WS MoreOrLess: The Piketty Affair

Summary

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More or Less: The Piketty Affair

Podcast: More or Less
Host: Tim Harford (BBC Radio 4)
Episode Date: June 2, 2014

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Episode Overview

This episode delves into the "Piketty Affair," a major debate in the world of economics sparked by claims regarding possible errors and questionable methodology in Thomas Piketty's influential book, Capital in the 21st Century. Host Tim Harford examines allegations that Piketty's data on wealth inequality is flawed and explores the broader implications for how statistical data is used in public debates about inequality.

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Key Discussion Points & Insights

1. Piketty's Big Idea and Impact

• Thomas Piketty, described as a "rock star French economist," authored Capital in the 21st Century, which asserts that:
  • Income inequality is rising, particularly among the richest 1%.
  • Capital (wealth) is accumulating in fewer hands, and post-war low inequality was anomalous.
• Tim Harford highlights Piketty's significance:

  "Without Piketty in sight, I don't think we'd even have the phrase the 1%." (00:53)

Notable Piketty Quotes:

• "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." — Thomas Piketty (01:59)
• "This can be good news...if we find the proper way to organize and to redistribute the gains so that everybody can get a decent share..." — Thomas Piketty (02:27)

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2. The Challenge: Chris Giles and the Financial Times

• Chris Giles, economics editor at the Financial Times, investigates Piketty’s data and finds discrepancies.
• Giles notes a major difference:
  • Piketty's figure for UK wealth held by the top 10% in 2010 is 71%; the UK Office for National Statistics (ONS) puts it at 44%. (03:20)

Chris Giles Expounds:

• "We found some slips in the spreadsheets...the way he averaged between different countries didn't seem to be particularly reasonable...also...cherry picking data to suit his conclusions." (04:00)
• He details that in the US, Piketty's switch from estate tax to survey data created a trend showing rising inequality, and similar choices were made in UK data selection. (04:33)

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3. Two Issues: Errors vs. Judgment Calls

• Tim Harford clarifies the distinction:
  • Mistakes: Spreadsheet errors, wrong data copying.
  • Judgment Calls: Adjustments and methodological choices to address incompatible or missing data. (04:15)

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4. The Debate over Measuring Wealth Inequality

• Giles is not disputing rising income inequality but the claim that wealth inequality is rising — which is harder to measure:

  • "The argument instead is over rising inequality in wealth, which has always been harder to measure." — Tim Harford (04:59)

• Harford notes top marks for Piketty’s transparency in sharing the data online.

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5. Piketty’s Response

• Piketty stands his ground, denying errors:

  "Let me tell you right away that there is no error or mistake in my series...The corrections made by the FT...have little impact on the overall patterns." — Thomas Piketty (05:37)

  • He is more forthright elsewhere, calling the FT "ridiculous and dishonest."
  • In a more detailed online rebuttal, Piketty insists his choices are methodologically superior:

    "I think my estimate is more reliable and rests on better methodological choices...A 44% wealth share for the top 10% would mean Britain is currently one of the most egalitarian countries in history...I don’t find that plausible." (07:13)

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6. The Wider Community Chimes In

Justin Wolfers, Economist:

• On the significance of Giles' critique:

  "Even if you took everything that Chris said at face value, I don’t think it fundamentally changes the message of Piketty about wealth inequality through time or the broader message of the book." (08:03)

• On the "cherry picking" accusation:

  "When [Giles] compiles his own time series of wealth inequality, he’s also had to try and compare apples and oranges...I think it looks like expert opinion is coalescing around the view that his proposal isn’t rock solid and may even be substantially weaker than Piketty’s." (08:26)

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Memorable Moments & Quotes

• Historical significance:

  "Without Piketty in size, I don't think we'd even have the phrase the 1%." — Tim Harford (00:53)

• On transparency:

  "It's worth noting that the FT was only able to raise these questions because Thomas Piketty's put his data online. So top marks for transparency." — Tim Harford (04:59)

• Debate summary:

  "Something tells me this one will run and run." — Tim Harford (08:51)

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Key Timestamps

| Segment Description | Timestamps | |----------------------------------------------------------|--------------| | Piketty’s main thesis and influence | 00:39—02:43 | | Chris Giles criticizes Piketty's methodology | 02:57—04:59 | | Distinction between errors and judgment calls | 04:15—04:33 | | Piketty’s emailed and published responses | 05:37—07:41 | | Justin Wolfers on the overall impact of the FT critique | 08:03—08:51 |

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Episode Tone

• Tim Harford maintains a measured, inquisitive style, calmly unpacking both sides.
• Chris Giles is methodical and critical, but focused on transparency and accuracy.
• Piketty, via email and public statements, is firm and at times combative.
• Justin Wolfers is even-handed, acknowledging minor flaws but defending the broader thesis.

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Conclusion

This episode illustrates how the integrity and interpretation of economic data can drive intense debate—even among experts and leading publications. Host Tim Harford underscores the complexity and challenge of measuring wealth, the importance of transparency, and the continuing evolution of expert consensus. The "Piketty Affair" reveals both the promise and pitfalls of big data in shaping our views on inequality and marks a key moment in the ongoing public conversation about capitalism and fairness.

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Transcript

[BBC World Service Announcer]

This is the short edition of More or Less, first broadcast on the BBC World Service.

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[Tim Harford]

hello and welcome to More or Less on the BBC World Service, your weekly hot date with Data Tim. 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.

[Narrator]

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.

[Tim Harford]

The man who's managed to unite the words rock star and economist in 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 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.

[Thomas Piketty]

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.

[Tim Harford]

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.

[Thomas Piketty]

This can be good news, assuming 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.

[Tim Harford]

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.

[Chris Giles]

It was quite odd and it's one of these things. It's Just pure luck.

[Tim Harford]

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.

[Chris Giles]

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, but that was so enormous. And then I thought the next day, well, let's just go back and have a look at both data sets 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.

[Tim Harford]

The Financial Times published a front page story and a blog post detailing these concerns.

[Chris Giles]

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.

[Tim Harford]

So there are two different things going on. 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.

[Chris Giles]

So in the us, he moves from an estate tax type of data which gave one result to a survey data which gave another result and that gave an increase in inequality. And in the uk he did the same sort of thing and particularly went to, in his final year, 2010, a form of data from the HMRC. And that's what drove the finding that UK wealth inequality was rising when all other UK data doesn't show that at all.

[Tim Harford]

Now, just to be clear, Chris Giles isn't criticizing the long standing finding that income inequality is on the rise. The argument instead is over rising inequality in wealth, which has always been harder to measure. Your income is, for instance, your salary from a job, while your wealth is your assets, your house or your trust fund, if you have one. It's worth noting that the FT was only able to raise these questions because Thomas Piketty's put his data online. So top marks for transparency. So what does Thomas Piketty say in response? Well, he wasn't available for interview, but here's what he told us by email.

[Thomas Piketty (via email/statement)]

Let me tell you right away that there is no error or mistake in my series. The little corrections made by the FT which I disagree with have little impact on the overall patterns for the us. The most recent research in fact reinforces my finding. If anything I underestimate the rise in wealth concentration for the uk. It is pretty clear that self reported wealth surveys are not the right data sources to detect the rise in top wealth. It is quite unfortunate that the FT ignores this.

[Tim Harford]

He was more forthright in a response to Agence France Press calling the Financial Times ridiculous and dishonest. Eventually he posted a more detailed response on his website on Thursday. It's about 4,000 words long, so let's give you a flavour. In the case of France, Chris Giles said there was no explanation for Piketty's apparently ad hoc tweaks to the numbers.

[Thomas Piketty (via email/statement)]

Thomas Piketty this is a surprising statement because all necessary explanations are actually given in the technical research paper on which the series are based.

[Tim Harford]

In the case of the United States, Piketty agrees that there are very large uncertainties in the data and he could have explained some of those uncertainties more clearly. But he also points to research done by other academics since his book was published that backs him up. And what about the UK? Thomas Piketty says the top 10% of households own 71% of the wealth. Chris Giles points to Office for National Statistics research that puts the number at 44%.

[Thomas Piketty (via email/statement)]

Piketty writes, I think my estimate is more reliable and rests on better methodological choices. I also believe that this large gap reflects major uncertainties and limitations in our collective ability to measure recent evolution of wealth inequality. And he adds, A 44% wealth share for the top 10% would mean that Britain is currently one of the most egalitarian countries in history. History in terms of wealth distribution.

[Tim Harford]

Piketty doesn't find that plausible. I wonder how much of our view depends on what house prices are doing. Well, while waiting for Thomas Piketty's response, economists, journalists and bloggers had been piling in to give their opinion. One of them is Justin Wolfers, a fellow of the Brookings Institution and a professor of economics at the University of Michigan.

[Justin Wolfers]

And while I think he's uncovered a bunch of small flaws, even if you took everything that Chris said at face value, I don't think it fundamentally changes the message of Piketty about wealth inequality through time or the broader message of the book.

[Tim Harford]

What about the suggestion that Piketty's cherry picked his data sources?

[Justin Wolfers]

Chris criticized Piketty for making specific choices about how you can put very different data sets together. Yet when he compiles his own time series of wealth inequality, he's also had to try and compare apples and oranges. And he's done so in a way that I think it looks like expert opinion is coalescing around the view that his proposal isn't rock solid and may even be substantially weaker than Piketty's Justin Wolfers.

[Tim Harford]

Something tells me this one will run and run. That's all we have time for today. Please keep your questions and your comments coming. We're at more or lessbc.co.uk and as always, there's further information and a downloadable edition of the show [e-mail] more or less. We'll be back next week. Until then, goodbye.

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