Capital in the Twenty-First Century by Thomas Pickety

[mpeirce]

Apparently much of the data supporting this book turn out to be bogus...

The charges are devastating, and there is plenty to back them up. And again, let’s be abundantly clear: The Financial Times is accusing Thomas Piketty of dishonesty, of making up his arguments, of actively trying to mislead readers and actively trying to mischaracterize inequality trends. This mischaracterization leads to policy prescriptions on Piketty’s part that are both entirely unrealistic in their design and implementation, and, more importantly, are wholly unsupported by the actual data on inequality. The main thrust of Thomas Piketty’s book is entirely undermined, and his arguments and conclusions are annihilated. It is hard to imagine a more comprehensive refutation.

Facts Are Stubborn Things . . . As Thomas Piketty Is Beginning to Find Out - Pejman Yousefzadeh

 

[razztazz]

Mr Pejman Yousefzadeh writes for a "Right of Center" website so we know his purpose here. Lipstick

 

[MichaelB]

Remembering the OP in this thread

It would easily get political, so please respect the forum rules.

 

[mpeirce]

Mr Pejman Yousefzadeh writes for a "Right of Center" website so we know his purpose here.

The original investigative article in the Financial Times is at:

Piketty findings undercut by errors - FT.com

but it's behind a paywall. Is the FT considered "right of center" too? I guess. But it's a well respected economics and financial newspaper.

When evaluating Piketty's work, it's certainly worthwhile to be aware of critiques of his work.

 

[MichaelB]

To clarify my previous post, the discussion on Pickety's book is a valid forum topic and the number of views shows interest. Lets keep it open by focusing on the book and not the political leaning of media and critics.

 

[clifp]

Additional criticism of the accuracy of Picketty's data from a center right think tank.

Piketty states, “From 1980 to 1990, under the presidents Ronald Reagan and George H.W. Bush, the federal minimum wage remained stuck at $3.25, which led to a significant decrease in purchasing power when inflation is factored in. It then rose to $5.25 under Bill Clinton in the 1990s and was frozen at that level under George W. Bush before being increased several times by Barack Obama after 2008.” (Page 309).
Wrong, Professor Piketty. The federal hourly minimum wage rose twice in the presidency of George H.W. Bush, from $3.35 to $3.80 in 1990 and then to $4.25 in 1991, a 27 percent total increase. Then, under President Clinton, it rose to $4.75 in 1996 and $5.15 (not $5.25, as Piketty states) in 1997, a 21 percent total increase.
The next increase in the minimum wage, from $5.15 to $7.25 over three years, a 41 percent increase, was signed into law in 2007 by President George W. Bush. The federal minimum rose to $5.85 in 2007, to $6.55 in 2008, and to $7.25 in 2009.

I am trying to decide between reading his book or Tim Geitners

 

[M Paquette]

Additional criticism of the accuracy of Picketty's data from a center right think tank.

I am trying to decide between reading his book or Tim Geitners

They're very different in tone. "Stress Test" is more of a personal story. "Capital in the 21st Century" is very much an acedemic work.

BTW, note the dates in that quote.

From 1980 to 1990, under the presidents Ronald Reagan and George H.W. Bush, the federal minimum wage remained stuck at $3.25...

From 1980 to 1990. Not through, but to. Words have meaning...

And note the dates in Diana Furchtgott-Roths critique:

The federal hourly minimum wage rose twice in the presidency of George H.W. Bush, from $3.35 to $3.80 in 1990 and then to $4.25 in 1991, a 27 percent total increase. Then, under President Clinton, it rose to $4.75 in 1996 and $5.15 (not $5.25, as Piketty states) in 1997, a 21 percent total increase.

Well, that is nice to know, but those dates are outside the bounded interval of 1980 to 1990.

It is generally wise to take care to understand what one has read. Piketty's work is not flawless. There are transcription errors in some of the data, and several methodologies used to correlate data samples over very long periods of time are not well explained. That bothers me, and makes it harder to reproduce his exact data and results.

I do think that his broader points about income inequality having dropped to a minimum by the mid-20th century and rising since then still hold.

Here's a nice graph of the share of national income received by the top 10% by income of households from 1910 to 2010, built from data published in the book:

The top one percent of households haven't done too badly, either:

There's a similar trend across Anglo-Saxon countries for the top 1%:

I've gotten the distinct impression that certain groups of critics would prefer that we believe these curves have all been flat since 1950, and are busily straining at gnats to convince us to ignore that strange man with the objectionable data set.

Bear in mind that the central thesis of the book is that inequality is not an accident bur a feature of capitalism that requires regulation of some form to inhibit or reverse. Even Adam Smith recognized that some intervention was necessary to establish ground rules for laissez-faire practices to prevent collapse into a mercantilist oligarchy (one of the stable end-states for an economic game).

It is certainly in the best interest of some of us to convince the masses to ignore this data. During the long, slow process of restoring our society to a more stable social structure, we want to avoid upsetting the multitudes destined to reside at the base of our social pyramid. The maintenance of a well-off middle class that actually outnumbers the poor can lead to serious stability problems for families intent on maintaining proper control!

 

[explanade]

What is the economic argument for reducing inequality?

There's almost universal agreement that morally it would be better to have more equitable societies.

But is here a claim to be made that less inequality would produce greater growth, less probability of boom- bust cycles, etc?

Or can the opposite be argued that by concentrating wealth to a very small slice of the population, economic growth is greater than it otherwise would be?

If Piketty is just making a moral argument, then all the data he cites would be besides the point.

 

[ERD50]

Additional criticism of the accuracy of Picketty's data from a center right think tank.

Hmmmm, according to the "horse's mouth", the critique looks correct.

http://www.dol.gov/whd/minwage/chart.htm

Pretty sloppy to misstate basic factual information that is readily available. Could just be a slip-up though, that happens. A little suspicious though, when you look at the picture it paints.

And of course, some sloppiness in some facts doesn't necessarily invalidate the main point. But it certainly should raise some flags. It's one of the reasons I didn't bother to watch much of the earlier posted video of Paul Krugman. I just had no faith that he would question that which he wants to believe.

Another quote from the article clifp linked:

Piketty suggests that America copy France, where the minimum wage in 2013 was 9.43 euros ($13 dollars) an hour. But the consequences of the minimum wage can be seen in the differences in youth unemployment rates in the two countries. In 2013, young people aged 15 to 24 had an unemployment rate of 24 percent in France and 16 percent in the United States, according to OECD statistics. Germany has no minimum wage: its youth unemployment rate was 8 percent last year.

Another reason we might not want to copy France: OECD data also show that in 2012 France’s per person GDP was 70 percent of per person GDP in the United States. France might have less inequality, but it is poorer.

-ERD50

 

[ERD50]

...

BTW, note the dates in that quote.
From 1980 to 1990. Not through, but to. Words have meaning...

Well, that is nice to know, but those dates are outside the bounded interval of 1980 to 1990.

It is generally wise to take care to understand what one has read. .....

I agree regarding "to 1990", but why not mention a rise just 4 months later under the same president that he said it was 'stuck at'? And, assuming the quote from page 309 is correct and in its entirety, the author seems to have skipped over two rises under GH Bush (" It then rose to $5.25 under Bill Clinton"), and skipped over two rises under GW Bush ("and was frozen at that level under George W. Bush"), and then attributes 'several' to Obama (one in 2009).

Yes, words have meanings, and Piketty sure got a lot of them wrong there. It's a little hard to give the benefit of the doubt as unintended errors/omissions, when they all lean one way.

It is certainly in the best interest of some of us to convince the masses to ignore this data.

I dunno, like the song says, "I'm stuck here in the middle with you!"

I don't want to ignore any data, but the question on the table is - is the bulk of this data accurate and does it really tell a (an unbiased) story?

What is the economic argument for reducing inequality?

There's almost universal agreement that morally it would be better to have more equitable societies.

But is here a claim to be made that less inequality would produce greater growth, less probability of boom- bust cycles, etc?

Or can the opposite be argued that by concentrating wealth to a very small slice of the population, economic growth is greater than it otherwise would be?

If Piketty is just making a moral argument, then all the data he cites would be besides the point

I guess I'm fairly ambivalent regarding 'inequality' (however the heck you measure it). I know some people with far more than I have, and it just isn't an issue for me - I wish them well. What I want to see is that we have opportunity for all, so that the lowest classes have a decent standard of living. That's also a tricky thing to measure. But I'm not sure that redistribution (Piketty's solution) is really an answer. Maybe, but how much and to what degree?

-ERD50

 

[ERD50]

....

Here's a nice graph of the share of national income received by the top 10% by income of households from 1910 to 2010, built from data published in the book: ....

Here's what I feel is missing in those graphs (data which should not be ignored, IMO) - What about the rise in standard of living in less developed countries? Doesn't that matter? Why look only at the levels in developed countries?

I certainly can't say one way or the other, but it seems to me that the cheap labor in less developed countries is competing with the lower economic workers in the developed countries, but not with the wealthy. So maybe this is the 're-distribution' that we are seeing? Aw heck, I'll just quote myself from earlier...

And I still think it is important to look at the global economy, rather than any specific country's economy. We may have a widening gap in developed countries, but if the developing countries are improving, maybe the global gap is narrowing? Personally, I think it is more important that the really poor people in this world ( literally risking starvation, devoid of a regular supply of clean water and basic medical standards) are moving up, than it is for a 'lower economic strata' person in the US to move closer to the upper tier in the US.

And I think something very important is missing in that little diagram of "Historical Social Pyramid" and "The American Dream" - if we added in a shape for 'Today', the baseline would start much higher than 'Historical". For me, that's more important than the shape of the top-bottom.


-ERD50

 

[clifp]

I do think that his broader points about income inequality having dropped to a minimum by the mid-20th century and rising since then still hold.

Here's a nice graph of the share of national income received by the top 10% by income of households from 1910 to 2010, built from data published in the book:

There's a similar trend across Anglo-Saxon countries for the top 1%:

I've gotten the distinct impression that certain groups of critics would prefer that we believe these curves have all been flat since 1950, and are busily straining at gnats to convince us to ignore that strange man with the objectionable data set.

Bear in mind that the central thesis of the book is that inequality is not an accident bur a feature of capitalism that requires regulation of some form to inhibit or reverse. Even Adam Smith recognized that some intervention was necessary to establish ground rules for laissez-faire practices to prevent collapse into a mercantilist oligarchy (one of the stable end-states for an economic game).

I don't dispute that income inequality has risen in developed countries and the US more than most countries. I think I'll have to read the book myself to see how it addresses income transfers.

Megan McArdle poses a pretty interesting question.

I’ve been reading Thomas Piketty’s "Capital in the Twenty-First Century." You’ll have to wait on my thoughts on the book until they’re a bit more fully formed. As I've been reading, though, I keep returning to a question I heard at an economics conference a couple of months back: If we did implement a wealth tax, should it tax tenure?
Professorial tenure is, after all, a valuable asset. As long as you show up and teach your classes, and you don’t make passes at your students or steal from the department’s petty cash drawer, you can draw a paycheck for the rest of your working life. And since the abolition of mandatory retirement ages, that working life can be as long as you like.

Now some of her examples are a bit silly, but I think her fundamental argument is spot on..

The eye of the state is not very sharp; it can make only crude distinctions between fuzzy categories. And so the data we get from its tax collections are also extremely fuzzy. Yet once we have the numbers, we tend to treat them in public conversation as if they are hard and fast

So I think it is pretty important to double check his work on things which are easily verified so the minimum wage during most of the 1980s was $3.35 not $3.25, because it never was $3.25. If you are going to say that inequality was the lowest in that 50s, than you can't point your finger at the minimum wage because inflation adjusted the minimum wage is basically the same.

1938. $.25 2014$ $4.20
1950 $.75 2014$ $7.38

On the other hand if you want to cherry pick your data you sort specifically include or exclude data points that don't make your case. For instance I could have used the minimum wage of $.75 in 1955 $6.63 in 2014 as reference point ignoring the hike in 1956. Picketty implies that the evil Republican didn't hike the minimum wage. Ignoring Reagan took office right after4 years of annual minimum wage and the last couple of years of Bush 41 saw wage hikes.

 

[walkinwood]

Why France is gloating over Piketty’s alleged errors – Quartz

This article says nothing new about the facts (the FT article), but it was interesting to read how badly the book was received in France when first published. It surprised me.

 

[explanade]

Globalization may have raised the standard of living in China and other low wage nations, at the expense of lower skilled workers in developed nations.

However, the spoils of globalization also went mostly to the top tiers. Developed nations didn't purposely set out to make developing countries better paid at the expense of workers in their own countries. The theory, at least as claimed by proponents of globalization, was that overall, the developed nations would benefit.

And there have been benefits or it wouldn't continue. Just that most of the benefits have gone to a small number of people in the developed nations, unless you think cheap Chinese goods at Wal Mart makes up for the loss of manufacturing jobs wages to those people who lost those jobs.

 

[Independent]

Globalization may have raised the standard of living in China and other low wage nations, at the expense of lower skilled workers in developed nations.

However, the spoils of globalization also went mostly to the top tiers. Developed nations didn't purposely set out to make developing countries better paid at the expense of workers in their own countries. The theory, at least as claimed by proponents of globalization, was that overall, the developed nations would benefit.

And there have been benefits or it wouldn't continue. Just that most of the benefits have gone to a small number of people in the developed nations, unless you think cheap Chinese goods at Wal Mart makes up for the loss of manufacturing jobs wages to those people who lost those jobs.

I agree. I'd think that some of the returns to capital in the last 30 years have come from adding hundreds of millions of new, low wage workers to the global capitalist system.

(Of course, Piketty might say that's the "normal" situation. The unusual period was following WWII when a combination of immigration controls in wealthy countries and the iron curtain significantly reduced the number of low wage workers competing in the wealthy capitalist countries.)