Piketty's methods: parsing wealth inequality data and its critique

I've been writing about Thomas Piketty's magisterial economics bestseller Capital in the Twenty First Century for some time now (previously), and have been taking a close interest in criticisms of his work, especially the Financial Times's critique of his methods and his long, detailed response. I freely admit that I lack the stats and economics background to make sense of this highly technical part of the debate, but I think that Wonkblog's analysis looks sound, as does the More or Less play-by-play (MP3).

The problem is Giles does with Britain what he criticizes Piketty for doing with the U.S. Specifically, Giles mixes and matches old tax data with new survey data — but unlike Piketty, he doesn't try to adjust for the survey's downward bias. This all but guarantees that it will look like inequality has been falling recently no matter the reality.

Piketty, in contrast, only uses tax data to generate his British numbers. Now, that data isn't always the best-suited, but it's still better than raw survey results. And it's why Piketty finds that the top 10 percent hold 71 percent of the wealth in Britain, while the survey that Giles touts says it's just 44 percent.

Ask yourself, as Piketty does, whether you think modern-day Britain is "one of the most egalitarian countries in history in terms of wealth distribution." That's what you'd have to believe if you take those survey results at face value.

One final point. I'm all in favor of journalists challenging economists's claims. And I think Giles has done admirable work digging into Piketty's Excel sheets when nobody else did. But throughout this, Giles has assumed the worst without waiting for a full response. For example, he points out that, for the U.S., Piketty takes the top 1 percent's wealth share and adds two to it in 1970. But without knowing anything about why Piketty makes this adjustment, Giles tells us that the numbers "didn't seem to fit what [Piketty] wanted to show, so he just added two to it." That's over the top innuendo.

Piketty’s ‘errors’ aren’t mistakes: They’re questions, and he answered them [Matt O'Brien/Washington Post]