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:

britain
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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An unmatched font of knowledge

Edinburgh’s global reputation as a knowledge economy is rooted in the performance and international outlook of its four universities.

As sociologist-turned US Senator Daniel Patrick Moynihan recognised when asked how to create a world-class city, a strong academic offering is pivotal to any forward-looking, ambitious city. “Build a university,” he said, “and wait 200 years.” He recognised the long-term return such an investment can deliver; how a renowned academic institution can help attract the world. However, in today’s increasingly globalised higher education sector, world-class universities no longer rely on the world coming to come to them – their outlook is increasingly international.

Boasting four world-class universities, Edinburgh not only attracts and retains students from around the world, but also increasingly exports its own distinctively Scottish brand of academic excellence. In fact, 53.9% of the city’s working age population is educated to degree level.

In the most recent QS World University Rankings, the University of Edinburgh was named as the 21st best university in the world, reflecting its reputation for research and teaching. It’s a fact reflected in the latest UK Research Exercise Framework (REF), conducted in 2014, which judged 96% of its academic departments to be producing world-leading research.

Innovation engine

Measured across the UK, annual Gross Value Added (GVA) by University of Edinburgh start-ups contributes more than £164m to the UK economy. In fact, of 262 companies to emerge from the university since the 1960s, 81% remain active today, employing more than 2,700 staff globally. That performance places the University of Edinburgh ahead of institutions such as MIT in terms of the number of start-ups it generates; an innovation hothouse that underlines why one in four graduates remain in Edinburgh and why blue chip brands such as Amazon, IBM and Microsoft all have R&D facilities in the city.

One such spin out making its mark is PureLiFi, founded by Professor Harald Haas to commercialise his groundbreaking research on data transmission using the visible light spectrum. With data transfer speeds 10,000 times faster than radio waves, LiFi not only enables bandwidths of 1 Gigabit/sec but is also far more secure.

Edinburgh’s universities play a pivotal role in the local economy. Through its core operations, knowledge transfer activities and world-class research the University generated £4.9bn in GVA and 44,500 jobs globally, when accounting for international alumni.

With £1.4bn earmarked for estate development over the next 10 years, the University of Edinburgh remains the city’s largest property developer. Its extensive programme of investment includes the soon-to-open Higgs Centre for Innovation. A partnership with the UK Astronomy Technology Centre, the new centre will open next year and will supply business incubation support for potential big data and space technology applications, enabling start-ups to realise the commercial potential of applied research in subjects such as particle physics.

It’s a story of innovation that is mirrored across Edinburgh’s academic landscape. Each university has carved its own areas of academic excellence and research expertise, such as the University of Edinburgh’s renowned School of Informatics, ranked among the world’s elite institutions for Computer Science. 

The future of energy

Research conducted into the economic impact of Heriot-Watt University demonstrated that it generates £278m in annual GVA for the Scottish economy and directly supports more than 6,000 jobs.

Set in 380-acres of picturesque parkland, Heriot-Watt University incorporates the Edinburgh Research Park, the first science park of its kind in the UK and now home to more than 40 companies.

Consistently ranked in the top 25% of UK universities, Heriot-Watt University enjoys an increasingly international reputation underpinned by a strong track record in research. 82% of the institution’s research is considered world-class (REF) – a fact reflected in a record breaking year for the university, attracting £40.6m in research funding in 2015. With an expanding campus in Dubai and last year’s opening of a £35m campus in Malaysia, Heriot-Watt is now among the UK’s top five universities in terms of international presence and numbers of international students.

"In 2015, Heriot-Watt University was ranked 34th overall in the QS ‘Top 50 under 50’ world rankings." 

Its established strengths in industry-related research will be further boosted with the imminent opening of the £20m Lyell Centre. It will become the Scottish headquarters of the British Geological Survey, and research will focus on global issues such as energy supply, environmental impact and climate change. As well as providing laboratory facilities, the new centre will feature a 50,000 litre climate change research aquarium, the UK Natural Environment Research Council Centre for Doctoral Training (CDT) in Oil and Gas, and the Shell Centre for Exploration Geoscience.

International appeal

An increasingly global outlook, supported by a bold international strategy, is helping to drive Edinburgh Napier University’s growth. The university now has more than 4,500 students studying its overseas programmes, through partnerships with institutions in Hong Kong, Singapore, China, Sri Lanka and India.

Edinburgh Napier has been present in Hong Kong for more than 20 years and its impact grows year-on-year. Already the UK’s largest higher education provider in the territory, more than 1,500 students graduated in 2015 alone.

In terms of world-leading research, Edinburgh Napier continues to make its mark, with the REF judging 54% of its research to be either world-class or internationally excellent in 2014. The assessment singled out particular strengths in Earth Systems and Environmental Sciences, where it was rated the top UK modern university for research impact. Taking into account research, knowledge exchange, as well as student and staff spending, Edinburgh Napier University generates in excess of £201.9m GVA and supports 2,897 jobs in the city economy.

On the south-east side of Edinburgh, Queen Margaret University is Scotland’s first university to have an on-campus Business Gateway, highlighting the emphasis placed on business creation and innovation.

QMU moved up 49 places overall in the 2014 REF, taking it to 80th place in The Times’ rankings for research excellence in the UK. The Framework scored 58% of Queen Margaret’s research as either world-leading or internationally excellent, especially in relation to Speech and Language Sciences, where the University is ranked 2nd in the UK.

In terms of its international appeal, one in five of Queen Margaret’s students now comes from outside the EU, and it is also expanding its overseas programme offer, which already sees courses delivered in Greece, India, Nepal, Saudi Arabia and Singapore.

With 820 years of collective academic excellence to export to the world, Edinburgh enjoys a truly privileged position in the evolving story of academic globalisation and the commercialisation of world-class research and innovation. If he were still around today, Senator Moynihan would no doubt agree – a world-class city indeed.

For further information www.investinedinburgh.com