Piketty's incredibly weak response to the Financial Times finding of errors, Piketty doesn't directly address any of the problems

The Financial Times did a devastating job pointing to errors in Piketty's new book (I had an initial discussion available here).  Now Piketty has published a response letter in the FT available here.  If I were to summarize Piketty's response: it is a nonresponse and he doesn't deal directly with any of the problems raised.

On the corrected European data not showing an increase inequality since 1970, the problems were data not matching the sources that he claimed he obtained the data from, observations being used that don't exist in the sources he cites, and him linking series that are incompatible.  His response is:

I certainly agree that available data sources on wealth are much less systematic than for income. . . .
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). . . .

First note that he doesn't directly respond to any of the critiques.  He comes closest when he says that "one needs to make a number of adjustments," but a more helpful response from him would have been to specifically give one single example.  His response clearly doesn't even try to explain data that isn't available in the sources he cites nor is this really a justification for why he would link inconsistent data series.  

For example, take Giles statement that: "Here’s a list of constructed data, where there appears to be no source or where the source is not described either accurately or fully."  A response on the unexplained data would have been something like: if Chris Giles had looked at Appendix B in XXX, he would have clearly seen the source of the data for years XX and XX.  

An explanation for the adjustments would have read something like this: while the data in the original source XX doesn't show an increase in inequality, the reason that my series added 2 percentage points to the share of wealth held by the top 1 percent in the United States in 1970 is largely due to my adjusting for YY and ZZ that were not accounted for in the original data source.  Clearly, YY has to be done because of AAA.

I would really appreciate if someone could point to one place where Piketty's letter actually addresses Giles' points.

As to the US data, again Piketty doesn't explain why he would arbitrarily add on percentages to the US data.

Finally he then says that all this data is really besides the point because it leaves out certain information, which if we had it, would surely show that he is correct ("Finally, let me say that my estimates on wealth concentration do not fully take into account offshore wealth, and are likely to err on the low side.").

Even Piketty's defenders, such as Neil Irwin at the New York Times, have had to concede that Piketty isn't really responding to the points raised.

He did not specifically address the accusations of data-entry errors or give detailed responses to some of Mr. Giles’s criticisms about questionable assumptions that underlie Mr. Piketty’s broader work. . . .

Instead, the defense is one of tone rather than substance.

But in his e-mail to me, he wrote with an almost jovial tone: “Every wealth ranking in the world shows that the top is rising faster than average wealth,” adding, “If the FT comes with a wealth ranking showing a different conclusion, they should publish it!” . . .

Not only is this besides the point, it is also clearly wrong.  As Giles notes:

In constructing his long-run series (in blue), Prof. Piketty migrates from the Kopczuk-Saez data to that of Wolff (1994, 2010) and Kennickel (2009), even though these are measured on a very different basis. The result is that his line does not have the fall in inequality seen by Kopczuk-Saez but instead shows a rise.  

Looking at the two papers by Wolff, which provide estimates from 1960 to 2010, the top 1 per cent wealth share appears to be essentially flat, going from 33.4 per cent of total wealth in 1960 to 34.6 per cent in 2010. Wolff’s papers describe a modest increase in inequality, significantly gentler than Piketty’s graph shows. . . .

Paul Krugman also takes Piketty's approach to defense and doesn't directly address Giles point that different series can show different results for the US.  A proper response from Krugman would have been to point to why one measure is better than another.  Krugman completely ignores the papers by Kopczuk-Saez  and Wolff directly cited by Giles above.

There are two other points to make:

1) The changes in inequality that Piketty is focusing on are small.  I don't think that inequality is bad -- people are getting paid what others think that they are worth.  But compared to historical values, the recent changes, even if Piketty was right, are small.

2) Despite people claiming that Giles points aren't that important, I think that anyone who looks at the graphs for the UK or the top 1 percent in the US will see that they make a big difference, though the top 1 percent of the US was already relatively flat.





For Europe as a whole, the very small increases in inequality changes to becoming basically flat.

Piketty's book contained data errors that completely drove his results

UPDATE: Piketty is being accused of deliberately lying about his data to get the results that he wants.

Piketty altered U.K. data to show that wealth distribution there is worse off than it appears to be. 

Piketty says the share of income going to the top 10% never fell lower than 60%, and since the end of the 1970s has returned to 70%, a level not seen in 70 years.But the data Piketty himself cites shows the top 10% share of wealth is no greater than 50%, and may be as low as 42%. 

Giles writes: "This appears to be the result of swapping between data sources, not following the source notes, misinterpreting the more recent data and exaggerating increases in wealth inequality."  

Below is the chart. The right-most portion of Piketty's blue trend line showing the share of wealth owned by the top 10% of Britons ends up well above what's suggested by the data, in red, that Piketty himself cites.

Meanwhile, just one official data point for the top 1% share of wealth aligns with Piketty's blue line. But Giles said the source of that data said it was not suitable for the kind of calculation Piketty is trying to make. 

"Prof. Piketty ends his series taking at face value the level of the HMRC data, despite HMRC saying clearly the data is not suited for that purpose, nor is it consistent with the old Inland Revenue Series which Prof. Piketty uses for earlier years. This latter point is also clearly stated in the notes to the source data.". . .

ORIGINAL: The Financial Times has "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 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.

For example, once the FT cleaned up and simplified the data, the European numbers do not show any tendency towards rising wealth inequality after 1970. An independent specialist in measuring inequality shared the FT’s concerns.  . . . 

Professor Joseph Stiglitz of Columbia University said Prof Piketty’s “fundamental contribution” was the provision of data on the distribution of wealth. . . . .

Like many, Robert Shiller, a liberal economist at Yale, was not impressed with Piketty's solutions, but he was impressed with the data:

Thomas Piketty’s impressive and much-discussed book Capital in the Twenty-First Century has brought considerable attention to the problem of rising economic inequality. But it is not strong on solutions. As Piketty admits, his proposal – a progressive global tax on capital (or wealth) – “would require a very high and no doubt unrealistic level of international cooperation.” . . .

So what do Shiller and Stiglitz say now?  They put a lot of weight on that data and the comparisons that were made.  Now those same comparisons show the opposite of what they claimed do they reverse their positions?  Paul Krugman believed that the book “will be the most important economics book of the year – and maybe of the decade.”

Of course, there were lots of logical errors in Piketty's book, but these data errors mean that even ignoring those problems his data doesn't show the increase in inequality that he was claiming.

As someone who hasn't put so much weight on these types of discussions, I don't really care what the results show on this, but for those who do, I will be interested in knowing how they handle this.

More on Romney's comment about Obama using government largess to buy votes

I am not sure how saying that Obama was using government money to buy votes is the same thing as saying that you aren't contesting for people's votes.  I can say that I understand the president is trying to buy votes, but if I offer policies to create growth, voters might be willing to forgo the government money.  Possibly there is a better way to express the point that Romney made, but that seems to me to be a different point.  Former Texas Senator Phil Gramm used to talk about people pulling the wagon versus those in the wagon.  Would Gramm have gotten reprimanded nowadays if he had said that it is hard to win an election with so many people "in the wagon"?  If Gramm's way of phrasing things is still acceptable, why aren't these Republican politicians below more constructive in their criticism?  Or is this just an issue of Republican politicians seeing a chance to get publicity?

Louisiana Gov. Bobby Jindal (R) criticized Republican candidates on Sunday for making comments he said alienated voters and cost the party the presidency and key Senate seats.
"We don't need to demonize, and we also don't need to be saying stupid things," Jindal, the new chairman of the Republican Governors Association, said on "Fox News Sunday."
He singled out Republican Senate candidates Rep. Todd Akin of Missouri and Richard Mourdock of Indiana, saying their controversial comments on rape and abortion cost Republicans Senate seats and dragged down the party nationally.
Jindal also denounced Mitt Romney's recent comment to donors that President Obama was able to win reelection by giving "gifts" to key voting groups."I absolutely reject what he said. Look, we as the Republican Party have to campaign for every single vote," Jindal said. . . . .

Senator Lindsey Graham made a similar point:

[Graham] on Sunday blasted Republican nominee Mitt Romney's assertion that Democratic "gifts" to minorities had helped them win the election.
"We’re in a big hole, we’re not getting out of it by comments like that," Graham said on NBC's “Meet the Press.” “When you’re in a hole, stop digging. He keeps digging.”
In a Wednesday call with donors, Romney cited Obama’s healthcare reform law and executive order stopping the deportation of some illegal immigrants as “gifts” which motivated voters to back the president. . . . .

The "self-deportation" comment by Romney could also have been a mistake with Hispanics, especially those here illegally, but is Romney's point about vote buying really wrong?

The debate over Romney's 47 percent comment

I understand that Romney's statement was politically stupid and that it confuses the fact that a lot of people are pressured by the government to behave differently than would otherwise be in their interest to behave.  If it were me, I would blame the government pressure, just as I blame the government for the break up of the African-American family.  But if Romney had said that farmers tended to vote for politicians who support aid to farmers, would that have been OK?  Why would this be any more surprising than the fact that unions support politicians who help out unions or that the NRA supports politicians who support their positions?  Would the national media had come down on Obama if he had lost and blamed it on the NRA?  Wait, didn't Clinton already blame the NRA for loses in 1994 and 2000?  Well, I suppose those cases are different, right?  I would hope that someone will explain the differences to me.

In addition, Romney's comments sound like a lot of academic economics papers on this regulation and generally how government operates.  See for example, Sam Peltzman's 1976 paper in the Journal of Law and Economics or Gary Becker's comment.  From Politico:

Mitt Romney told donors Wednesday he blamed last week’s loss to President Barack Obama in part to “gifts” the Obama administration gave to key voter blocs, including African Americans, Hispanics and young women, according to media reports. 

“The president’s campaign focused on giving targeted groups a big gift — so he made a big effort on small things. Those small things, by the way, add up to trillions of dollars,” Romney said on a conference call with donors, the Los Angeles Times first reported. 

The “gifts,” according to Romney, included forgiving college loan interest, free contraceptive coverage and the part of Obamacare that allows people 26 and younger to be covered under their parents’ health care plans. 

“You can imagine for somebody making $25,000 or $30,000 or $35,000 a year, being told you’re now going to get free healthcare, particularly if you don’t have it, getting free healthcare worth, what, $10,000 per family, in perpetuity. I mean, this is huge,” Romney said, the New York Times reported. . . .

"Obama USDA met 30 times with Mexican gov’t to promote food-stamp use among Mexican immigrants"

Possibly Romney was on to something when he talked about people voting their interests in terms of whether they are getting transfers from the federal government.  From the Daily Caller:

Department of Agriculture personnel in the Obama administration have met with Mexican Government officials dozens of times since the president took office to promote nutrition assistance programs — notably food stamps — among Mexican Americans, Mexican nationals and migrant communities in America. 

Writing in response to Alabama Republican Sen. Jeff Sessions’ July request for information about the USDA’s little known partnership with the Mexican government to educate citizen and noncitizen immigrants from Mexico about the availability of food stamps and other nutrition assistance programs, Agriculture Secretary Tom Vilsack defended the partnership as a way to curb hunger in America — and the continuation of a program formed under the Bush administration in 2004. . . . 

Roughly 30 of these meetings and activities occurred under the Obama administration, Vilsack’s letter revealed. 

The agriculture secretary added that the list might not be exhaustive as some of the meetings may not have been recorded. . . . 

"we are determined to help people in need make informed decisions about whether or not to seek assistance for which they may be eligible,” Vilsack claimed. . . .  

Vilsack’s letter indicate(s) that the number of legal non-citizens participating in SNAP increased approximately 190 percent from 2001 to 2010, from 425,000 to 1.23 million legal non-citizen participants. That number rose 77 percent since the program’s inception in 2004, when it served 693,000 non-citizen participants. . . .  

Sessions noted. “How can the administration justify trying to increase that number through outreach on the foreign soil of fifty consulates?” 

USDA uses Spanish soap operas to push food stamps among non-citizens, citizens

Each novela, comprising a 10-part series called “PARQUE ALEGRIA,” or “HAPPINESS PARK,” presents a semi-dramatic scenario involving characters convincing others to get on food stamps, or explaining how much healthier it is to be on food stamps. . . .

 USDA suggests food stamp parties, games to increase participation 

“Throw a Great Party. Host social events where people mix and mingle,” the agency advises. “Make it fun by having activities, games, food, and entertainment, and provide information about SNAP. Putting SNAP information in a game format like BINGO, crossword puzzles, or even a ‘true/false’ quiz is fun and helps get your message across in a memorable way.” . . .The agency’s most recent outreach effort targets California, Texas, North Carolina, South Carolina, Ohio and the New York metro area with radio ads.
The ads have been running since March and are scheduled to continue through the end of June — at a cost of $2.5 million — $3 million, CNN Money reported Monday. . . .

Obama on how the working poor can be organized to push for government programs

Starting at 14:10 into the audio: ". . . The new immigrant population is much less skilled, is much more apt to be in this category of the working poor that we talked about, is having the same problems that people who have been here for a while are having, and what that means is that it gives us the opportunity to do organizing that we couldn't do before."

Obama wants to organize welfare recipients and those receiving government assistance so that he can get them more government assistance.

"Mechanics of President Obama's Proposal to Raise Taxes on the 'Rich'"

TaxProf has a nice collection of links on Obama's tax the rich proposals available here.

Possibly one of the more interesting points that he links to is from the Tax Foundation:

The president and his economic team tend to dismiss the impact that such as tax hike will have on business activity because only 2 or 3 percent of taxpayers with business income are taxed at the highest rates.

While this statistic is true, the more economically meaningful statistic is how much overall business income will be taxed at the highest rates. For example, Treasury data for 2007 indicates that 50 percent of all pass-through income is earned by taxpayers subject to the top two tax brackets of 33 percent and 35 percent. . . .

No matter how you cut the data, the fact is that hiking the top individual income tax rates would amount to one of the largest single tax increases on individually owned businesses in modern history and a threat to the long-term economic health of the nation.

Tax $$$ for Rich, Educated, White: DC's Capital Bikeshare

This money was from a federal program that was supposed to "address the unique transportation challenges faced by welfare recipients and low-income persons seeking to obtain and maintain employment."  Yet, the people who benefited from the program are well to do.

49% of Americans live in Households Receiving Government Benefits

From the WSJ:

. . . . The 49.1% of the population in a household that gets benefits is up from 30% in the early 1980s and 44.4% as recently as the third quarter of 2008.
The increase in recent years is likely due in large part to the lingering effects of the recession. As of early 2011, 15% of people lived in a household that received food stamps, 26% had someone enrolled in Medicaid and 2% had a member receiving unemployment benefits. Families doubling up to save money or pool expenses also is likely leading to more multigenerational households. But even without the effects of the recession, there would be a larger reliance on government.
The Census data show that 16% of the population lives in a household where at least one member receives Social Security and 15% receive or live with someone who gets Medicare. There is likely a lot of overlap, since Social Security and Medicare tend to go hand in hand, but those percentages also are likely to increase as the Baby Boom generation ages. . . .

"Millionaire Jason Alexander attends a 99% rally to try and find out how to become a part of the 99%ers movement"

This is actually pretty funny (available here).

Thanks very much to Monica Sanford for this link.

An example of how wealth is transferred to favored businesses by the Obama administration

This businessman worked on the Obama campaign and his firm handles the mandate that health care records be digitized. This guy argues that digitizing records will save money. But if that is true, why have to mandate that they do this? It is pretty amazing that this guy has the nerve to say that it is good to have this mandate when his firm personally benefits from the mandate.

About Half of All Americans Don’t Pay Income Taxes

From the Heritage Foundation.

Demonizing wealthy Americans?

Some disappointing poll numbers on the dislike of the wealthy. I think that Adam Carolla is right at the 2:26 point in the discussion.

Obama making life difficult for high income earners

This is one way to raise the effective tax rate for individuals, raising the probability that you will be audited.

If your income is high, your chances of getting a visit from the Tax Man are on the rise—and there isn't much you can do about it.

Last year, the Internal Revenue Service sharply increased face-to-face audits of upper-income taxpayers, according to data released Thursday. For taxpayers reporting income above $200,000, so-called field audits rose 34% in fiscal 2011 to 78,392, from 58,521 in fiscal 2010. (The IRS fiscal year begins on Oct. 1.)

Field audits, which are conducted by an agent, are often more in-depth than "correspondence" audits, which are conducted by mail and sometimes involve a single issue. Overall, the agency audited 3.9% of taxpayers with income above $200,000, up from 3.1% in 2010.

The increase in field audits for taxpayers reporting income over $1 million, though smaller, was still significant: 24%, for a total of 20,475 in 2011, versus 16,509 in fiscal year 2010.

Overall, the agency audited 12.5% of taxpayers reporting income over $1 million, compared with 8.4% in 2010. . . .

The Obama administration claims:

"We are looking more at taxpayers at these income levels because we find more issues there," says IRS Deputy Commissioner Steve Miller. . . .

But assuming that this error rate is true, it wouldn't be surprising simply because these people have more complicated taxes. Even the IRS makes mistakes on interpreting these complicated rules and they claim that more money is owed even when it isn't.

The bottom line though is that these efforts don't seem to be raising more money.

Overall, the IRS collected slightly less revenue from enforcement efforts in 2011, $55.2 billion versus $57.6 billion in 2010. Mr. Miller attributes the drop to anomalies, such as several large cases that were closed in 2010. . . .

Those horrible wealthy people: Seven of the ten wealthiest people in Congress are Democrats

Paul Caron links to this discussion in the Washington Post:

[T]he financial gap between Americans and their representatives in Congress has widened considerably since [1984], according to an analysis of financial disclosures by The Washington Post.
Between 1984 and 2009, the median net worth of a member of the House has risen 2.5 times, according to the analysis of financial disclosures, rising from $280,000 to $725,000 in inflation-adjusted dollars. Over the same period, the wealth of an American family has declined slightly, with the median sliding from $20,600 to $20,500. ... The growing disparity between the representatives and the represented means that there is a greater distance between the economic experience of Americans and those of lawmakers. . . .

Of course this is somewhat misleading as the price index for the wealth isn't the same as that for lower income individuals (Hint: they buy different things), and once you allow the index to vary you don't see the drop in median earnings and wealth as commonly assumed.

In addition, there is a strong argument to make that the CPI overstates inflation because it doesn't deal with the increasing quality of products. If an Apple iMac is the same as it was five years ago, would we really want to say that the price level has remained constant? Or that the quality of medical care or housing hasn't improved?

Adjusting for inflation the way it is commonly done is misleading.

Senator Harry Reid claims: "Millionaire job creators are like unicorns. They are impossible to find and don't exist."

Does anyone believe these claims by the Democrats? Are job creators really as imaginary as "unicorns"? Have Democrats ever heard of Steve Jobs or tens of thousands of other businessmen? From The Hill:

Senate Majority Leader Harry Reid (D-Nev.) suggested on Monday that millionaires who create jobs are a mere figment of Republicans' imaginations.

"Millionaire job creators are like unicorns,” said Reid from the Senate floor. “They are impossible to find and don't exist."

Reid's frustration has grown in past weeks as Republicans have repeatedly and overwhelmingly blocked almost every fragment of President Obama's jobs package brought to the floor because Democrats have attempted to pay for them by raising taxes on millionaires. Republicans say they oppose that tax because it would hamper job creation.

But Reid said Monday morning that there was no evidence of a correlation between taxes on the wealthy and jobs. . . .

"Overflowing" Government Subsidies

It is bad enough that projects that don't pay for themselves are getting subsidies. The problem is that they are getting almost all their money from the government and (surprise) that the subsidies are haphazard. From the New York Times:

. . . Obama administration officials said the subsidies were intended to help renewable-energy plants that were jumbo-sized or used innovative technology, both potential obstacles to getting private financing. But even proponents of the subsidies say the administration may have gone overboard.

Concerns that the government was being too generous reached all the way to President Obama. In an October 2010 memo prepared for the president, Lawrence H. Summers, then his top economic adviser; Carol M. Browner, then his adviser on energy matters; and Ronald A. Klain, then the vice president’s chief of staff, expressed discomfort with the “double dipping” that was starting to take place. They said investors had little “skin in the game.”

Officials involved in reviewing the loan applications said that Treasury Department officials pressed the Energy Department to respond to these concerns.

Officials at both agencies declined to discuss the anticipated financial returns of the clean-energy projects the federal government has agreed to guarantee, saying the information was confidential. . . .

In at least one instance — NRG’s Agua Caliente solar project in Yuma County, Ariz. — the Energy Department demanded that the company agree not to apply for a Treasury grant it was legally entitled to receive. The government was concerned the extra subsidy would result in excessive profit, NRG executives confirmed.

In other cases, the agency required that companies use most of the Treasury grants that they would get when construction was complete to pay down part of the government-guaranteed construction loans instead of cashing out the equity investors.

“The private sector really has more skin in the game than the public realizes,” said Andy Katell, a spokesman for GE Energy Financial Services, which like Goldman Sachs, Morgan Stanley and other financial firms has large investments in several of these projects.

But there is no doubt that the deals are lucrative for the companies involved.

G.E., for example, lobbied Congress in 2009 to help expand the subsidy programs, and it now profits from every aspect of the boom in renewable-power plant construction.

It is also an investor in one solar and one wind project that have secured about $2 billion in federal loan guarantees and expects to collect nearly $1 billion in Treasury grants. The company has also won hundreds of millions of dollars in contracts to sell its turbines to wind plants built with public subsidies. . . .

"People Should Pay My College Tuition Because ‘That’s What I want'"

Does Obama decide where to give talks based on whether donors own the company?

Another Obama proposal that will benefit a big donor? Why did Obama pick this company to give a talk at? From the Weekly Standard:

President Barack Obama will tout his American Jobs Act at WestStar Precision, a small business run by a donor to the president's inaugural, in Apex, North Carolina on Wednesday, September 14. WestStar’s president, Ervin Portman, is a Democratic county commissioner for Wake County who donated $1,000 to the Obama inauguration fund. Portman also donated through Act Blue, a progressive PAC, toward the successful 2008 campaign of Senator Kay Hagan (D-N.C.).

According to the White House press office, WestStar is a company “that will benefit from the bipartisan proposals in the American Jobs Act.” Obama’s tour of the company’s 10,000-square foot office and warehouse will be followed by a speech at North Carolina State University in Raleigh, where the president will continue to urge that Congress pass his plan. . . .

Obama's Political payoffs to Government Unions

Michael Barone gives Obama heck for his new "jobs" speech. One part of it is here.

Political payoffs. Nearly one-quarter of this latest stimulus package -- sorry, American Jobs Act -- is aid to state and local government, to keep teachers and other public employee union members on the job and paying dues to the unions. Altogether unions gave Democrats some $400 million in the 2008 election cycle. Pretty good return on their "investment," eh? . . .

In addition, at the same time that Obama speaks of "This isn't political grandstanding," he also says:

Conservatives, according to this speech, want to "wipe out the basic protections that Americans have counted on for decades" and "simply cut most government spending and eliminate most government regulations."

He claims that his speech "isn't class warfare," but then he says:

These sentences came four paragraphs after Obama insisted that "the most affluent citizens and corporations" should pay more taxes (which spurs job creation how?) and not long before he promised to "take that message to every corner of the country." . . .