5 ms·

Is Piketty All Wrong?

62 points by lkrubner 12y ago

enraged_camel 12y ago
The Giles quote provided by Krugman is illustrative of his agenda -- or his delusion: >>The exact level of European inequality in the last fifty years is impossible to determine, as it depends on the sources one uses. However, whichever level one picks, the lines in red in the graph show that – unlike what Prof. Piketty claims – wealth concentration among the richest people has been pretty stable for 50 years in both Europe and the US. >>There is no obvious upward trend. The conclusions of Capital in the 21st century do not appear to be backed by the book’s own sources. Of course the upper class wants you to believe that wealth inequality has not been increasing. Of course they want you to believe that things are fine and dandy. They want you to believe these things because they don't want their wealth taken away, either via taxes or via revolutions. And Giles is simply their mouthpiece. Like Krugman, I'm looking forward to Piketty's defense. But I doubt the errors are anywhere enough to overturn his conclusions.
- deleted 12y ago
  [deleted]
  - deleted 12y ago
    [deleted]
  - jchrisa 12y ago
    It's also a structural argument. I'm trying to think how to rephrase. Maybe the first question to ask is: are there enough wealthy powerful people who look after their own selfish interests in the political sphere, to tilt the playing field in their favor, or are they offset (or more than offset) by other folks trying to tilt the playing field in favor of the 99%? It's also possible to argue about whether the field can be tilted (or which fields are worth tilting). (Edit) parent was calling out enraged_camel's comment as as-hominem which I can see what it was saying but it's sort of the crux of the discussion so...
- panarky 12y ago
  Piketty definitely needs to respond thoroughly to the errors that Giles found, and Piketty's response so far is too flippant and superficial. This is serious stuff and it deserves a serious response. That said, those who don't want to talk about inequality are prematurely jettisoning Piketty's conclusions. A very simple way to measure inequality is the ratio of the wealth of the top quintile to the middle quintile. It's easy to see how this ratio escalated over the last 25 years. http://houseofdebt.org/2014/05/24/piketty-and-u-s-wealth-inequality.html http://houseofdebt.org/2014/05/24/piketty-and-u-s-wealth-ine... Spreadsheet errors notwithstanding, the inequality story is not going away.
  - AnthonyMouse 12y ago
    The trouble is that the inequality story is a complete mischaracterization of the problem and it's very misleading about what the prospective solutions are. It leads people to believe that the issue is with John McCain owning houses across multiple states, when the actual problem is with the Koch Brothers owning Senators across multiple states. And what's the solution? Everybody says "tax the rich." The problem is that income taxes doesn't cause their wealth to decrease, they at best cause it to increase less rapidly. In practice they do nothing (or worse than nothing) because the biggest companies don't pay them anyway, and it creates a large competitive disadvantage for companies not large enough to engage in international tax avoidance, which makes the problem even worse. Meanwhile any money you manage to raise you can't spend until you first fight against a bunch of "domestic companies creating American jobs" who want to use it to fund Deep Water Horizon 2.0 or studies denying climate change or supply attack helicopters to the North Dakota state police, because aforementioned billionaires still have a thousand times more money than you with which to lobby Congress. The only way to fix any of it is to shut down K Street. Obviously that's a chicken and egg problem, because K Street is in a good position to protect itself, but if that's not your end game then you might as well stay home.
    - alexeisadeski3 12y ago
      The only solution is to take power out of the hands of politicians. Get rid of K Street and something worse will take its place. Get rid of Congresses ability to regulate every detail of the economy and K Street will have a lot less to lobby for.
- briandh 12y ago
  > And Giles is simply their mouthpiece. You may want to insert an "unwitting" in front of "mouthpiece" (assuming that's what you meant); otherwise, you're making a pretty serious claim, and need to back it up.
  - cam_l 12y ago
    The rule of thumb I use in situations like this is an aphorism I heard a while back (by some mathematician) which basically said that the best description of any system is its results. I find it extremely helpful in these sorts of situations to judge the system, not the particular actors within it, or the mixture of rationality, conspiracy, stupidity, or dumb luck which is employed to create it. It seems he is making a far bigger leap in discounting Picketty's thesis, with the information we have at hand, than Picketty was in creating it. So it doesn't matter whether Giles is unwitting or not (except perhaps from his own point of view) he is acting as a mouthpiece.
thrownaway2424 12y ago
The nice thing about Piketty is all his data is right out in the open, on the web, and not behind some kind of crazy academic journal paywall type of thing. You don't have to take him or his detractors at face value for anything.
- jshen 12y ago
  exactly, and those that disagree should crunch the data how they see fit and put it out there for others to critique. Their current response reminds me of the behavior of the intelligent design movement. They try to argue over lot's of little details, "there is a gap in this fossil record, the eye is too complex to have evolved, etc". What they don't do is put forward their own point of view that accounts for the data we have.
  - yummyfajitas 12y ago
    The fact that no alternate theory exists does not make Piketty's "theory" correct. This is true even if you hint that anyone who disagrees is Worse Than Hitler (TM). Not that Piketty really has a theory - all he has is a big data dump. If you disagree, can you concisely state what his theory actually is?
    - 001sky 12y ago
      Picketty has going for him he is looking in the right places. He's "barking up the right tree". Small data errors are like correcting a dog for poor syntax. The question for the dog is: are you barking up the right tree or the wrong one? If "the william shakespeare of dogs" himeself was 3 miles away srpouting out elizbethan sonnet-equivalent barks up the wrong tree...the verdict would still be the same. The first dog can hunt and the second cannot--the imperfection of the communication doesn't undermine the underlying correctness (in tree-selection). The grammer-nazi type questions only matter insofar as they undermine the materiality of the analysis. What's important about picketty--notwithstanding the hype--is he's looking at balance-sheets not P&Ls. That is to say, he's barking up a different tree (than income obsessed economists). Probably the right tree--nobody would "analyse" the performance of a company without a blance sheet--for the task at hand. But most macro-econ guys cannot link up the GDP equivalent to a balance sheet (they lack the data), and thus totally ignore everything a blance sheet would tell us about ROIC (eg: linkages of C & I). That is a huge "material mistake". And one that is not done or undone by general quality of the communication (eg: a typo in the maths, or a debate over "accounting adjustments")--provided those are not so massive as to be materially misleading.
conistonwater 12y ago
Piketty's response: http://blogs.ft.com/money-supply/2014/05/23/piketty-response-to-ft-data-concerns/ http://blogs.ft.com/money-supply/2014/05/23/piketty-response... Note that, as mentioned in the comments there, it's not clear whether FT gave Piketty Giles's specific points to respond to. The response was written before the column was published. Previous discussion on HN: https://news.ycombinator.com/item?id=7793609 https://news.ycombinator.com/item?id=7793609
yummyfajitas 12y ago
Krugman is all wrong: Giles: unlike what Prof. Piketty claims – wealth concentration among the richest people has been pretty stable for 50 years in both Europe and the US. Krugman: Take, for example, the landmark CBO study on the distribution of income;" Krugman then shows some graphs about capital income (which is not the same thing as wealth) which don't clearly demonstrate any change among the richest people. This is fairly typical Krugman, but I hope HN readers are smart enough not to be duped by this.
- deleted 12y ago
  [deleted]
- IvyMike 12y ago
  How do you respond to Krugman's next sentence? > It’s just not plausible that this increase in the concentration of income from capital doesn’t reflect a more or less comparable increase in the concentration of capital itself. Also, given that he has this sentence, I don't think Krugman is trying to deceptively confuse capital income and wealth. Also, the report that Krugman links to ( http://www.cbo.gov/publication/42729 http://www.cbo.gov/publication/42729 ) seems to show a significant change (yes, in income not wealth) among the top 1%, which does seem to be a change "among the richest people". How am I misinterpreting this report?
  - yummyfajitas 12y ago
    It is highly plausible. If capital income is increasingly coming from sales of homes, it will become lumpier (in time) and inequality will go up. I.e. if 100 people own identical houses but only 1 person sells in a given year, wealth is perfectly equal but capital income inequality is huge.
    - peter-row 12y ago
      No, it won't. Unless the economists have seriously screwed up, then capital gains will be done on an accrual basis - 100 people will all be gaining income from their homes.
alexeisadeski3 12y ago
Probably: http://marginalrevolution.com/marginalrevolution/2014/05/what-do-the-piketty-data-problems-really-mean.html http://marginalrevolution.com/marginalrevolution/2014/05/wha...
galo2099 12y ago
http://en.wikipedia.org/wiki/Betteridge's_law_of_headlines http://en.wikipedia.org/wiki/Betteridge's_law_of_headlines
jerryhuang100 12y ago
TL;DR: FT used some GB data that even the original agency HMRC no longer used after methodology change. For the "Wealth Inequality in Britain 1810-2010" data, FT 'argues that Piketty’s graphs simply “do not match” his underlying data on the UK, and that official estimates show no significant increase in the country’s concentration of wealth since the 1970s.' (From: http://www.slate.com/blogs/moneybox/2014/05/23/financial_times_on_piketty_his_data_is_wrong.html http://www.slate.com/blogs/moneybox/2014/05/23/financial_tim...) FT's Giles then used the following data to rebuke Piketty's "overestimation" of the top 1% & 10% wealth share, as noted in Giles' Excel sheet (not in the text): "Data comes from Inland Revenue tables. They are accurately transcribed. http://webarchive.nationalarchives.gov.uk/20120403124426/http://www.hmrc.gov.uk/stats/personal_wealth/13-5-table-2005.pdf" http://webarchive.nationalarchives.gov.uk/20120403124426/htt... Excel: http://interactive.ftdata.co.uk/files/docs/FTPikettyspreadsheet22May2014.xlsx http://interactive.ftdata.co.uk/files/docs/FTPikettyspreadsh... The only problem I have is that the "13-5-table-2005.pdf" is a table before HMRC made major change to the methodology and its historical tables: http://webarchive.nationalarchives.gov.uk/20120403124426/http://www.hmrc.gov.uk/stats/personal_wealth/menu.htm http://webarchive.nationalarchives.gov.uk/20120403124426/htt... HMRC concluded with "... we would no longer be able to produce the marketable wealth series used in tables 13.3 and 13.4", which the table 13.5 relied on. And those historical tables (prior 2001) never exist again in the following years. By the way, HMRC Personal Wealth data only covers partial estates: "For 2001 to 2003 this covers 35% of estates and for 2005 to 2007, 34% and for 2008-10, 31%."

62 points by lkrubner 12y ago

The Giles quote provided by Krugman is illustrative of his agenda -- or his delusion: >>The exact level of European inequality in the last fifty years is impossible to determine, as it depends on the sources one uses. However, whichever level one picks, the lines in red in the graph show that – unlike what Prof. Piketty claims – wealth concentration among the richest people has been pretty stable for 50 years in both Europe and the US. >>There is no obvious upward trend. The conclusions of Capital in the 21st century do not appear to be backed by the book’s own sources. Of course the upper class wants you to believe that wealth inequality has not been increasing. Of course they want you to believe that things are fine and dandy. They want you to believe these things because they don't want their wealth taken away, either via taxes or via revolutions. And Giles is simply their mouthpiece. Like Krugman, I'm looking forward to Piketty's defense. But I doubt the errors are anywhere enough to overturn his conclusions.

deleted 12y ago
[deleted]
- deleted 12y ago
  [deleted]
- jchrisa 12y ago
  It's also a structural argument. I'm trying to think how to rephrase. Maybe the first question to ask is: are there enough wealthy powerful people who look after their own selfish interests in the political sphere, to tilt the playing field in their favor, or are they offset (or more than offset) by other folks trying to tilt the playing field in favor of the 99%? It's also possible to argue about whether the field can be tilted (or which fields are worth tilting). (Edit) parent was calling out enraged_camel's comment as as-hominem which I can see what it was saying but it's sort of the crux of the discussion so...
panarky 12y ago
Piketty definitely needs to respond thoroughly to the errors that Giles found, and Piketty's response so far is too flippant and superficial. This is serious stuff and it deserves a serious response. That said, those who don't want to talk about inequality are prematurely jettisoning Piketty's conclusions. A very simple way to measure inequality is the ratio of the wealth of the top quintile to the middle quintile. It's easy to see how this ratio escalated over the last 25 years. http://houseofdebt.org/2014/05/24/piketty-and-u-s-wealth-inequality.html http://houseofdebt.org/2014/05/24/piketty-and-u-s-wealth-ine... Spreadsheet errors notwithstanding, the inequality story is not going away.
- AnthonyMouse 12y ago
  The trouble is that the inequality story is a complete mischaracterization of the problem and it's very misleading about what the prospective solutions are. It leads people to believe that the issue is with John McCain owning houses across multiple states, when the actual problem is with the Koch Brothers owning Senators across multiple states. And what's the solution? Everybody says "tax the rich." The problem is that income taxes doesn't cause their wealth to decrease, they at best cause it to increase less rapidly. In practice they do nothing (or worse than nothing) because the biggest companies don't pay them anyway, and it creates a large competitive disadvantage for companies not large enough to engage in international tax avoidance, which makes the problem even worse. Meanwhile any money you manage to raise you can't spend until you first fight against a bunch of "domestic companies creating American jobs" who want to use it to fund Deep Water Horizon 2.0 or studies denying climate change or supply attack helicopters to the North Dakota state police, because aforementioned billionaires still have a thousand times more money than you with which to lobby Congress. The only way to fix any of it is to shut down K Street. Obviously that's a chicken and egg problem, because K Street is in a good position to protect itself, but if that's not your end game then you might as well stay home.
  - alexeisadeski3 12y ago
    The only solution is to take power out of the hands of politicians. Get rid of K Street and something worse will take its place. Get rid of Congresses ability to regulate every detail of the economy and K Street will have a lot less to lobby for.
briandh 12y ago
> And Giles is simply their mouthpiece. You may want to insert an "unwitting" in front of "mouthpiece" (assuming that's what you meant); otherwise, you're making a pretty serious claim, and need to back it up.
- cam_l 12y ago
  The rule of thumb I use in situations like this is an aphorism I heard a while back (by some mathematician) which basically said that the best description of any system is its results. I find it extremely helpful in these sorts of situations to judge the system, not the particular actors within it, or the mixture of rationality, conspiracy, stupidity, or dumb luck which is employed to create it. It seems he is making a far bigger leap in discounting Picketty's thesis, with the information we have at hand, than Picketty was in creating it. So it doesn't matter whether Giles is unwitting or not (except perhaps from his own point of view) he is acting as a mouthpiece.

thrownaway2424 12y ago

The nice thing about Piketty is all his data is right out in the open, on the web, and not behind some kind of crazy academic journal paywall type of thing. You don't have to take him or his detractors at face value for anything.

jshen 12y ago
exactly, and those that disagree should crunch the data how they see fit and put it out there for others to critique. Their current response reminds me of the behavior of the intelligent design movement. They try to argue over lot's of little details, "there is a gap in this fossil record, the eye is too complex to have evolved, etc". What they don't do is put forward their own point of view that accounts for the data we have.
- yummyfajitas 12y ago
  The fact that no alternate theory exists does not make Piketty's "theory" correct. This is true even if you hint that anyone who disagrees is Worse Than Hitler (TM). Not that Piketty really has a theory - all he has is a big data dump. If you disagree, can you concisely state what his theory actually is?
  - 001sky 12y ago
    Picketty has going for him he is looking in the right places. He's "barking up the right tree". Small data errors are like correcting a dog for poor syntax. The question for the dog is: are you barking up the right tree or the wrong one? If "the william shakespeare of dogs" himeself was 3 miles away srpouting out elizbethan sonnet-equivalent barks up the wrong tree...the verdict would still be the same. The first dog can hunt and the second cannot--the imperfection of the communication doesn't undermine the underlying correctness (in tree-selection). The grammer-nazi type questions only matter insofar as they undermine the materiality of the analysis. What's important about picketty--notwithstanding the hype--is he's looking at balance-sheets not P&Ls. That is to say, he's barking up a different tree (than income obsessed economists). Probably the right tree--nobody would "analyse" the performance of a company without a blance sheet--for the task at hand. But most macro-econ guys cannot link up the GDP equivalent to a balance sheet (they lack the data), and thus totally ignore everything a blance sheet would tell us about ROIC (eg: linkages of C & I). That is a huge "material mistake". And one that is not done or undone by general quality of the communication (eg: a typo in the maths, or a debate over "accounting adjustments")--provided those are not so massive as to be materially misleading.

conistonwater 12y ago

Piketty's response: http://blogs.ft.com/money-supply/2014/05/23/piketty-response-to-ft-data-concerns/ http://blogs.ft.com/money-supply/2014/05/23/piketty-response... Note that, as mentioned in the comments there, it's not clear whether FT gave Piketty Giles's specific points to respond to. The response was written before the column was published. Previous discussion on HN: https://news.ycombinator.com/item?id=7793609 https://news.ycombinator.com/item?id=7793609

yummyfajitas 12y ago

Krugman is all wrong: Giles: unlike what Prof. Piketty claims – wealth concentration among the richest people has been pretty stable for 50 years in both Europe and the US. Krugman: Take, for example, the landmark CBO study on the distribution of income;" Krugman then shows some graphs about capital income (which is not the same thing as wealth) which don't clearly demonstrate any change among the richest people. This is fairly typical Krugman, but I hope HN readers are smart enough not to be duped by this.

deleted 12y ago
[deleted]
IvyMike 12y ago
How do you respond to Krugman's next sentence? > It’s just not plausible that this increase in the concentration of income from capital doesn’t reflect a more or less comparable increase in the concentration of capital itself. Also, given that he has this sentence, I don't think Krugman is trying to deceptively confuse capital income and wealth. Also, the report that Krugman links to ( http://www.cbo.gov/publication/42729 http://www.cbo.gov/publication/42729 ) seems to show a significant change (yes, in income not wealth) among the top 1%, which does seem to be a change "among the richest people". How am I misinterpreting this report?
- yummyfajitas 12y ago
  It is highly plausible. If capital income is increasingly coming from sales of homes, it will become lumpier (in time) and inequality will go up. I.e. if 100 people own identical houses but only 1 person sells in a given year, wealth is perfectly equal but capital income inequality is huge.
  - peter-row 12y ago
    No, it won't. Unless the economists have seriously screwed up, then capital gains will be done on an accrual basis - 100 people will all be gaining income from their homes.

alexeisadeski3 12y ago

Probably: http://marginalrevolution.com/marginalrevolution/2014/05/what-do-the-piketty-data-problems-really-mean.html http://marginalrevolution.com/marginalrevolution/2014/05/wha...

galo2099 12y ago

http://en.wikipedia.org/wiki/Betteridge's_law_of_headlines http://en.wikipedia.org/wiki/Betteridge's_law_of_headlines

jerryhuang100 12y ago

TL;DR: FT used some GB data that even the original agency HMRC no longer used after methodology change. For the "Wealth Inequality in Britain 1810-2010" data, FT 'argues that Piketty’s graphs simply “do not match” his underlying data on the UK, and that official estimates show no significant increase in the country’s concentration of wealth since the 1970s.' (From: http://www.slate.com/blogs/moneybox/2014/05/23/financial_times_on_piketty_his_data_is_wrong.html http://www.slate.com/blogs/moneybox/2014/05/23/financial_tim...) FT's Giles then used the following data to rebuke Piketty's "overestimation" of the top 1% & 10% wealth share, as noted in Giles' Excel sheet (not in the text): "Data comes from Inland Revenue tables. They are accurately transcribed. http://webarchive.nationalarchives.gov.uk/20120403124426/http://www.hmrc.gov.uk/stats/personal_wealth/13-5-table-2005.pdf" http://webarchive.nationalarchives.gov.uk/20120403124426/htt... Excel: http://interactive.ftdata.co.uk/files/docs/FTPikettyspreadsheet22May2014.xlsx http://interactive.ftdata.co.uk/files/docs/FTPikettyspreadsh... The only problem I have is that the "13-5-table-2005.pdf" is a table before HMRC made major change to the methodology and its historical tables: http://webarchive.nationalarchives.gov.uk/20120403124426/http://www.hmrc.gov.uk/stats/personal_wealth/menu.htm http://webarchive.nationalarchives.gov.uk/20120403124426/htt... HMRC concluded with "... we would no longer be able to produce the marketable wealth series used in tables 13.3 and 13.4", which the table 13.5 relied on. And those historical tables (prior 2001) never exist again in the following years. By the way, HMRC Personal Wealth data only covers partial estates: "For 2001 to 2003 this covers 35% of estates and for 2005 to 2007, 34% and for 2008-10, 31%."