The Piketty Affair
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What is the main topic discussed in this episode?
Thank you for downloading More or Less from the BBC. This is the version first broadcast on Radio 4. Here's Tim Harford. Hello and welcome to More or Less, your weekly hot date with data. This week, are we building too few houses because the country's covered with golf courses? Should video games get the blame for murders and suicides? Racism is on the rise, or is it? And More or Less founder Michael Blastland gives us the first law of numbers. The first law of numbers is... But first, this week the world of economics has been abuzz with claims that one of their own has got his numbers wrong. And it's no ordinary economist. He's the rock star French economist whose book Capital in the 21st Century... Reviewers have called it a bulldozer of a book, magisterium, seminal, definitive, a watershed.
The man who's managed to unite the words rock star and economist in the same sentence is Thomas Piketty. He's a French professor whose vast tome, Capital in the 21st Century, has combined lots of data with a grand theory about the economy, and yet somehow has been the number one seller on Amazon in the United States. What's Piketty's big idea? You're probably familiar with the claim that inequality is rising. We've heard about the Occupy campaigns and talk of the 1%, people whose incomes and wealth outstrip everyone else. Piketty and his colleague Emmanuel Saez have for years been supplying detailed data on income inequality, especially for the richest. It's been rising sharply, with the rich earning more and more relative to others.
Without Piketty in size, I don't think we'd even have the phrase the 1%. But Piketty's book adds a new claim, that capital is accumulating in the hands of fewer and fewer people. And the post-war years in which inequality was low are a historical anomaly. We're potentially heading back to a world with a sharp divide between those who live off capital income and the rest of us mugs who have to work for a living.
In a way, what my findings show is that, most importantly, you have a huge rise of capital and the total value of capital has never been as large as what it is today.
That's Piketty talking to the BBC earlier this year. His claim is that income from capital is going to become more and more important relative to income from working for a living, that this is an inherent feature of capitalism and there are political implications.
that we find the proper way to organize and to redistribute the gains so that everybody can get a decent share of the total income and output coming out of this. You cannot have one group that is rising three, four times faster than the size of the economy forever. And I think everybody should pay careful attention to numbers here.
We're all in favour of that here at More or Less. The big theory is exciting and controversial, and furious debate rages over Piketty's policy prescriptions. But almost everyone agreed that his careful data gathering was fantastic. Until last week.
Did the Financial Times find errors in Thomas Piketty's wealth data and why does it matter?
It was quite odd. And it's one of these things that is just pure luck. Chris Giles is a colleague of mine in my other job as a columnist at the Financial Times. Chris is the paper's economics editor. He was writing about the recent Office for National Statistics report on wealth in the UK, and he wanted an international comparison. So he reached for the data set everyone's talking about, Thomas Piketty's book.
When I looked at the amount of wealth that he said the top 10% richest UK people held his number for the UK in 2010 was 71%. And the Office for National Statistics number was 44%. Now, that's not just a little difference. I was quite happy to say there would be definitional problems and you'd get some small difference. I would have accepted that, but that was so enormous. And then I thought the next day, well, I'll just go back and have a look at both datasets and see why are we getting such enormous differences. And I went to the source material and I just found I couldn't replicate... Thomas Piketty's numbers for the UK. And the more I looked at all his other numbers as well, I found difficulty replicating any of his other numbers from his own source materials.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–3:26
2
Did the Financial Times find errors in Thomas Piketty's wealth data and why does it matter?
3:26–7:46
3
What is Piketty's argument about rising wealth and the importance of capital?
7:46–20:52
4
How did Chris Giles discover discrepancies in Piketty's UK wealth numbers?
20:52–24:52
5
Which specific data issues did the FT allege in Piketty's spreadsheets?
24:52–27:56