WS MoreOrLess: The Piketty Affair
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This is the short edition of More or Less, first broadcast on the BBC World Service.
Hello, and welcome to More or Less on the BBC World Service, your weekly hot date with data.
Who is Thomas Piketty and why has Capital in the 21st Century caused a stir?
I'm Tim Harford. 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, magisterial, 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%.
What is Piketty's claim about rising inequality and the growing importance of capital?
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.
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 organise and to redistribute the gains so that everybody can get a decent share of the total income and output coming out of this.
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. 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 internationally, 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, 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 so I went to the source material, 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.
The Financial Times published a front-page story and a blog post detailing these concerns.
We found some slips in the spreadsheets of Thomas Piketty's data. We found he tweaked the data. We found the way he averaged between different countries didn't seem to be particularly reasonable. and we found him also to be what seemed like cherry-picking data to suit his conclusions.
So there are two different things going on here. Mistakes, such as copying the wrong numbers into spreadsheets, and then judgment calls, adjustments to make up for incompatible or missing data, and choosing, or as Chris Giles calls it, cherry-picking, which data you use to look at wealth inequality.
So in the US, he moves from an estate tax type of data, which gave one result,
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