The Financial Times (FT) has precipitated a long-anticipated storm about the validity of the statistical methodology used by Thomas Piketty to support his argument in Capital in the 21st Century for an increase in taxation on the very wealthy.
FT economics editor Chris Giles reported yesterday in an article entitled Data problems with Capital in the 21st Century that some of the figures used in the book are not consistent with those appearing in the sources the data were taken from. Figures have been “tweaked”; misleading averages among countries have been presented; some of the figures are extrapolations; base years have been arbitrarily used for comparisons; definitions of wealth are inconsistent and data sources have been selectively used.
“…the combined result of all these problems is to make wealth concentration among the richest in the past 50 years rise artificially,” Giles wrote.
In a response published on FT online on the evening of 23 May, Piketty conceded that wealth data is less systematic than data for incomes.
“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…,” Piketty wrote. He said that studies by others “confirm and reinforce my own findings: the rise in top wealth shares in the US in recent decades has been even larger than what I show in the book.”
Economics2030 says that Piketty has attempted the impossible. All economic data, including figures presented by the impeccably accurate ONS, are little more than approximations of economic activity that increasingly takes the form of intangible commodities; things that can’t be seen or measured scientifically. The data extracted from sources more than 140 years old is unlikely to be either accurate or precise anyway.
The main objection to the core thesis in Piketty’s book — that the rate of return on capital consistently exceeds the rate of growth in capitalist economies — is that it assumes that capital is definable.
The fact is that what is defined as wealth today is completely different to what considered to be wealth 50 years ago.
Items like brand, goodwill and other forms of intangible capital that now dominate the balance sheets of the largest companies in advanced companies have only been comparatively recently accepted by the accounting profession. Other forms of intangible capital have developed through legislation; not through the work of economists.
The denominator — K — is unstable. It is a heterogenuous mixture of things, not all of them measurable, that produce an income.
So the debate about data is unnecessary.
Nobody can prove r is greater than, the same as or less than g.
The Piketty debate has exposed the absence of coherence at the heart of criticisms of “conventional” economics. We all know something’s gone wrong, but we don’t know what.
Economics2030 attempts a better answer by explaining that in services value is exclusively the result of constructive interaction at the level of the individual where price has limited traction. To explore the argument, start with The history of price above:
https://edmundosullivan.com/economics2030/the-history-of-price/