While Americans swooned over Thomas Piketty and his thesis about ever-rising inequality it has taken a Brit, the FT’s Chris Giles, to expose the corruptions in his data. What he has found – on the cover of today’s FT and in detail on a blog here – is shocking because the errors are so basic. And yet on this, Piketty has built a manifesto for all kinds of tax rises. It makes you wonder how his publisher, Harvard University Press, allowed such flaws to enter print.
Chris Giles’ report is worth reading in full, but here are a couple of examples should give you a flavour of what he has found. It started when he came across a fairly major mistake. As he says in his blog:
Piketty cited a figure showing the top 10 per cent of British people held 71 per cent of total national wealth. The Office for National Statistics latest Wealth and Assets Survey put the figure at only 44 per cent. This is a material difference and it prompted me to go back through Piketty’s sources.
As he started to go through the data, he spotted a number of striking anomalies. For example:-
“In [Piketty’s] UK data, instead of using his sources for figures on wealth of the top 10 per cent of the population during the 19th century, Prof Piketty inexplicably adds 26 percentage points to the wealth share of the top 1 per cent for 1870 and 28 percentage points for 1810.”
Then take Piketty’s estimates for inequality in modern Europe:-
“Piketty gives the same weight to Sweden as to France and the UK, even thought it has only one-seventh of the population… For Sweden, he uses data from 2004 to represent those from 2000, even though the source data include an estimate for 2000.”
Any sixthformer would know that you can’t average out results between a massive country and a tiny one. You need to produce a “weighted average,” a concept with which a GCSE maths student ought to be familiar, let alone an economics professor. Average figures for any European metric (i.e., health spending as a share of GDP) need to take account for such population variations.
And where on earth did Piketty get his UK data from? Chris Giles checked his sources, and found no relation between the source and what Piketty published.
“His original sources show consistently very large declines of close to 10 percentage points in wealth held by the rich in the highly inflationary 1970s. Conversely, Piketty shows the super-rich held a greater share of wealth by 1980….The official data series which he says he used for the UK after 1980 shows little increase in inequality over the next 30 years, while Prof Piketty’s figures show a steep rise.”
So where did this “steep rise” come from? The FT asked Piketty to respond, and printed his reply here. It dodges the question. “I have no doubt that my historical data series will be improved in the future,” he says – but we’re not talking about ‘improving’ methodology. We’re talking about simple errors, and seemingly groundless claim of rising inequality in Britain. Where on earth did he get an actual data series purporting to show a steep rise in UK inequality after 1980?
As Chris Giles says, if you run the correct figures – a tiresome, but fairly basic exercise – then Piketty’s thesis collapses.
Two of [Piketty’s] central findings – that wealth inequality has begun to rise over the past 30 years and that the US obviously has a more unequal distribution of wealth than Europe – no longer seem to hold. Without these results, it would be impossible to claim, as Piketty does in his conclusion, that “the central contradiction of capitalism” is the tendency for wealth to become more concentrated in the hands of the already rich.
Chris Giles has pulled the thread of data, and Piketty’s whole book seems to be unravelling. Which raises another question: did anyone actually fact-check Piketty’s data? Mistakes can creep into data, and I agree with Piketty that inequality is a problem that official data does not fully record. But you can’t just add 2 to a data series (as Chris Giles shows us in the above video) then present this as honest economics. It is editorialised data, which isn’t really economics.
In basing his book on editorialised data, Piketty now looks like an economist who has been behaving like a journalist. He has been rumbled by a journalist, who has been behaving like an economist.
The points Chris Giles so powerfully makes ought to have been picked up by any serious peer review process. BBC Newsnight picked up on this (iPlayer, 28 mins in). (It had a new guest presenter, who looked familiar, below.) This story ought to run. I didn’t think Paul Krugman would respond to the FT, but he has done so here). Why has it taken so long to Fisk? Perhaps the idea of one’s instincts being proving empirically correct is rather intoxicating, which partly explains the success of his book. Perhaps Piketty gave the left intelligentsia a story which (as tabloid hacks say) was “too good to check”.
But what about Harvard University Press? Piketty’s publisher there, Ian Malcolm, is interviewed here. From the sounds of it, he just reprinted the French version without applying the checks and balances that you’d hope would be applied to a Harvard economics book. He says how much money Piketty has made his company, and concluded by saying:
“As long as there is bullshit and inequality, we won’t go out of business.”