Althouse: "Thomas Piketty, the Lena Dunham of economics in 2014, is finally getting to his backlash phase."

May 23, 2014

"Thomas Piketty, the Lena Dunham of economics in 2014, is finally getting to his backlash phase."

"According to the Financial Times, Piketty’s world-rattling best seller on growing inequality, Capital in the Twenty-First Century, is based on data that may 'contain a series of errors that skew his findings,' including 'mistakes and unexplained entries in his spreadsheets,' which the business paper compares to the humiliating screw-ups found last year in an austerity study by Harvard professors Carmen Reinhart and Kenneth Rogoff. Except Piketty is much more famous."

30 comments:

jr565 said...: More of these lefties should get their comeuppance. Because their work is based on shoddy understanding of economics. Or, frankly, whatever they are supposedly experts in. You can see the same thing with global warming scientists. I trust the skeptics any day because those who are convinced its true can't come up with the data to back up their assertion, but then demonize anyone who dares to question their opinions.; 5/23/14, 7:23 PM
rhhardin said...: Inequality is seed corn anyway.

The rich can't and won't consume their income. It winds up parked somewhere.

That somewhere winds up as capital, buying something productive for workers to run, workers whose wages are then higher than they would have otherwise been, their productivity having been increased.

The ditch digger with heavy equipment earns a lot more than the ditch digger with a shovel.

The rich guy causes that.; 5/23/14, 7:30 PM
damikesc said...: Problem is, the media LOVES Piketty's bullshit and will certainly give the debunkers far less press than they gave his nonsense.; 5/23/14, 7:48 PM
AmPowerBlog said...: Backlash is right, and I'm piling on, lol: "Thomas Piketty Cooked the Data in 'Capital in the Twenty-First Century'".; 5/23/14, 7:53 PM
Sam vfm #111 said...: People that worry about inequality, think that it is a zero-sum game. The more you get, the less I have. Nothing could be more wrong. Wealth is created, not found. Look at Bill Gates. He became one of the richest men in the world simply on the output of his mind.

Do this, in constant dollars take the GDP of the US in 1900 and divide by the population. Do the same for 2000. You will see that we created a lot of wealth in that 100 years and we all,even the poor, are better off than we were.; 5/23/14, 7:55 PM
Jeffrey said...: It's a shame that most people on both sides (including here, probably) will comment on this before reading the Financial Times article this Piketty critique is based on. It's extremely substantial and from my reading of it it threatens to make Capitalism in the 21st Century something close to the economics version of Michael Belleisles' infamous Arming America.; 5/23/14, 7:58 PM
rehajm said...: While errors and interpretations in complex data series are not entirely unexpected, the biggest problem with inequality measures is most ignore government payments and subsidies.; 5/23/14, 8:26 PM
Bob Boyd said...: A French economist touted by the left is full of shit?
Who'd a thunk?; 5/23/14, 8:29 PM
ddh said...: Oh, Lord, I hope Piketty can keep his clothes on.

New York Magazine seems to have a data problem of its own. The Financial Times does not compare Piketty's data problems with those of Reinhart and Rogoff, but a few of the readers who left comments did.

Wealth and income statistics are notoriously problematic because they almost always come from tax records. That matters because tax laws change, redefining income and wealth for tax purposes almost every year. Let me mention four of Piketty's data problems that I think probably are even bigger than the problems the FT raised.

Executives used to drive company cars and receive other perks that never showed up on individual tax returns, but that was a kind of income. How a company is incorporated affects the owners' tax liabilities. These sources of income were ignored by Piketty.

The biggest source of wealth for most American families, homes change in value and in the US are taxed by counties and municipalities, not the Federal Government. That source of wealth was ignored by Piketty.

Capital gains are taxed only when realized, which means the owner can manipulate the date and someteven the rate paid. If tax rates are high, people tend to hold onto their assets longer, lowering capital gains tax receipts and distorting income and wealth statistics. That bit of complexity was ignored by Piketty.

A lot of what government does is redistribute income, which reduces income inequality. The redistributive effects of Social Security, Medicare, SNAP, and other benefits were ignored by Piketty.; 5/23/14, 8:43 PM
Lewis Wetzel said...: Piketty's insight was that in a low growth/no growth economy, wealth tends to transfer upward and accumulate at the top.
The identical point was made over 200 years ago by Adam Smith in Wealth of Nations, when he compared the state of the poor and working classes in a high growth economy (America), an medium growth economy (England), and a static economy (China).; 5/23/14, 9:00 PM
ddh said...: "Someteven" was supposed to be "sometimes even."; 5/23/14, 9:04 PM
The Godfather said...: I would be interested to learn that Piketty cooked the books, but the really fundamental problem is that increased income inequality doesn't matter. It does matter that those with lower incomes have an opportunity to raise their incomes. If a family goes from a $50,000 income to a $75,000 income, a gain of $25,000, what does it take away from them that a family with a million dollar income went up to $1,050,000, a gain of $50,000?

The focus on income inequality is based on envy, and that is a nasty sin.; 5/23/14, 9:07 PM
Beorn said...: Pickety: "one needs to make a number of adjustments to the raw data sources [to get the predetermined result]."

Isn't that what Michael Mann did with the climate data for his hockey stick?; 5/23/14, 9:19 PM
RecChief said...: "is based on data that may 'contain a series of errors that skew his findings,' including 'mistakes and unexplained entries in his spreadsheets,"

NO Kiddin'?

Sounds like pretty much every Leftist assertion and 'study' for the last 30 years.

Those kind of errors start when the person is absolutely certain of the conclusion before collecting any data.; 5/23/14, 9:39 PM
RecChief said...: The rich can't and won't consume their income. It winds up parked somewhere.

You're dead on with your example. For the rest, like Garage, it's called investment. For example, how do you think New York, California, and Illinois have been financing the non stop party since the '60s? By issuing bonds, which are tax exempt, who cares enough about taxes to buy tax exempt bonds? The rich.; 5/23/14, 9:42 PM
Bart Hall (Kansas, USA) said...: Piketty was (remains) a fervent supporter of François Hollande who followed Piketty's advice and massively raised taxes on capital. The policy (quite predictably) failed rather miserably, leading Piketty to publish his book blaming the failure on the tax not being applied world-wide. That's typical leftie excuse-making: the policy is wonderful, it just wasn't applied *enough*.

Except the entire theory is based upon a profound error in basic economics. He confuses Return on Invested Capital with the *growth* rate of corporate profits, completely missing the importance of marginal return on additional invested capital. A stable company in a stable market may well have a high ROIC, but reinvesting those returns will not change profits at all. The marginal return on additional capital is zero. So the revenue is distributed to shareholders who deploy it (or spend it) in more productive ways.

Other companies may have a low ROIC but a very high profit growth rate. It has been standard for many years to plot (or map) companies onto an ROIC/PGR grid for comparative purposes. In fact, economists have understood this for something like a century (Schumpter, et al).

What Piketty has done is simply re-hash Marx. I can forgive Marx for not understanding an economic principle that did not exist when he was writing, or for about half a century thereafter. Piketty has absolutely no excuse for his utterly egregious omission.

Beyond that, he omits the glaring fact that in the last twenty years or so two billion people have been lifted *out* of abject poverty, a billion more people have access to decent water, and the number of the world's hungry has been cut in half.

All in all an absolutely worthless puddle of pig piffle.; 5/23/14, 9:49 PM
I'm Full of Soup said...: Impeding the creation of family wealth and net worth is a bigger sin that the bogus income inequality issue.

Do you know that in 1973 [when coincidentally Joe Biden joined the US senate], the maximum annual "contribution" you paid into social security and medicare was $1,264.

By 2009, less than 40 years later, that maximum annual contribution has increased almost twelve-fold to more than $16,000!

That is where the average person's money and wealth has been going and it is the biggest impediment to steady savings and nest egg development.; 5/23/14, 9:57 PM
ddh said...: Envy is the only one of the seven deadly sins from which the sinner never derives pleasure.; 5/23/14, 11:31 PM
The Crack Emcee said...: "May"?

He "may" have screwed up?

If that's all his comeuppance amounts to, it's not much,..; 5/24/14, 12:09 AM
HG said...: Ii would not want to be the "Lena Dunham" of anything; 5/24/14, 3:45 AM
Fen said...: I'm reading that he deliberately massaged the data.; 5/24/14, 5:35 AM
PB said...: to many on the left, it's only his assertion that counts, along with the number of pages in the book, because it looks impressive on the coffee table. They don't really care if:

1. The numbers don't add up,
2. The facts are wrong, or
3. You run out of other people's money.; 5/24/14, 6:15 AM
Curious George said...: Paul "Population Bomb" Ehrlich was wrong about every one of his predictions regarding using up resources but still stands by his "thesis" regarding over population of earth. Dire predictions are still spewing from this idiot's pie hole, the left still loves him, and he's still teaching at Stanford.

And there thousands like him in academia.; 5/24/14, 6:33 AM
SomeoneHasToSayIt said...: Books by Lefties in which they announce that they have found a way to make socialism work, should be treated the same way as an announcement of the invention of a perpetual motion machine, or, if you prefer, the trisection of an angle using only a straightedge and a compass.; 5/24/14, 8:03 AM
Fernandinande said...: Paul Krugman liked the book, therefore it's wrong.; 5/24/14, 8:39 AM
cubanbob said...: Another communist practicing the credo of a pious lie in the service of the revolution. What is interesting is despite the incontrovertible evidence that Marxism is utter crap that so many still believe in it and keep hoping that somehow that next time its implemented it will work.; 5/24/14, 10:52 AM
Robert Cook said...: I cannot offer any comments on Piketty's work or the critique of it as I've not read either. I wonder how many offering condemnations of Piketty here are as equally unacquainted with, (i.e., have not read), that about which they so authoritatively pontificate?; 5/24/14, 12:06 PM
Wince said...: The reason that I now love the HBO series Girls is the show's transformation.

It went from a what seemed to be a tiresome pean to Dunham's character as "the voice of a new generation" (which initially sucked-in a lot of mushy-headed Millennials as devotees), but now episode after episode reveals her whole gang as a group of dysfunctional narcissists.

Ergo, I eagerly await Piketty's first game of topless ping-pong.; 5/24/14, 1:23 PM
Vile Pliskin said...: Doesn't matter. Narrative is already set for the low infos who never read the book. Now you're just all Piketty Deniers.; 5/24/14, 1:23 PM
Rusty said...: Read parts of it.Bob.
Spotted the mistakes.; 5/25/14, 8:59 AM