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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Find the EU renegotiation demands dull? Me too – but they are important

It's an old trick: smother anything in enough jargon and you can avoid being held accountable for it.

I don’t know about you, but I found the details of Britain’s European Union renegotiation demands quite hard to read. Literally. My eye kept gliding past them, in an endless quest for something more interesting in the paragraph ahead. It was as if the word “subsidiarity” had been smeared in grease. I haven’t felt tedium quite like this since I read The Lord of the Rings and found I slid straight past anything written in italics, reasoning that it was probably another interminable Elvish poem. (“The wind was in his flowing hair/The foam about him shone;/Afar they saw him strong and fair/Go riding like a swan.”)

Anyone who writes about politics encounters this; I call it Subclause Syndrome. Smother anything in enough jargon, whirr enough footnotes into the air, and you have a very effective shield for protecting yourself from accountability – better even than gutting the Freedom of Information laws, although the government seems quite keen on that, too. No wonder so much of our political conversation ends up being about personality: if we can’t hope to master all the technicalities, the next best thing is to trust the person to whom we have delegated that job.

Anyway, after 15 cups of coffee, three ice-bucket challenges and a bottle of poppers I borrowed from a Tory MP, I finally made it through. I didn’t feel much more enlightened, though, because there were notable omissions – no mention, thankfully, of rolling back employment protections – and elsewhere there was a touching faith in the power of adding “language” to official documents.

One thing did stand out, however. For months, we have been told that it is a terrible problem that migrants from Europe are sending child benefit to their families back home. In future, the amount that can be claimed will start at zero and it will reach full whack only after four years of working in Britain. Even better, to reduce the alleged “pull factor” of our generous in-work benefits regime, the child benefit rate will be paid on a ratio calculated according to average wages in the home country.

What a waste of time. At the moment, only £30m in child benefit is sent out of the country each year: quite a large sum if you’re doing a whip round for a retirement gift for a colleague, but basically a rounding error in the Department for Work and Pensions budget.

Only 20,000 workers, and 34,000 children, are involved. And yet, apparently, this makes it worth introducing 28 different rates of child benefit to be administered by the DWP. We are given to understand that Iain Duncan Smith thinks this is barmy – and this is a man optimistic enough about his department’s computer systems to predict in 2013 that 4.46 million people would be claiming Universal Credit by now*.

David Cameron’s renegotiation package was comprised exclusively of what Doctor Who fans call handwavium – a magic substance with no obvious physical attributes, which nonetheless helpfully advances the plot. In this case, the renegotiation covers up the fact that the Prime Minister always wanted to argue to stay in Europe, but needed a handy fig leaf to do so.

Brace yourself for a sentence you might not read again in the New Statesman, but this makes me feel sorry for Chris Grayling. He and other Outers in the cabinet have to wait at least two weeks for Cameron to get the demands signed off; all the while, Cameron can subtly make the case for staying in Europe, while they are bound to keep quiet because of collective responsibility.

When that stricture lifts, the high-ranking Eurosceptics will at last be free to make the case they have been sitting on for years. I have three strong beliefs about what will happen next. First, that everyone confidently predicting a paralysing civil war in the Tory ranks is doing so more in hope than expectation. Some on the left feel that if Labour is going to be divided over Trident, it is only fair that the Tories be split down the middle, too. They forget that power, and patronage, are strong solvents: there has already been much muttering about low-level blackmail from the high command, with MPs warned about the dire influence of disloyalty on their career prospects.

Second, the Europe campaign will feature large doses of both sides solemnly advising the other that they need to make “a positive case”. This will be roundly ignored. The Remain team will run a fear campaign based on job losses, access to the single market and “losing our seat at the table”; Leave will run a fear campaign based on the steady advance of whatever collective noun for migrants sounds just the right side of racist. (Current favourite: “hordes”.)

Third, the number of Britons making a decision based on a complete understanding of the renegotiation, and the future terms of our membership, will be vanishingly small. It is simply impossible to read about subsidiarity for more than an hour without lapsing into a coma.

Yet, funnily enough, this isn’t necessarily a bad thing. Just as the absurd complexity of policy frees us to talk instead about character, so the onset of Subclause Syndrome in the EU debate will allow us to ask ourselves a more profound, defining question: what kind of country do we want Britain to be? Polling suggests that very few of us see ourselves as “European” rather than Scottish, or British, but are we a country that feels open and looks outwards, or one that thinks this is the best it’s going to get, and we need to protect what we have? That’s more vital than any subclause. l

* For those of you keeping score at home, Universal Credit is now allegedly going to be implemented by 2021. Incidentally, George Osborne has recently discovered that it’s a great source of handwavium; tax credit cuts have been postponed because UC will render such huge savings that they aren’t needed.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle