.


He replied that I was only looking at national trends, but he'd look at each state and I hadn't. Six years later, Levitt made abortion-cut-crime the centerpiece of his Freakonomics bestseller. Six months later, Foote and Goetz showed that I was right to warn Levitt because he'd botched his state-level analysis.

That ought to be pretty embarassing to Levitt, but the whole fiasco disappeared down the Memory Hole. The NYT refused to cover it, perhaps because they had just hired Levitt and Dubner as bloggers.

It has not just been flushed down the memory hole. The official narrative says you were the one proved wrong.

What really makes you unpopular is being right. When Arthur Jensen died a couple of years ago, we had to organize an email campaign to finally get an obituary for him in the New York Times.

A prophet is not without honour, but in his own country, and among his own kin, and in his own house.

Why would you want to adjust away one of the main sources of household wealth (increased housing prices)? If wealthy people squirrel away assets into million dollar homes, and others continue to rent because they can't afford a down payment, then would good does it do for me to know that the analysis would be irrelevant if million dollar homes could fall from the sky for every low income worker?

Formal inheritance will surely be a lower bound on inheritance effects, no? Paid for holidays, fancy meals, music instruments bought for grandchildren, art lessons, help for the mortgage down payment, perhaps free business consulting if there is a history of small business in the family ... the list goes on. Formal inheritance is a lower bound, and should only ever be interpreted as such: there exists an entire industry to minimize tax payments in inheritances, and thus strongly contribute to strongly underestimating this variable - a fact that will surely skew many analyses. Formal inheritance is a lower bound.

Data openness means we can identify his errors. It turns "is he right questions" into "how long until we get it right" kind of questions. With the spotlight on, surely the second edition will be a significant improvement, and the right wing or centrist media will surely provide significant feedback contributing to these improvements.

The importance of inheritances are much underplayed in our current pop culture. For example, watch the hit movie Neighbors about a schlubby man (Seth Rogen) with a crummy cubicle job, but he has a beautiful house and a beautiful wife who is a stay at home mom. The whole set up only makes sense if you assume Family Money, but there are no references to anything like that. These days, Family Money is pretty common in real life, but not in movies.

1. The family money is the wife's.

2. Hollywood has a long history of this, it's just attenuated now. A reviewer remarked about a trope of 1930s cinema, "the heroine gives up 'everything' to go live with a man in a Vermont 'farmhouse' that must cost $12,000 a year in upkeep". A subtler (but fairly recent) example of this can be found in the film The Help, where the screenwriter (or original author) imagines that 23 year old married women in a place as impecunious as Jackson, Miss. in 1962 can routinely afford owner-occupied housing sufficiently grand to require domestic help, can afford domestic help, and have taken over the local Junior League to boot. Some of the dialogue also holds it plausible that members of the local gentry in a city that has a population of 150,000 are generally recognizable from vignettes about them ("It's not about Jackson!").

Re. The Help, I know the author socially third hand, her social circles are that of the high society, such as it is, of Jackson. Our mutual aquaintences are the daughters of an Ambassador, the daughter of the Episcopal Bishop of MS, an Air Force general, and a Socialite who has had the crown prince of Denmark as a houseguest.

While the book/movie apparently plays this down, even watching the trailer I could tell you that the status markers of the women in the trailer were glaringly apparent. I had no interest in reading the boook or seeing the movie. Anyway any woman who had any money in the deep south back then had help. And I can't imagine anyone of there apparent social class not having it once they set up house.

This is hardly top 1% stuff, this is top 20%, of white people stuff in the South.

If you say so, Roy. I know something of that social strata and that era too, just in a town larger and more affluent than Jackson and a few years earlier. This is the deal.

1. At the time, tertiary schooling for girls in haut bourgeois families would not have been eccentric, as portrayed in the film (it may or may not have been modal). Early marriage was common then, but years of marriage and multiple children among 23 year old women of that class, not so much.

2. Military service was standard among men in that era (though more so ca. 1955 than ca. 1962). The modal story for a man of that social stratum might or might not have included tertiary schooling but usually would have included an enlistment, so and so many years of active duty, then active reserves, then inactive reserves. Men of the age of those husbands might under ordinary circumstances been a year or two out of the service, just starting their careers, &c.

3. I knew men like that who had comfortably bourgeois careers in engineering, law, banking, &c. in the succeeding decades, a few pretty patrician in their origins. They spent the early years of their marriage living apart from their wife due to service obligations, they lived in trailers, they lived in city apartments, the better off lived in small tract houses.

4. You age out of the Junior League at 39, though I think they have some sort of auxilliary for middle-aged women. I tend to doubt women in their middle 30s are going to let dames a dozen years their junior put them in a subordinate position.

5. The patriciate in a town the size of Jackson would have encompassed 4,000 or 5,000 people. Not too many degrees of separation one to the other, but they wouldn't have all known each other.

Flannery O'Connor once said that literature deals in the possible and not the probable. That's reasonable, but in some sense this film purports to be an ethnography of sorts.

Women whose husbands were professionals typically had a servant or two (not necessarily live-in) up until, perhaps 1942 and certainly to 1917. Housework was just immense back then. And before antibiotics, it really helped to scrub every surface like crazy to prevent potentially fatal infections.

The story takes place in 1962, not 1928.

I realize domestic service was more common prior to the war, but I tend to be skeptical your portrait of that world simply based on family experience. My mother would tell you that the largest difference between housework as she knew it and housework as her mother knew it was laundry. Laundry, ca. 1940 was a big production. They did not spend much more time on it; they just had lower standards of cleanliness. My father did not have to stoke a coal furnace; my grandfather did. My grandparents debarred their children from swimming pools over concerns about polio, but my grandmother was not scrubbing every surface; she didn't care much about dust &c. My grandparents were the sort of people you describe, but they employed no domestics, even in the fat years before the Depression.

Bill Clinton usually claimed to be semi-poor growing up in Arkansas, but he had a live-in servant most of his childhood.

His father and paternal uncle ran an auto parts store and his mother was a nurse-anaesthetist. However, given the intramural culture of the household and the locality, you'd have to say Clinton falls dead in the water between petit bourgeois and white trash. Other presidential politicians with ambiguous social backgrounds include Harry Truman (father financially ruined and declasse), Lyndon Johnson (ditto), John Kerry (due to the curios of Foreign Service life and cross-subsidies from collateral relatives), and even George W. Bush to a degree (due to his father's varying business fortunes, occupations, and residences).

If you adjust away wealth, the effects of wealth strongly trend to zero.

The wordsmiths of the West (sometimes a.k.a. “intellectuals”) seem to require some form of ideology as a mental flotation device for their concepts of society and human relations.

The ideologies which arose, thrived and spread through the 19th century and on into the mid-20th, which had been so vital to the expressions of the wordsmiths – are dead.

Efforts are underway to find a new flotation device to replace those that have failed (as proven disasters taking down many “great thinkers” with them); now led by “new thinkers” who are grasping at concepts of equality as an ideology.

Those efforts carry an almost revivalist impulse contrived of romantic and false perceptions of the human past, with nostalgic overtones from some of the failed ideologies. However, those efforts will continue because of the needs for a mental flotation device, principally in academia, but elsewhere as well, and politically useful to some.

Be of good cheer; Equality as an Ideology is unlikely to endure for as long a time as those ideologies which are so sorely missed by the wordsmiths academics and politicians of our time.

Wealth has been severely understudied by economists, who have focussed on income because the data's better and income lacks the problems of defining what wealth is. The FT stuff is the least of the data problems, I'm sure. There is a lot of good work to be done, and PIketty's main contribution is to set up a target for everybody else to surpass.

Forbes has been publishing a list of the 400 richest people for 32 years. Economists, including Piketty, have largely been averse to analyzing it.

I seem to recall the top spots in 1982 were occupied by Gordon Getty (oil heir) and Yoko Ono Lennon (widow of John "Imagine No Possessions" Lennon) and one other person whose name escapes me. The following year, Michael Kinsley did an inventory of the subset he adjudged were not heirs. Fortunes he found dubious were those derived from oil and gas (45 in number, IIRC), 'paper entrepreneurship' (I think we would say 'private equity' today; 22 in number), government contracting (3 in number, 1 shipbuilder and the Bechtels), and owners of broadcasting licenses (11 in number). I think Messrs. Jobs, Allen, and Gates were already on the list, as well as K.P. Huang.

The Forbes 400 ratings are guesstimates based on things like interviewing employees, handlers, rivals, peers and attorneys, and examining Securities & Exchange Commission documents, court records, probate records, federal financial disclosures and Web and print stories. You do the best you can when the people involved are private and litigious. They're fun to read and probably relatively close, but I don't think even Forbes would call them accurate.

As opposed to ...?

They are a valuable source of information. If economists don't trust the list, they should work to improve them.

In general, economists don't like to direct much attention toward the superrich despite their importance. They are major donors, among much else.

In general, economists don’t like to direct much attention toward the superrich despite their importance. They are major donors, among much else.

No, Steve. Economists do not devote attention to the 'super-rich' because they are economists and not ethnographers.

Does anyone think Piketty's book will influence one voter in the US, or even one Member of Congress? I'd like a show of hands.

It's a beautiful weekend in most of the US. Go out and enjoy it.

Not many, but there are always marginal voters and the influence of chatter. Turnout can be influenced by an influential idea.

Our presidential elections turn on only about 5% of the vote, right? If I were a political leader, I wouldn't ignore this.

Being nice makes it easier to have a more open debate, tyler

(b) and (a) are not mutually exclusive: the fact that someone makes data more openly and is willing to admit there are problems with his/her analysis itself - itself! - makes for a more productive exchange

I think the real estate "problem" is very interesting.

Like, I've never heard ANYONE ever say that they should take their wealth and invest in real estate.

I mean, who ever heard of anyone having a second home at a beach or lake, and renting it out; or buying more property so they could deduct the interest payments and later sell the property either paying no capital gains, or capital gains; or who ever heard of anyone so wealthy that they couldn't even remember how many houses they owned.

Really. It just amazes me that if you had wealth that you would invest in real estate. Yech. Fine china or collectables I could understand.

You're right, Bill, real-estate is a guaranteed way to make your capital increase! I suggest you open a newspaper, close your eyes, and point to some properties to buy. You can rent them out to some helplessly poor minorities and soon have enough income to purchase the Presidency. You know how easy it is to become rich, nothing is stopping you Bill.


What you are then arguing is that Piketty's inclusion of real estate underweighted the real strength of the top 1%.

Way to go.

Thomas, Guess you didn't figure out why Alex is trying to exclude real estate as an asset. Better luck next time.

"You can’t argue that population-weighting is “the right way to do it,” "

Well of course you can't. It is not appropriate for Piketty to weight countries by population because he is looking at cases of inequality growth and seeing whether there is a common trend across countries!

It is rather like Rogoff in the review you posted when he said that inequality world wide was falling. This is largely explained by the entry of China accounting for 20 per cent of the world's population entering the world economy and its high growth. Take that country out and look at most of Africa etc and the picture is not so good. Weighting can actually distort your analysis.

Giles was not entirely helpful. He is looking for problems. In an analysis with thousand of pieces of complex historical data series where you have to make difficult calls you will find it if you look. This is not a proper balanced review or the major findings - strengths and weaknesses.

So, your claim is that wealth concentration in the US and Europe has not increased substantially and palpably since 1970? How old are you? Or what explains such obliviousness?

This ideologically (and class and personal interest) motivated nit-picking does not detract one bit from Piketty's simple, unarguable observation that since the Industrial revolution, return on capital has always exceeded growth, except in times of global war. The inescapable result of this is rising wealth concentration.

Going beyond Piketty's analysis, the resulting maldistribution further undercuts growth and is the source of most of our economic, social, spiritual and political distress.

"Going beyond Piketty’s analysis, the resulting maldistribution further undercuts growth and is the source of most of our economic, social, spiritual and political distress."

Who's distress, Mark, yours?

This is gold. You are a perfect example. Privileged, Ph.D., relatively unknown, comfortable sinecure. Of course you are no Feinman, which you understand and respect, but you are also no T. Boone Pickens and that makes you upset! Isn't the heart of your "spiritual distress" not inequality, per se, but the fact that people are more interested in paying for commodities (and almost everything else) than paying for your studies? Aren't you just a 21st century "poor nobleman" fighting against the merchants for the honor of your class? Give us a break, Mark.

"This ideologically (and class and personal interest) motivated nit-picking does not detract one bit from Piketty’s simple, unarguable observation that since the Industrial revolution, return on capital has always exceeded growth, except in times of global war. The inescapable result of this is rising wealth concentration."

If rising walth concentration was an inescapable result from Picketty's unarguable observation then it would how course be empirically observable, no?

A great critique of Picketty's book by Xavier Sala-i-Martin yet in spanish, http://salaimartin.com/randomthoughts/item/720-piketty-y-capital-en-el-siglo-xxi.html

This was one of my favourite reviews. Thanks to capitalism, but after French tax, Piketty will be able to spend his windfall of big money from this book as he pleases, including a choice over something so "detestable" as leaving it as inheritance to his children. I tweeted highlights -



The problems with the data mean Piketty's arguments are not very good as economics, but do portend an illustrious future in climate science.

I'm not going to dig into how important these data errors are. It's odd of the FT to say they're comparable to the errors found in Reinhart's and Rogoff's spreadsheet, as those turned out to be miniscule.

The point made by the French writers about inequality rises coming down to asset valuation increases rather than to real capital growth is more important, but mainly for how it exposes Piketty's superficial, haphazard approach. The whole book is so riddled with confusions of terms and units it's hard to know where to start.

But none of that is very important compared to the bigger picture that the rising inequality we've been seeing within the United States and at least some other advanced economies has coincided with a huge reduction of global inequality driven by the rise of Asia and especially China. It's intellectually dishonest to analyze a US inequality problem that's mostly offshoring of jobs and shifting of job creation to Asia as if it were a domestic insular phenomenon unrelated to the reduced inequality between Asia and the US. Even within Europe you will obviously get very different results measuring the history of inequality within the Euro Area or the European Union, where the former communist countries are catching up with the West.

We are doomed to be ruled by heirs like Jobs, Buffet, Zuckerberg, Musk...In order to avoid that, we must get a stronger state so that either a Bush or a Clinton can deal with this problem...

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