

Piketty's Findings Undercut by Errors - wcgortel
http://www.ft.com/intl/cms/s/2/e1f343ca-e281-11e3-89fd-00144feabdc0.html#axzz32Z6vP0JO

======
thanatropism
In Piketty's credit, he did make this easy.

Providing data for reproducibility and replicability is relatively new in
economics.

There are, however, two kinds of claims here. One is that mistakes were made,
which is grounds for schadenfreude for those (like me!) who don't like the
slight jumps in reasoning from "inequality is rising" to "something must be
done about inequality" to "this is what must be done". For all I know, the key
injustice in modern economies is topocracy:

[https://encrypted.google.com/url?sa=t&rct=j&q=&esrc=s&source...](https://encrypted.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CCgQFjAA&url=http%3A%2F%2Fwww.nature.com%2Fsrep%2F2014%2F140121%2Fsrep03784%2Ffull%2Fsrep03784.html&ei=aZ1_U8GRK5TLsQSu9oGACg&usg=AFQjCNGi1Zdqk-6pvNbr3_4OOMyjkhEKJw&sig2=SMz95_tUcVbAei7bxXtxmg&bvm=bv.67720277,d.cWc)

But secondly, it is claimed that he cherry-picks. Economists (we) do that. A
lot. And it has to be called out.

~~~
greenyoda
_" But secondly, it is claimed that he cherry-picks. Economists (we) do that.
A lot. And it has to be called out."_

The total effect of his cherry picking can't even be discerned from this
article. With a lot more work (more than a single blogger probably has time
for), it might be shown to be much worse. For example, Piketty chose the U.K.,
France and Sweden for his list of European countries (averaging them all into
"Europe" without adjusting for their populations, as the article pointed out).
But why those particular countries? Would the results have been completely
different if he would have also included Germany, one of the wealthiest and
most populous European countries? We'll probably never know how he came up
with his set of countries, and whether he deliberately omitted other countries
whose data was available because they would have caused his results to be not
significant enough to publish (or even contradicted his thesis).

This reminded me a lot of one of the original studies linking cholesterol to
heart disease, which chose a carefully picked subset of European countries
even though results were available for several others. Subsequent research
showed that including the data from the missing countries would have yielded
very different results.

~~~
thanatropism
Related, useful concept:

[https://en.wikipedia.org/wiki/Simpson%27s_paradox](https://en.wikipedia.org/wiki/Simpson%27s_paradox)

See in particular the Berkeley Gender Bias case if you don't want to hack the
math apart.

The specific way you slice and dice data matters.

------
hkmurakami
Lawrence Summers' review/criticism of Piketty's tome is worth a read, even for
non Summers' fans (in general I mildly disfavor Summers, but I appreciated
this piece).

 _" Piketty’s timing may be impeccable, and his easily understandable but
slightly exotic accent perfectly suited to today’s media; but make no mistake,
his work richly deserves all the attention it is receiving. This is not to
say, however, that all of its conclusions will stand up to scholarly criticism
from his fellow economists in the short run or to the test of history in the
long run. Nor is it to suggest that his policy recommendations are either
realistic or close to complete as a menu for addressing inequality.

...

Books that represent the last word on a topic are important. Books that
represent one of the first words are even more important. By focusing
attention on what has happened to a fortunate few among us, and by opening up
for debate issues around the long-run functioning of our market system,
Capital in the Twenty-First Century has made a profoundly important
contribution."_

[http://www.democracyjournal.org/32/the-inequality-
puzzle.php...](http://www.democracyjournal.org/32/the-inequality-
puzzle.php?page=all)

~~~
001sky
The focus on the balance sheet and not just the P&L is important. Unless these
are incredibly flawed analyses--rather than minor nitpicks--the main
contributions seem to be seminal none-the-less.

------
zaroth
The more substantive article on ft.com is here: [http://blogs.ft.com/money-
supply/2014/05/23/data-problems-wi...](http://blogs.ft.com/money-
supply/2014/05/23/data-problems-with-capital-in-the-21st-century/)

This shows the actual errors, correcting for the errors, and the new results.

If you get an unauthorized popup, search on Google and click the top link:
[https://www.google.com/search?q=data-problems-with-
capital-i...](https://www.google.com/search?q=data-problems-with-capital-in-
the-21st-century)

~~~
Iv
Thanks a lot. It is annoying that we can't see Piketty's answer without this
popup.

I seriously hate the way this has been reported. No one seems to care about
the facts or numbers. All news seem to be "The commie was wrong!" without even
trying to explain what the criticism is about.

When I see the FT)reconstructed charts, I have a hard time accepting the
notion that his errors were significant. He himself explains that he tries to
track a quantity that is hidden from public view by using several indirect
indicators. It is doomed to be approximate, but I don't see anything like a
contradiction in this article. Just a mere correction.

------
jerryhuang100
FT's accusation sounds dubious.

For example, Giles claimed:

"Piketty appears to have added random numbers to certain formula to bend the
data toward his hypothesis." (from BI) and Giles: "A 2 is added because the
number wasn't high enough — it didn't seem to fit what he wanted to show in
his charts, so he just added 2 to it..." Source:
[http://static1.businessinsider.com/image/537fa370eab8ea427aa...](http://static1.businessinsider.com/image/537fa370eab8ea427aa0f9d8-517-334/screen%20shot%202014-05-23%20at%202.24.06%20pm.png)

First off, it's not a random number. That 2 is an estimation from the two
actual numbers from (Wolff 1994) Table 4. There was neither 1960 nor 1970
numbers available and only 1962 numbers (25.9% & 7.5%) available from the
original paper. Hence, for the difference of that 2 and 8 years, Piketty first
estimated the 1960 Top 1% wealth share number (31.4%) by (25.9 + 7.5 - 2).
Then, the 1970 number is calculated based on the 1960 number and the ratio of
"top 0.1% wealth share of 1960 and 1970, with the addition of that "2" which
just took off for the 1960 number (2+31.4*10.4/8.7). I would say "2" is
reasonable, even though it's arbitrary, to make the whole data series more
smooth. Of course someone could use other estimate number for that two years,
but it only makes the whole series more bizarre, and it does not change the
pattern of that data series.

Second, FT's own conclusion even shows the patterns are almost the same with
FT's claimed "correct" numbers or Piketty's. Piketty even pointed out other
researches from Saez and Zucman published after his book also confirms his
finding in the book.

All in all, FT just sounds like trying to sell more paper/subscription.

------
wcgortel
Posted links to piketty's response and more detailed explication of the issues
on my blog: [http://wcgortel.com/pikettys-
problem](http://wcgortel.com/pikettys-problem)

~~~
FreezerburnV
Can you get the data out of the website which has Piketty's response/a rundown
of the errors? The FT site is not letting people who are not registered read
those. And personally, I don't want to create another account just to read
that information. (I imagine a good number of people here are similar)

~~~
wcgortel
I just updated with a couple more grabs. I don't want to pull the full
article, but I added in the FT's long time series chart of income inequality
and conclusion though.

~~~
FreezerburnV
Thanks!

------
jgalt212
Slate has a good breakdown on this:

[http://www.slate.com/blogs/moneybox/2014/05/23/financial_tim...](http://www.slate.com/blogs/moneybox/2014/05/23/financial_times_on_piketty_his_data_is_wrong.html)

------
ForHackernews
If anyone is getting stopped by FT's registration page, you can log in as:

foo25@mailinator.com / Bugmenot

------
fiatjaf
There are a lot of problems, they have been pointed by economists on every
side of the spectrum right now, few months after the book has been published.
More errors will be pointed during the years, but all the criticisms will be
ignored, Piketty will be remembered as a genius for the time being and his
ideas will be teached in schools and universities as if they were the God's
words.

Just like happened with Keynes.

~~~
al2o3cr
Or with Reinhart & Rogoff, who made a "mistake" in Excel that helped push
disastrous austerity all over the world with a 90% debt-to-GDP cliff that
didn't actually exist...

~~~
fiatjaf
Reinhart & Rogoff are just technocrats that will be forgotten in two or three
years.

