Week links (7)

The best from the rest:

1. The news bomb of the week in economics actually came on Friday: Chris Giles from the Financial Times found serious errors in Piketty's argument on inequality:

"The data underpinning Professor Piketty’s 577-page tome, which has dominated best-seller lists in recent weeks, contain a series of errors that skew his findings. The FT 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 central theme of Prof Piketty’s work is that wealth inequalities are heading back up to levels last seen before the first world war. 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. ... 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."

The accusations are pretty serious. The full text is here. Well, if this is indeed true then it's a big deal. Interpreting with a slight bias is one thing, but cherry-picking data is completely unacceptable in academic work. He claims to have used a multitude of sources to get the data and he also claims that he doubts his conclusion would be changed with an improved dataset (see his response here). In other words, he is convinced his theory holds. However, explaining inequality is much more difficult than many believe, as it's volatility can depend on so many things, as I've shown in a series of texts (see here, here, here, here, here or here). Adhering blindly to only one view and attempting to find data that fits into one's hypothesis is an unfortunate way of furthering one's political views that have little to do with the facts. And the facts are the following: today we arguably have the lowest level of inequality than ever before. Just recall the lessons of economic history and the great rise in living standards. 

Disclosure: I still haven't read the book, I've only read reviews (both positive and negative), so I won't comment any of the findings yet. I just find it unfortunate that the database is apparently rigged. 

2. Hans-Joachim Voth: "Nazi pork and popularity: How Hitler's roads won German hearts and minds", VoxEu

Does this require any further clarification?

"In modern democratic elections, ‘political budget cycles’ may be driven by politicians’ need to signal their competence. Similarly, the Autobahn served as a convincing proof of Nazi Germany’s ability to get things done – a project to showcase the ruthless energy and organizational capabilities of the new regime, as Hitler promised in his speech inaugurating the project. Sold as a key factor for economic revival, the rapid fall in unemployment after 1933 convinced many that road-building had ‘worked’. After the perceived incompetence and gridlock of Weimar politics, many Germans were undoubtedly impressed by the rapid progress in road-building. The propaganda machine took particular care to connect the roads in the public imagination with Adolf Hitler himself – the motorways were called ‘roads of the Führer’, piggybacking off the leader’s popularity and enhancing his image still further."

Perhaps it can serve as yet another warning against socialism (or national-socialism) and its temporary economic effects. 

3. Arnold Kling: "David Brooks Plays Fantasy Despot", askblog

"The process of change would be unapologetically elitist. Gather small groups of the great and the good together to hammer out bipartisan reforms — on immigration, entitlement reform, a social mobility agenda, etc. — and then rally establishment opinion to browbeat the plans through. But the substance would be anything but elitist. Democracy’s great advantage over autocratic states is that information and change flow more freely from the bottom up. Those with local knowledge have more responsibility."

4. "Capitalism thrives by looking past the bottom line", Financial Times.

5. Scott Sumner says "The middle class is doing fine" at EconLog.

6. And finally, an old video by Milton Friedman on regulation and public choice theory: (HT: Cafe Hayek)

"All too often people who are well-meaning and have good intentions end up creating results which are the opposite of the very thing they are trying to fix." - just as I've pointed out in one of my first posts on the blog.