No, not Picketty’s new book, but a Financial Times blockbuster report covering the integrity of Picketty’s data. In general I think little of Picketty’s economics, but if the Times is on track here, an actual junk science foundation will drop the Picketty book into the wastebasket of irrelevance. The New York Times summarizes here:
Simple data errors. In the Reinhart-Rogoff case, a simple math error in an Excel spreadsheet had a relatively small impact on their final result, but it generated an outsize share of the attention to a broader critique of their data.
Mr. Giles identifies a couple of places where Mr. Piketty’s spreadsheets include what appear to be incorrect numbers, pulling a number for share of wealth held by the top 1 percent in Sweden from 1908 instead of the 1920 level that was intended. These errors may be embarrassing — and easy to understand — but can also be inevitable when pulling thousands of data points together as part of a large study. It is not clear that they have a major impact on Mr. Piketty’s conclusion, though it would be unsurprising, based on the Reinhart-Rogoff experience, if they get significant attention.
Arbitrary or unexplained changes. Mr. Giles examined many of the formulas in Mr. Piketty’s spreadsheets and found unexplained modifications to some of the data points, for example adding two percentage points to the share of wealth held by the top 1 percent in the United States in 1970, and calculating the share of British wealth held by the top 10 percent in 1870 by adding seemingly arbitrary numbers to the share held by the top 1 percent.
Questionable methods to arrive at conclusions. Mr. Giles notes that Mr. Piketty arrives at estimates of European wealth inequality by averaging results for three countries where he has data, Britain, France, and Sweden, arguing that this is a poor way to weight because of Sweden’s much smaller population.
More significantly, Mr. Giles argues that Mr. Piketty constructed data where there is no cited source. For example, in data for the top 10 percent wealth share in the United States before 1950, “none of the sources Prof. Piketty uses contain these numbers, hence he assumes the top 10 percent wealth share is his estimate for the top 1 percent share plus 36 percentage points,” he wrote. “However, there is no explanation for this number, nor why it should stay constant over time.”
Mr. Giles also argues that Mr. Piketty combines different data sources arbitrarily, using surveys of households in the United States versus estate tax data for Britain, for example.
But does it matter? Mr. Giles attempts to reconstruct estimates of wealth inequality, correcting for what he describes as Mr. Piketty’s errors. He finds significantly less evidence of a rising disparity.
Speaking of Britain, for example, Mr. Giles writes, “There seems to be little consistent evidence of any upward trend in wealth inequality of the top 1 percent.” He further writes that if one incorporates the different British data into numbers for Europe as a whole, and weights by population instead of weighting Britain, France and Sweden equally, “there is no sign that wealth inequality in Europe is rising again.”
If you’re willing to fight for Main Street America, click here to sign up for my free weekly email.