While trying to poke holes in Piketty's inequality thesis, the FT has engaged in all the classical tactics of climate change denial but in turbocharged form.
In the week a report established that 97.1% of scientists publishing on the subject have concluded that man-made climate change exists, it seems the right have re-opened an old front in their war on reality. In Saturday’s Financial Times the normally sober paper appears to have fancied a day masquerading as Fox News as it piled into Thomas Piketty’s Capital in the 21st Century, arguing that its main thesis — broadly that wealth inequality is rising at Belle Époque rates — was undercut by flawed data.1
Picking apart the analysis is fair enough you might argue, and Piketty would agree; that’s why he put all his data on his website so it could be checked by third parties (compare the secrecy of right-wing think tanks, especially about who funds them). The problem is that the FT’s criticisms are laughable. I mean some of them are seriously embarrassing — what on earth was their editor thinking? The FT turned their splash into a video for good measure2 and I have to wonder if I am the only one seeing unease on Economics Editor Chris Giles’ face as he presents his ‘findings’?
For example, the FT leads its video assault3 with a strange appearance of an inexplicable “2” in a formula that reads “2+J11*(FS12/FS11)” allegedly because Piketty did not think the numbers high enough. The FT’s analysis corrects for these sorts of inclusions. I slightly choked down my tea4 at this. Was Giles seriously suggesting that the addition of a constant to a function was fatal to an analysis of its trend — its rate of change or slope? If you take a simple function like f(x)=x then it’s slope is f´(x)=1. If you add a constant c=2 then f(x)=x+2 and the slope is f´(x)=1. Let’s set c=42 billion, then f(x)=x+42 billion and its slope is, yes you guessed it, f´(x)=1. The point is the slope does not change if you move the same function up and down AND Piketty is interested in the slope — he is interested in how inequality is changing over time NOT where we are starting from.
Think of it another way: imagine Piketty is a geographer. The monetarists all claim that we live on a flat planet and Piketty is trying to show that there is at least one hill or valley on this dull plain. His data shows that at some point on the plain there is a slope (a sure sign of a hill or a valley). The FT is arguing that because his slope is slightly higher than their slope Piketty’s analysis is flawed and that consequently there are no hills or valleys (quod erat demonstrandum). Not only is the argument flawed, it actually insults not only the competence of the FT’s readership but the Painean common sense of everyone who can see all the bloody hills and valleys out their window. As a commenter wittily noted on Paul Krugman’s New York Times blog, the argument runs that if the statistical plot of the course of hurricane Katrina was off by 10 metres, there was no hurricane.
Applying this exciting new methodology of ontological critique I can now bring to you CLT’s very own splash which knocks the FT’s blustering into a hat. I can conclusively show that Newton’s arguments are undercut by flawed analysis. It turns out that his old second law of motion fails to take into account a reciprocal factor in the order of the square root of [1 – velocity²/speed of light²].5 Therefore — hold onto everything not nailed down — Newton was a fraud and gravity doesn’t exist.
The FT then goes on to criticise Piketty for using available data and for having holes where data is not available. You can see why they led with the additive constant. Piketty did his best, was open about it and has put his sources online for all to see. As Piketty notes, subsequent analyses using new data confirm his thesis. Furthermore, he has tried to obtain data which is of its nature difficult to obtain. Turning the FT’s argument on its head Piketty has responded (see endnote) that not only is he open about holes in the data, but that this is a key reason why he is arguing for a wealth tax: because taxes mean record-taking and record-taking means data to assess wealth inequality. Given that James Henry has calculated that there is US$21 trillion of assets hidden offshore, even a wealth tax of the French type would not provide sufficient data as to real inequality.6
Paul Krugman sums up the FT’s Chris Giles’ position as follows:
The point is that Giles is proving too much; if his attempted reworking of Piketty leads to the conclusion that nothing has happened to wealth inequality, what that really shows is that he’s doing something wrong.7
Quite. And from the other side of the debate Scott Winship, an economist at the right-leaning Manhattan Institute for Policy Research, and notable critic of Piketty’s analysis, said the FT’s allegations weren’t:
significant for the fundamental question of whether Piketty’s thesis is right or not … It’s hard to think Piketty did something unethical when he put it up there for people like me to delve into his figures and find something that looks sketchy … Piketty has been as good or better than anyone at both making all his data available and documenting what he does generally.8
People will provide more detailed comebacks on the economic arguments and the new data will be integrated. This is not what spurred me to blog. Nor any particular love for Piketty; not only are the exponential growth demands of capital and its manner of reproduction self-evident to me at least, but Piketty’s solutions are unlikely to make the slightest dent. This is indeed why he is more popular with the centre-left of the UK and East Coast US than in France.
No. What struck me was the manner in which the FT engaged in all the classical tactics of climate change denial but in turbocharged form. From behind its paywall it created a storm by suggesting Piketty’s findings were “undercut by errors” knowing full well that on the internet this would be amplified by right-wing bloggers as “Piketty completely wrong” and “wealth inequality does not exist (save as [insert bête noire here] propaganda)”. I remember The Spirit Level and to a lesser degree Le nouvel ésprit du capitalisme receiving assaults, some of which were heavy artillery attacks funded by think-tank sponsors, and they still held out. Yet in those cases the usual suspects engaged in the campaign to discredit. Here the FT has risked what currency it had even with its own fans on the right to bare its teeth and destroy Piketty’s reputation.
To have brought upon himself the very anger of the celestial realm; perhaps Piketty really has brought us a spark of fire.
Piketty’s preliminary response to the FT is here.
Ida Ince is an independent researcher in critical legal finance and has previously worked for many years in international finance.
- http://www.ft.com/intl/cms/s/2/e1f343ca-e281-11e3-89fd-00144feabdc0.html#axzz32oya0S2a ↩
- see link in above ref. ↩
- About the 1 min. mark ↩
- Yorkshire if you’re asking. ↩
- Which in classical case is 1 minus a really really small number. ↩
- http://www.theguardian.com/business/2012/jul/21/global-elite-tax-offshore-economy ↩
- http://krugman.blogs.nytimes.com/2014/05/24/is-piketty-all-wrong/?_php=true&_type=blogs&_r=0 ↩
- http://www.theguardian.com/business/2014/may/26/thomas-piketty-financial-times-dishonest-criticism-economics-book-inequality ↩