Piketty's repsonse to Chris Giles, Economics Editor of The Financial Times

Docklands from South London
Docklands from South London

See my blog from 25 May on this.

On May 28 2014 Thomas Piketty published his full reply to the FT. Here are some notes on this which came down to serious differences over data for wealth distribution in the UK in the last decades.

With regard the large difference between the percentage of wealth accounted for by the top decile in the UK in c2010 (FT 44%/Piketty 71%)


Let me make clear that although I think my estimate is more reliable and rests on better methodological choices, I also believe that this large gap reflects major uncertainties and limitations in our collective ability to measure recent evolution of wealth inequality in developed countries, particularly in Britain. As I explain above, I believe this is a major challenge for our statistical and democratic institutions.


In his further comments Chris Giles disagrees with Piketty regarding methodological choices and estimates. He feels that the data series on UK wealth he uses is better and accepted as such by UK researchers. He also questions Piketty's use of household survey wealth data from the US - which Piketty considers valid even though based on a much smaller sample than the UK's - whilst he (Piketty) rejects the same data for the UK.


He says,


It is inconsistent to accept a cross-section survey for the US when it gives high numbers, but reject one for the UK which gives low numbers. Prof Piketty needs to explain why he has made this choice and rejected the specific advice of HM Revenue and Customs not to use its latest survey of personal wealth survey in estimating the wealth of the UK as a whole.


In places Piketty concedes that although he thinks his methodological approaches and his data sources are the best available he has not always provided sufficient explanation of these and his working methods.


In other places he thinks the FT has simply not read some of the important research papers published alongside his book explaining his use and elaboration of particular data series.


His general conclusion seems to be that the FT criticisms and the minor shortcomings in his elaborations and explanations, rather than data, make little difference to his overall conclusions.


Giles again rejects this conclusion and cites UK wealth data from Atkinson and Morelli 2014 that seems to support the view that wealth inequality - as possessed by the top 1% in the UK - has grown in only one of the last nine decades - the 1990s.


In passing I note that Larry Elliot, the Guardian's Economics Editor reckoned, on 29 May 2014 that


The FT has been surprised by the furore caused by its attack on Piketty and is now keen to take the heat out of the row.


I have to say this seems unlikely given the publication of the critique on the front page of the FT and there is little evidence that Giles is backing down. If anything it appears to be Piketty who is trying to draw the debate to a close with a kind of I'm-right-but-I-need-to-add-a-few-more-explanations-and-we-all-need-to-recognise-the-difficulty-of-wealth-data-particularly-in-the-UK line below.


In passing the Guardian piece claims to have found errors in Giles' approach to which Giles has not responded.

Lothbury, EC2 at the back of the Bank of England in the City.
Lothbury, EC2 at the back of the Bank of England in the City.

Going back to Piketty's response to Giles it is interesting that he concedes to the argument that he should have used population weighted averages when arriving at a 'European' wealth inequality index (which sums the data for Sweden, the UK and France). In his defence he says,


However I should stress that it really does not make much of a difference here, because all three European countries that I use follow fairly similar long run patterns.


The key issue here boils down to the dynamic of wealth distribution in the UK because if this is markedly different from the trend in Sweden and France, (something that Giles claims) then a population weighted average will make a  significant difference to the 'European' figure.


Piketty believes his data is more representative of the situation in the UK than Giles' but he is also aware that less work has been done on the correction of under-reporting of top wealth levels in the UK than elsewhere (a lacuna that once fixed, he suggests, would tend to support his data rather than Giles').


(Giles rejects this critique of the UK data in the ONS Wealth and Assets Survey saying that the survey is specifically designed to measure wealth, and 'oversamples the top decile to address known non-response biases' and is more comprehensive than the US equivalent.)


Piketty concludes his reponse to Giles saying,


So we are back to the previous question: what happened to wealth inequality in Britain in recent decades? The FT seems to believe it has become more equal; however the way they use self-reported wealth survey data is not convincing. This is nevertheless an interesting debate for the future, and we should all agree that we know too little about it.

Lastly, I was particularly struck by Piketty's summary of the main message of Capital in the 21st Centruy.


The main message coming from my book is not that there should always be a deterministic trend toward ever rising inequality (I do not believe in this); the main message is that we need more democratic transparency about wealth dynamics, so that we are able to adjust our institutions and policies to whatever we observe.

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