Monday, June 2, 2014

The Short Answer To The Financial Time's Critique Of Piketty

Thomas Piketty wrote a ten page response the the FT's critique.  This article summarizes his response to the critique.  It does not alter his major conclusions at all.  One of the reasons for the popularity of his book is that it is well written.  Much of the technical detail is presented in footnotes which provide links to the raw data, and the rationale for the choices that he made about the data sources that he selected.  The FT used the links that he provided to his Excel files but it ignored the careful explanations that were provided for the data sources that he selected.

The major criticism made in the FT's critique is that inequality in Britain has not increased in recent years.  Moreover, when the British data are combined with that of other European nations it leads to a conclusion that there has been no growth in inequality in Europe.  Much ado has been made about nothing.  However, it turns out that the FT reached its conclusion that inequality in Britain has not grown in Britain by altering the data sources that it used to reach that conclusion.  The FT used Piketty's tax record data for part of its analysis, but then it shifted to the use of survey data for the more recent period in which it found no increase in inequality.  Piketty chose not to use survey data in his analysis because wealthy people traditionally under report their wealth.  The difference between the survey data and the tax data is very large.  It would appear that the FT shifted to the use of survey data in order to reach its conclusion that there has been no recent growth in inequality in Britain or in Europe.

If the goal of the FT critique was to shift debate away from growing inequality it may have done its job.  The debate is now about methodology and not about the real problem of growing inequality.  This is much like the debate about climate change.  A handful of denialists have shifted the debate from the conclusions reached by the vast majority of climate scientists to methodology.  Those who benefit from climate change denial have taken great advantage of this shift.

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