Thomas Piketty speaks to the Department of Economics at the University of California, Berkeley on April 23, 2014. Photograph: Getty Images.
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That big Financial Times story on errors in Piketty's data is overrated

Piketty’s theory – right or wrong – is largely unaffected by these results.

Usually, the Friday afternoon before Memorial Day is the perfect time for a political news dump. The Financial Times used it to drop a major investigation into the data behind Thomas Piketty’s hit book, Capital in the Twenty-First Century. For those on Twitter who hadn’t left yet for vacation, it was the top story. “Not so fast with that Nobel,” Clive Crook tweeted. From Quartz economics writer Tim Fernholz: “This is big, if true: Piketty's data flawed?”

But the errors that the FT finds, while significant, do not materially change Piketty’s conclusions or disprove the economic theory behind his work. Chris Giles, the economics editor of the FT, reviewed Piketty’s data set and found multiple occasions where the French economist had miscopied numbers from one data set into his published spreadsheets. Piketty also averaged data for France, Sweden and Britain without making any population adjustments. Effectively, that makes every Swedish citizen carry the same weight as seven British and French citizens, according to Giles. In his spreadsheets, Piketty also makes adjustments to the numbers that seem arbitrary. “In the US data, Prof Piketty simply adds 2 percentage points to the top 1 per cent wealth share for his estimate of 1970,” Giles writes, providing a screenshot to prove it. It’s unclear what to make of these adjustments.

“[O]ne needs to make a number of adjustments to the raw data sources so as to make them more homogenous over time and across countries,” Piketty writes in a response posted to the Financial Times. “I have tried in the context of this book to make the most justified choices and arbitrages about data sources and adjustments.”

Piketty doesn’t specify these adjustments with his data sets and Giles points out other times where certain data do not have sources. Piketty should have done a better job explaining his adjustments and specifying his sources, but few economists in the world have been as open and transparent with their data as Piketty has been with his. It wouldn’t make much sense to distort the data and then release the incriminating evidence to the public. In addition, Scott Winship, an inequality scholar at the Manhattan Institute and frequent critic of Piketty, has used Piketty’s U.S. data extensively and understood all of his adjustments.

“Having looked at the U.S. inequality spreadsheet quite a bit, I definitely knew what he was doing in that spreadsheet,” Winship said.

But the data errors that Giles are found are real nonetheless. Do they materially change Piketty’s results? Giles thinks so: “The central theme of Prof Piketty’s work is that wealth inequalities are heading back up to levels last seen before the first world war. The investigation undercuts this claim, indicating there is little evidence in Prof Piketty’s original sources to bear out the thesis that an increasing share of total wealth is held by the richest few.” For Britain, this seems to be true, but it does not seem to bear itself out for France, Sweden or the United States, assuming more errors do not come to light.

 

Giles constructs alternate series using other sources of data to compare and improve upon Piketty’s work. For France and Sweden, Giles’s data is almost identical to Piketty’s:

Financial Times
Financial Times

The largest differences are for Britain, where wealth inequality for the top 1 percent and top 10 percent are considerably greater under Piketty’s original data:

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Financial Times

Finally, for the United States, Giles’s data show, at most, that wealth inequality stayed constant over the past few decades, while Piketty’s show a slight increase:

usa
Financial Times

It’s important to remember that wealth data is subject to significant error. For instance, economists do not agree how to factor capital gains into wealth data: Do you include capital gains as they accrue or only when they are realized? In addition, further back in time, the data becomes even more unreliable.

“These numbers are just imprecise to begin with. The numbers that Giles has come up with are imprecise,” Winship said. “Piketty’s original numbers were imprecise. Piketty probably, in places, talked about the numbers in a way that deemphasized the imprecision and I think it’s fair to whack him for that. But when I look at these charts, to me, if you imagine margin of errors around any of these data points, it sort of looks like nothing has changed much.”

Even if you believe that Giles’s findings dramatically change Piketty’s results, they have little bearing on his economic theory. Giles makes a passing comparison to economists Carmen Reinhart and Ken Rogoff (R&R), who drove a significant part of Republican austerity agenda, but saw their findings disproven in 2013. Liberals celebrated when Thomas Herndon, a graduate student from UMass Amherst, discovered a spreadsheet error in R&R’s results that invalidated their main finding. But unlike Piketty, Reinhart and Rogoff largely had no economic theory to ground their argument that national debt crises occur when a country’s debt level surpasses 90 percent of GDP. Once their data fell apart, their theory had no legs to stand on. On the other hand, Piketty fits data to this theory, but does not depend on it. Piketty’s theory—right or wrong—is largely unaffected by these results.

This piece originally appeared on the New Republic's website.

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Lord Empey: Northern Ireland likely to be without government for a year

The former UUP leader says Gerry Adams is now in "complete control" of Sinn Fein and no longer wants to be "trapped" by the Good Friday Agreement

The death of Martin McGuinness has made a devolution settlement in Northern Ireland even more unlikely and has left Gerry Adams in "complete control" of Sinn Fein, the former Ulster Unionist leader Reg Empey has said.

In a wide-ranging interview with the New Statesman on the day of McGuinness’ death, the UUP peer claimed his absence would leave a vacuum that would allow Adams, the Sinn Fein president, to consolidate his hold over the party and dictate the trajectory of the crucial negotiations to come. Sinn Fein have since pulled out of power-sharing talks, leaving Northern Ireland facing the prospect of direct rule from Westminster or a third election in the space of a year. 

Empey, who led the UUP between and 2005 and 2010 and was briefly acting first minister in 2001, went on to suggest that, “as things stand”, Northern Ireland is unlikely to see a return to fully devolved government before the inquiry into the Renewable Heat Incentive scheme is complete -  a process which could take up to a year to complete.

“Adams is now in complete control of Sinn Fein,” he said, adding that it remained unclear whether McGuinness’ successor Michelle O’Neill would be “allowed to plough an independent furrow”. “He has no equal within the organisation. He is in total command of Sinn Fein, and that is the way it is. I think he’s even more powerful today than he was before Martin died – by virtue of there just being nobody there.”

Asked what impact the passing of McGuinness, the former deputy first minister and leader of Sinn Fein in the north, would have on the chances of a devolution settlement, Empey, a member of the UUP’s Good Friday Agreement negotiating delegation, said: “I don’t think it’ll be positive – because, for all his faults, Martin was committed to making the institutions work. I don’t think Gerry Adams is as committed.

Empey added that he believed Adams did not want to work within the constitutional framework of the Good Friday Agreement. In a rebuke to nationalist claims that neither Northern Ireland secretary James Brokenshire nor Theresa May can act as honest or neutral brokers in power-sharing negotiations given their reliance on the DUP’s eight MPs, he said: “They’re not neutral. And they’re not supposed to be neutral.

“I don’t expect a prime minister or a secretary of state to be neutral. Brokenshire isn’t sitting wearing a hat with ostrich feathers – he’s not a governor, he’s a party politician who believes in the union. The language Sinn Fein uses makes it sound like they’re running a UN mandate... Gerry can go and shout at the British government all he likes. He doesn’t want to be trapped in the constitutional framework of the Belfast Agreement. He wants to move the debate outside those parameters, and he sees Brexit as a chance to mobilise opinion in the republic, and to be seen standing up for Irish interests.”

Empey went on to suggest that Adams, who he suggested exerted a “disruptive” influence on power-sharing talks, “might very well say” Sinn Fein were “’[taking a hard line] for Martin’s memory’” and added that he had been “hypocritical” in his approach.

“He’ll use all of that,” he said. “Republicans have always used people’s deaths to move the cause forward. The hunger strikers are the obvious example. They were effectively sacrificed to build up the base and energise people. But he still has to come to terms with the rest of us.”

Empey’s frank assessment of Sinn Fein’s likely approach to negotiations will cast yet more doubt on the prospect that devolved government might be salvaged before Monday’s deadline. Though he admitted Adams had demanded nothing unionists “should die in a ditch for”, he suggested neither party was likely to cede ground. “If Sinn Fein were to back down they would get hammered,” he said. “If Foster backs down the DUP would get hammered. So I think we’ve got ourselves a catch 22: they’ve both painted themselves into their respective corners.”

In addition, Empey accused DUP leader Arlene Foster of squandering the “dream scenario” unionist parties won at last year’s assembly election with a “disastrous” campaign, but added he did not believe she would resign despite repeated Sinn Fein demands for her to do so.

 “It’s very difficult to see how she’s turned that from being at the top of Mount Everest to being under five miles of water – because that’s where she is,” he said. “She no longer controls the institutions. Martin McGuinness effectively wrote her resignation letter for her. And it’s very difficult to see a way forward. The idea that she could stand down as first minister candidate and stay on as party leader is one option. But she could’ve done that for a few weeks before Christmas and we wouldn’t be here! She’s basically taken unionism from the top to the bottom – in less than a year”.

Though Foster has expressed regret over the tone of the DUP’s much-criticised election campaign and has been widely praised for her decision to attend Martin McGuinness’ funeral yesterday, she remains unlikely to step down, despite coded invitations for her to do so from several members of her own party.

The historically poor result for unionism she oversaw has led to calls from leading loyalists for the DUP and UUP – who lost 10 and eight seats respectively – to pursue a merger or electoral alliance, which Empey dismissed outright.

“The idea that you can weld all unionists together into a solid mass under a single leadership – I would struggle to see how that would actually work in practice. Can you cooperate at a certain level? I don’t doubt that that’s possible, especially with seats here. Trying to amalgamate everybody? I remain to be convinced that that should be the case.”

Accusing the DUP of having “led unionism into a valley”, and of “lashing out”, he added: “They’ll never absorb all of our votes. They can try as hard as they like, but they’d end up with fewer than they have now.”

Patrick Maguire writes about politics and is the 2016 winner of the Anthony Howard Award.