Kool-Aid or truth?

Submitted by Matthew on 4 June, 2014 - 11:17

Since 23 May, debate has raged among economists about an attempt by journalists on the Financial Times to refute the claim by Thomas Piketty, in his best-seller Capital in the 21st Century, that wealth inequality is rising and likely to continue to rise in the USA and Europe.

Most economists, even quite conservative ones, reckon that Piketty has come best out of the row.

There are other elements to the dispute, but the core argument is about wealth distribution in Britain, specifically, in recent decades. The background is that official figures for wealth are patchy and inconsistent.

Piketty explains that he collated evidence from a number of data series, and made adjustments for the differences in methods of calculation and to cope with the problem of discontinuities in data series.

For their central claim against Piketty, FT journalists Chris Giles and Ferdinando Giugliano rely on a single data series from the Office of National Statistics. In a response to Piketty (28 May), Giles says that he made his criticisms because he was puzzled by the ONS figures not matching Piketty's, and then "dug deeper".

His own Twitter feed gives a different picture. On 16 May, the day after the latest ONS figures were published, and without "digging deeper", Giles was denouncing Piketty's argument as "coolaid".

The reference is to the mass suicide of the Jim Jones religious cult in 1978, when cult members consumed poisoned swigs of a branded fruit drink, Kool-Aid.

"You need to think before you drink the Piketty coolaid on rising wealth inequality", tweeted Giles, implying (before any deep digging) that Piketty's message was so aberrant as to bring brain death.

"Not quite a refutation", Giles also tweeted, "but short-term trends contradict Piketty's predictions of rising wealth inequality". He cited figures which (even apart from their unreliability, which Piketty discusses in his book) were really no more than a snapshot, not of comparable weight to Piketty's large documentation of longer-term trends across many countries.

Even the ONS figures showed a sizeable rise in inequality of financial wealth (the main form of wealth for the very rich) in the period covered, 2006-2012.

Giles may have done us a service by getting more people to read Piketty's book.

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