Lazy Saturday Reads: Economics Food Fight, Drive-By Mass Murder, and Other News

Thomas Picketty

Thomas Picketty

Have a Stupendous Saturday!

It’s too bad Dakinikat is so busy today, because there’s an economics food fight brewing. Perhaps she’ll still find time to comment on the controversy later the evening after she returns home with her newly adopted canine family member, Temple. Meanwhile, I’ll do my best to describe the dispute over Thomas Picketty’s conclusions about wealth inequality, published in his book Capital in the Twenty-first Century.

The Accusations:

At the Financial Times, Economics Editor Chris Giles has claims to have found problems with Picketty’s work: Piketty findings undercut by errors.

Thomas Piketty’s book, ‘Capital in the Twenty-First Century’, has been the publishing sensation of the year. Its thesis of rising inequality tapped into the zeitgeist and electrified the post-financial crisis public policy debate.

But, according to a Financial Times investigation, the rock-star French economist appears to have got his sums wrong.

The data underpinning Professor Piketty’s 577-page tome, which has dominated best-seller lists in recent weeks, contain a series of errors that skew his findings. The FT found mistakes and unexplained entries in his spreadsheets, similar to those which last year undermined the work on public debt and growth of Carmen Reinhart and Kenneth Rogoff.

The central theme of Prof Piketty’s work is that wealth inequalities are heading back up to levels last seen before the first world war. The investigation undercuts this claim, indicating there is little evidence in Prof Piketty’s original sources to bear out the thesis that an increasing share of total wealth is held by the richest few.

Prof Piketty, 43, provides detailed sourcing for his estimates of wealth inequality in Europe and the US over the past 200 years. In his spreadsheets, however, there are transcription errors from the original sources and incorrect formulas. It also appears that some of the data are cherry-picked or constructed without an original source.

John Maynard Keynes

John Maynard Keynes

In one specific example, Giles says the corrected data do not show significant growth in Europe since 1970. In a second article, Giles goes into more detail. In addition, he argues that the U.S. data doesn’t support the conclusion that a greater proportion of the wealth is controlled by top 1% than in recent decades. He does admit to the top 10% controlling a greater share of wealth than previously.

An investigation by the Financial Times, however, has revealed many unexplained data entries and errors in the figures underlying some of the book’s key charts.

These are sufficiently serious to undermine Prof Piketty’s claim that the share of wealth owned by the richest in society has been rising and “the reason why wealth today is not as unequally distributed as in the past is simply that not enough time has passed since 1945”.

After referring back to the original data sources, the investigation found numerous mistakes in Prof Piketty’s work: simple fat-finger errors of transcription; suboptimal averaging techniques; multiple unexplained adjustments to the numbers; data entries with no sourcing, unexplained use of different time periods and inconsistent uses of source data….

A second class of problems relates to unexplained alterations of the original source data. Prof Piketty adjusts his own French data on wealth inequality at death to obtain inequality among the living. However, he used a larger adjustment scale for 1910 than for all the other years, without explaining why.

In the UK data, instead of using his source for the wealth of the top 10 per cent population during the 19th century, Prof Piketty inexplicably adds 26 percentage points to the wealth share of the top 1 per cent for 1870 and 28 percentage points for 1810.

A third problem is that when averaging different countries to estimate wealth in Europe, Prof Piketty gives the same weight to Sweden as to France and the UK – even though it only has one-seventh of the population.

Get even more detail and charts here: Data problems with Capital in the 21st Century.

Karl Marx

Karl Marx

The Pushback So Far:

Paul Krugman: Is Piketty All Wrong?

Great buzz in the blogosphere over Chris Giles’s attack on Thomas Piketty’s Capital in the 21st Century. Giles finds a few clear errors, although they don’t seem to matter much; more important, he questions some of the assumptions and imputations Piketty uses to deal with gaps in the data and the way he switches sources. Neil Irwin and Justin Wolfers have good discussions of the complaints; Piketty will have to answer these questions in detail, and we’ll see how well he does it.

Krugman suggests that Giles may be doing something wrong.

I don’t know the European evidence too well, but the notion of stable wealth concentration in the United States is at odds with many sources of evidence. Take, for example, the landmark CBO study on the distribution of income; it shows the distribution of income by type, and capital income has become much more concentrated over time:

It’s just not plausible that this increase in the concentration of income from capital doesn’t reflect a more or less comparable increase in the concentration of capital itself….

And there’s also the economic story. In the United States, income inequality has soared since 1980 by any measure you use. Unless the affluent starting saving less than the working class, this rise in income disparity must have led to a rise in wealth disparity over time.

At Mother Jones, Kevin Drum notes that

Giles’ objections are mostly to the data regarding increases in wealth inequality over the past few decades, and the funny thing is that even Piketty never claims that this has changed dramatically. The end result of Giles’ re-analysis of Piketty’s data is [below] with Piketty in blue and Giles in red. As you can see, Piketty estimates a very small increase since 1970.

blog_ft_piketty_wealth_inequality_europe

 

R.A. at The Economist: A Piketty problem?

Milton Friedman

Milton Friedman

Mr Giles’s analysis is impressive, and one certainly hopes that further work by Mr Giles, Mr Piketty or others will clarify whether mistakes have been made, how they came to be introduced and what their effects are. Based on the information Mr Giles has provided so far, however, the analysis does not seem to support many of the allegations made by the FT, or the conclusion that the book’s argument is wrong.

There are four important questions raised by the FT‘s work. First, which data are wrong? Second, how did errors in the work, if they are errors, come to be introduced? Third, how do the errors affect the specific points made in the relevant chapters? And fourth, how do the errors affect the fundamental conclusions of the book?

Mr Giles focuses on wealth inequality, to which Mr Piketty turns in Chapter 10 of his book. Mr Piketty has not published nearly as much research on the question of wealth inequality, and it seems that much of the analysis in Chapter 10 was done specifically for the book, based on others’ research. Mr Piketty’s wealth-inequality analysis certainly matters as a component of the book’s argument, but it is not accurate to say, as Mr Giles does, that the results in Chapter 10 constitute the “central theme” of the book.

Are the data wrong? Mr Giles identifies discrepancies between source material cited by Mr Piketty and the figures that appear in the book. He identifies cases in which Mr Piketty appears to have chosen to use data from one source when another would have made more sense. Further, the calculations in Mr Piketty’s spreadsheets (which have been available online since the book’s publication) seem to include adjustments in the data that are not adequately explained, and some figures for which Mr Giles cannot find a documented source. Finally, Mr Piketty has made choices concerning weighting of data used in averages, and assigning of data from one year (1935, for example) to another (1930) when such assignments seem unnecessary or inadvisable.

Alan Greenspan

Alan Greenspan

The author concludes that, unfortunately, ideology will determine how many people respond to the Giles critique. Much more extensive analysis at the link.

Here is Picketty’s–presumably preliminary–response to Giles in a letter to the Financial Times:

Let me also say that I certainly agree that available data sources on wealth are much less systematic than for income. In fact, one of the main reasons why I am in favor of wealth taxation and automatic exchange of bank information is that this would be a way to develop more financial transparency and more reliable sources of information on wealth dynamics (even if the tax was charged at very low rates, which you might agree with).

For the time being, we have to do with what we have, that is, a very diverse and heterogeneous set of data sources on wealth: historical inheritance declarations and estate tax statistics, scarce property and wealth tax data, and household surveys with self-reported data on wealth (with typically a lot of under-reporting at the top). As I make clear in the book, in the on-line appendix, and in the many technical papers I have published on this topic, one needs to make a number of adjustments to the raw data sources so as to make them more homogenous over time and across countries. I have tried in the context of this book to make the most justified choices and arbitrages about data sources and adjustments. I have no doubt that my historical data series can be improved and will be improved in the future (this is why I put everything on line). In fact, the “World Top Incomes Database” (WTID) is set to become a “World Wealth and Income Database” in the coming years, and we will put on-line updated estimates covering more countries. But I would be very surprised if any of the substantive conclusion about the long run evolution of wealth distributions was much affected by these improvements.

I thought this was important:

my estimates on wealth concentration do not fully take into account offshore wealth, and are likely to err on the low side. I am certainly not trying to make the picture look darker than it it. As I make clear in chapter 12 of my book (see in particular table 12.1-12.2), top wealth holders have apparently been rising a lot faster average wealth in recent decades, at least according to the wealth rankings published in magazines such as Forbes. This is true not only in the US, but also in Britain and at the global level (see attached table). This is not well taken into account by wealth surveys and official statistics, including the recent statistics that were published for Britain. Of course, as I make clear in my book, wealth rankings published by magazines are far from being a perfectly reliable data source. But for the time being, this is what we have, and what we have suggests that the concentration of wealth at the top is rising pretty much everywhere.

Luckovich shooting

In Other News:

There has been a mass shooting in Southern California–this time perpetrated from behind the wheel of a car. From the LA Times, 7 dead in drive-by shooting near UC Santa Barbara.

The shootings began about 9:30 p.m., a sheriff’s spokeswoman told KEYT-TV. It wasn’t clear what the attacker’s motivation might have been.

An 18-year-old Newport Beach man who was visiting Santa Barbara described a confusing scene as the shots rang out.

Nikolaus Becker was eating outside The Habit, 888 Embarcadero Del Norte,  near the scene when the first set of shots was fired about 9:30 p.m. At first he thought it was firecrackers. A group of three to five police officers who were nearby started to casually walk toward the sounds, said Becker, but ran when a second round of shots broke out.

“That’s when they yelled at us to get inside and take cover,” Becker said.

The BMW took a sharp turn in front of The Habit, Becker said, and moments later a third round of shots was heard. Becker and his friends moved toward the restaurant’s kitchen but were told to wait in the seating area by employees.

He estimates there were at least 13 to 15 shots total at three locations. The locations were about 100 yards from one another.

The shooter, whose motivation is unknown, was found dead in his BMW. It’s not yet clear if he shot himself or was killed by sheriff’s deputies.

In another gun-related story, TPM reports that some gun nuts are reconsidering their campaign of carrying long guns into public places: Scaring The Crap Out of People Oddly Not Winning Fans.

Open Carry Texas and a group of other aggressive gun rights groups have issued a joint statement telling their members, Dudes, let’s stop taking our guns to restaurants. It’s freaking people out and making them hate us.

Read the full statement at TPM.

Shelly-and-Donald-Sterling1

Soon-to-be former LA Clippers owner Donald Sterling has signed over the team to his wife and wants her to negotiate the sale.

Shelly Sterling, who previously shared ownership of the beleaguered NBA franchise with her estranged husband, is now in talks with the NBA over selling the team, the source said.

The NBA banned Donald Sterling for life from all league events after an audio tape became public that caught him on tape uttering racist comments to his assistant V. Stiviano. He told her not to post photos of herself with black people on Instagram — such as Magic Johnson — or bring them to his basketball games.

But the NBA isn’t buying it. From ESPN: Why the NBA won’t allow Shelly Sterling to control the Clippers.

At first glance, Donald Sterling’s gesture may seem like serendipitous news for the NBA. Taking him at his word, Donald Sterling has agreed to leave the league without a fight and has signed off on the sale of his team. Digging deeper, however, reveals possible ulterior motives on Sterling’s part to delay and potentially block the sale of the team. Do not forget a crucial point: capital gain taxes. As first reported by SI.com, the Sterlings have significant incentives under capital gain tax law to avoid the sale of the team and keep it in the Sterling family. Doing so, would save them hundreds of millions of dollars. Also, contrary to some reports, the Sterlings are unlikely to benefit from the “involuntary conversion” tax avoidance provision of the Internal Revenue Code. The bottom line is if the Sterlings have to sell the Clippers, they will probably pay hundreds of millions in state and federal taxes.

Along those lines, Donald Sterling’s proposed maneuver does not accomplish the NBA’s goal of ousting the entire Sterling family on June 3. As explained in a previous SI.com article, the NBA interprets its constitution to mean that ousting Donald Sterling on June 3 would also automatically oust Shelly Sterling as co-owner, with the Clippers then falling under the control of commissioner Adam Silver. Donald Sterling’s proposed maneuver risks the prospect of Shelly Sterling undertaking a slow-moving effort to sell the team. A sale process that takes months or years would clearly aggravate the NBA, which wants to erase the Sterling family name from the league as quickly as possible. A protracted sale of the Clippers by Shelly Sterling might also constitute a potential rationale for players to boycott NBA games.

Even of greater risk to the NBA, what is to stop Shelly Sterling from deciding to keep the Clippers? She could plausibly reason, on various grounds, that now is not the right time to sell the team. Also, her instruction from her husband to sell the team would not be legally binding; it would be a mere suggestion the moment she takes over the team.

Read much more at the link.

Ta-Nehisi Coates

Ta-Nehisi Coates

I’ll end with a long article that I haven’t gotten to yet, but I’m hearing it’s a must read: The Case for Reparations, by Ta-Nehisi Coates at The Atlantic. Here’s the tagline:

Two hundred fifty years of slavery. Ninety years of Jim Crow. Sixty years of separate but equal. Thirty-five years of racist housing policy. Until we reckon with our compounding moral debts, America will never be whole.”

Some reactions:

The Guardian: The ‘Case for Reparations’ is solid, and it’s long past time to make them.

Slate: An Ingenious and Powerful Case for Reparations.

The Wire: You Should Read “The Case for Reparations.”

NPR: How To Tell Who Hasn’t Read The New ‘Atlantic’ Cover Story.

WaPo: Culture change and Ta-Nehisi Coates’s ‘The Case For Reparations’.

What else is happening? As always, please post your links in the comment thread.


49 Comments on “Lazy Saturday Reads: Economics Food Fight, Drive-By Mass Murder, and Other News”

  1. bostonboomer says:

    I hope everyone enjoys the long weekend!

    • dakinikat says:

      Thanks for all these pithy links! I saw the FT critique last night but frankly didn’t feel like pouring over it. I am leaving to get Temple in a few hours and am looking forward to getting to know her. hopefully, the cats will be okay with her. It’s been almost 2 years now since we lost Karma.

  2. Fannie says:

    Good Morning – If you don’t do anything else this weekend you need to read the Ta-Nehisi Coats article on Reparation. It made lots of sense to me, and is well written.

    BB the link to “scaring the crap out people, oddly is not working”……………….is not working. Smile.

    Dak’s got a new pet on the way, Temple is her name.

      • bostonboomer says:

        I just finished the Ta-Nehisi Coates piece. It’s brilliant, logical, and convincing. And heartbreaking.

        • NW Luna says:

          I have mixed feelings about repatriation. On one hand it appears satisfying, on the other hand, it seems a suspiciously simple intervention which comes nowhere close to balancing the complexity of wrongs. Other nations besides the US participated in and profited from slavery. Africans were kidnapped from their homes and sold into slavery sometimes by other Africans. Slavery, the greatest of the wrongs, ended a number of decades ago in the US. Yet discrimination, lynchings, economic and other abuse continue, though decreasing until the Bush years. Many Caucasians have come to the US since slavery ended, and a few are escaping from war, discrimination, or poverty elsewhere. I’m not sure I see a clear ethical argument for making the child of the abuser pay for the wrongs of the father. Whites can benefit from white privilege; however, that’s something which may happen without intent or awareness on the part of the person who benefits. The same cannot be said of slave traders.

          I was surprised that there was no mention of repatriations to American Indians by Coates (unless I missed it by reading too fast). That seems a glaring omission — and a troublesome one.

          The example of Germany and Israel — that was straightforward compared to the situation of the US and blacks. The German-paid repatriations occurred relatively quickly after the Holocaust atrocities, in comparison to the US situation.

          I see that reparations are appealing as a way of making things “fair.” Then I think of all the women who have been enslaved in all but name, who have been killed, beaten, raped, unable to own property or get a loan in their own names, denied jobs or promotions because of being women. I think of Shirley Chisolm’s statement that she experienced more discrimination because of her sex than because of her race. How can we make things fair? Repatriation is too simplistic an answer.

  3. mablue2 says:

    Wow BB! This post is just a spectacular tour de force. There’s enough here to keep me glued in front of the screen for the entire weekend. Brava!

    Cheers to all Skydancers from “Communist Yurp”.

    • bostonboomer says:

      Thanks! I’d be interested in your take on the Picketty issue as well as The Case for Reparations. I’m going to read it now.

  4. bostonboomer says:

    Think Progress is saying the shooter in CA is “severely mentally disturbed.”

    He was angry about being rejected by women. It’s all their fault.

    The gunman sprayed bullets at numerous targets and “got into two gun battles with deputies during Friday night’s rampage in the beachside community of Isla Vista before crashing his black BMW into a parked car.”

    Police have not yet released the name of the shooter, but KEYT reports that he has been identified as the man in a disturbing YouTube video called “Retribution.” In the seven-minute clip, a man who calls himself Elliot Rodger criticizes women “who’ve ignored or rejected him over the past eight years” and warns that he will “punish you all for it.”

  5. Fannie says:

    It’s been years, but how well I remember Isla Vista and UCSB. I know that things have changed since I was last on that campus. I remember the student protestors who rioted after the Chicago Seven, and right after William Knustler’s speech on campus, and the burning of the Bank Of America and Ronald Reagan visit to the Isla Vista.

    These students are just winding down, and getting ready to head home, or to summer jobs. For this year to end like this is just horrific, on Memorial Weekend. I am sadden, so very sadden for Isa Vista families and friends.

    Do you remember the Charles Whitman story in 1960’s? He was in a tower on the Austin Campus, and shot down 16, and injured many more students.

    By the way CNN is doing a special tonight “The Sixties, the decade that hit home”.

    Have a safe weekend. I am off the Field of Honor.

    • Sweet Sue says:

      Fannie, I do remember the Charles Whitman case. Back then, that story was horrible, unimaginable, unique.
      Now, I can barely manage a shrug.
      Except when it involves kindergarteners.
      We live-and die- in an insane society.

  6. RalphB says:

    Congress Reluctant To Cut Funding For Tank That Just Spins Around And Self-Destructs


    The 70-ton tactical battle tank commonly known as the Dervish, which reportedly has a price tag of $95 million per vehicle and is said to begin emitting volatile, combustible fumes and sending off a dangerous fountain of sparks immediately after it is started, has been called a vital asset to national security by top congressmen on both sides of the aisle. While detractors have attempted to defund the project over the years due to its ballooning cost and the loss of every vehicle so far deployed, advocates have been able to preserve the program from cuts, hailing the tank’s rightward-only movement and propensity to ignite in a towering fireball as the centerpiece of America’s war effort.

    “Frankly, it’s indicative of the diminished role in international leadership the White House sees for America that they are even willing to consider sacrificing such a critical piece of defense technology,” McKeon continued. “Do we really want the 1,800 U.S. servicemen who have so far died while using this piece of technology to have given their lives in vain? That seems to be what the president wants.”

    The Onion illustrates a very real problem.

    • RalphB says:

      Regardless of the final outcome of the debate, officials confirmed the $601 billion defense budget passed Thursday would still be large enough to accommodate continued funding for the F-130 Flying Tinderbox fighter jet and the RIM-190 Boomerang surface-to-air missile, which flies in erratic loops and switchbacks after it is fired, causing artillery soldiers to duck as it passes over their heads several times before it ultimately returns to blow up the missile launcher.

  7. bostonboomer says:

    Online Forum For Sexually Frustrated Men Reacts To News That Mass Shooter May Be One Of Their Own

    Read more: http://www.businessinsider.com/ucsb-shooting-forum-associated-with-elliot-rodger-reacts-2014-5#ixzz32f9dlMkB

    • bostonboomer says:

      Someone with the username EliotRodger was a regular poster on an online message board called PUAhate, on which men who have been unlucky with women commiserate, criticize one another, excoriate the opposite sex, and denounce PUA’s, or pick-up artists — dating gurus whom they accuse of preying on desperate men like themselves for financial gain.

      Many of the posters identify themselves as “incels,” short for involuntary celibates, and some of the posts fantasize about violence toward women.

      • Sweet Sue says:

        Really scary, and I don’t care what anyone says. As a society, we are drowning in porn and it’s crippling these men’s minds.

  8. bostonboomer says:
    • NW Luna says:

      I agree! Next time I get that “not all men” comment (as if we didn’t know this already) from some apologist, I’ll use this rebuttal.

  9. Fannie says:

    Oh Lordy…………do you remember this guy? George Sodini

    • bostonboomer says:

      Someone on Twitter reminded me about him earlier. Same kinds of complaints about women.

  10. Fannie says:

    Tears, Tears……….a father was just on CNN, when will we stop the NRA, the madness, my so is gone. Can’t catch my breath…….

    • Fannie says:

      Here is Richard Martinez, father of Christopher Martinez who died in Isla Vista.

      • Sweet Sue says:

        Fannie, so perfect, raw and eloquent.
        But who will listen?
        He’s right, not enough people think this could happen to them.
        When it does, your life is over.

  11. bostonboomer says:

    Three bodies found in gunman’s apartment, and there are more injuries.

    http://www.keyt.com/news/alleged-gunmans-apartment-now-a-crime-scene/26157468

    • bostonboomer says:

      Shooter left 140 page manifesto, “My Twisted Life.”

    • NW Luna says:

      Horrible.

  12. dakinikat says:

    So, I am home with Temple! I also met the new folks from NYC that opened the bar redux on the corner! She met karma’s old beau Horus who is a huge black and white Great Dane. She is on the bed right now while I put hers together. She and the cats are checking each other out. She seems afraid of Miles but curious about Dinah. The cats are having none of it! She loves every one she meets and is very friendly. I am going to work on the jumping up thing. She is bright and catches on quickly. I will try to post some photos when I get her a bit more relaxed.

  13. RalphB says: