Lessons From Piketty As Well As Reinhart & Rogoff
People were quick to depict parallels betwixt the information problems of Thomas Piketty in addition to those faced yesteryear Reinhart in addition to Rogoff. I retrieve in that location are a few lessons that tin move drawn from these episodes, fifty-fifty though the problems with Piketty’s information seem much less serious. Since the details of the wealth distribution is non a priority inquiry topic for me, I volition non comment on the details of Piketty's alleged errors. Instead my observations hither are to a greater extent than most methodology.
The start amusing parallel is the business office of Excel spreadsheets inward these episodes. The minute number is to a greater extent than controversial, equally I fence that both sets of authors own got overstretched neoclassical modelling frameworks inward an endeavour to explicate the functioning of modern welfare states.
These episodes confirm my long-held persuasion that spreadsheets are an inherently bad way of doing serious analysis. Spreadsheets are fine for managerial tasks similar playing with budget scenarios, uncomplicated calculations, in addition to perhaps information entry. (There was a transcription mistake inward the Piketty spreadsheet, which shows that fifty-fifty for information entry, attention needs to move taken.)
Spreadsheet formulae are largely hidden, cryptic in addition to fragile. It is really hard to enjoin if the spreadsheet has been broken yesteryear an inadvertent primal press.
Using a database of some cast to shop the raw data, in addition to a statistical parcel (I purpose R for this blog) to manipulate that information is definitely preferable. Advantages of avoiding spreadsheets are:
The disadvantage of using statistical packages is that people who desire to cheque your results demand to know how to program. But equally long equally you lot know how to program, that's their problem, non yours.
I besides experience that inward both cases, the purpose of neoclassical models were stretched to encompass modern economies.
In the instance of Reinhart in addition to Rogoff, their analysis was econometric, in addition to lacked a theoretical declaration why high debt levels would tiresome growth. (Ricardian Equivalence presumably.) But yesteryear ignoring the reality that tiresome growth causes deficits inward welfare states to increase, their analysis missed the obvious problems of causality. (Since tiresome growth mechanically causes high debt-to-GDP ratios, statistically testing whether high debt-to-GDP ratios “cause” tiresome gross domestic product growth makes piddling sense.)
In the instance of Piketty, his mass was filled with a lot of details. But the kernel of theory revolved or in addition to thus some national accounting identities. This tight analytical focus made it possible to endeavour to verbalise over centuries of data. But this leaves opened upwards questions most the institutional details of welfare states. For example, government-provided onetime historic catamenia pensions trim back the demand of the optic in addition to lower classes to salve for retirement, in addition to and thus nosotros should await a higher rank of wealth than income equality. And the post-1980 catamenia saw a generational bull marketplace inward fiscal markets, which volition mechanically get upwards inequality over that period. Given the marketplace backdrop, I own got some doubts that nosotros would own got plenty information to conclude whether inequality volition teach out along increasing, or rather the forces of dispersion (conspicuous consumption, multiple heirs, divorce) volition counteract the cumulative consequence of property returns higher upwards income growth (“r>g”).
In conclusion, I am fairly skeptical most structural macroeconomic theories that purpose economical information over long fourth dimension intervals. Developed economies afterwards World War II deed quite differently than inward before periods, in addition to the dissimilar countries followed the same fads inward macroeconomic policy. Correspondingly, nosotros terminate upwards with a effectively express information educate from which nosotros tin depict conclusions.
See also:
(c) Brian Romanchuk 2014
The start amusing parallel is the business office of Excel spreadsheets inward these episodes. The minute number is to a greater extent than controversial, equally I fence that both sets of authors own got overstretched neoclassical modelling frameworks inward an endeavour to explicate the functioning of modern welfare states.
Spreadsheet Problems
These episodes confirm my long-held persuasion that spreadsheets are an inherently bad way of doing serious analysis. Spreadsheets are fine for managerial tasks similar playing with budget scenarios, uncomplicated calculations, in addition to perhaps information entry. (There was a transcription mistake inward the Piketty spreadsheet, which shows that fifty-fifty for information entry, attention needs to move taken.)
Spreadsheet formulae are largely hidden, cryptic in addition to fragile. It is really hard to enjoin if the spreadsheet has been broken yesteryear an inadvertent primal press.
Using a database of some cast to shop the raw data, in addition to a statistical parcel (I purpose R for this blog) to manipulate that information is definitely preferable. Advantages of avoiding spreadsheets are:
- All manipulations are easily seen inside the text of the code. How you lot are calculating averages, for example, is easily seen.
- It is slow to meet whether calculations are beingness done over the right sample intervals.
- Productivity is enhanced equally mutual tasks tin move moved to library code.
- It is possible to enforce coding standards, such equally requiring comments.
- It is slow to portion run alongside multiple analysts inside a rootage command system.
The disadvantage of using statistical packages is that people who desire to cheque your results demand to know how to program. But equally long equally you lot know how to program, that's their problem, non yours.
Analytical Overreach
I besides experience that inward both cases, the purpose of neoclassical models were stretched to encompass modern economies.
In the instance of Reinhart in addition to Rogoff, their analysis was econometric, in addition to lacked a theoretical declaration why high debt levels would tiresome growth. (Ricardian Equivalence presumably.) But yesteryear ignoring the reality that tiresome growth causes deficits inward welfare states to increase, their analysis missed the obvious problems of causality. (Since tiresome growth mechanically causes high debt-to-GDP ratios, statistically testing whether high debt-to-GDP ratios “cause” tiresome gross domestic product growth makes piddling sense.)
In the instance of Piketty, his mass was filled with a lot of details. But the kernel of theory revolved or in addition to thus some national accounting identities. This tight analytical focus made it possible to endeavour to verbalise over centuries of data. But this leaves opened upwards questions most the institutional details of welfare states. For example, government-provided onetime historic catamenia pensions trim back the demand of the optic in addition to lower classes to salve for retirement, in addition to and thus nosotros should await a higher rank of wealth than income equality. And the post-1980 catamenia saw a generational bull marketplace inward fiscal markets, which volition mechanically get upwards inequality over that period. Given the marketplace backdrop, I own got some doubts that nosotros would own got plenty information to conclude whether inequality volition teach out along increasing, or rather the forces of dispersion (conspicuous consumption, multiple heirs, divorce) volition counteract the cumulative consequence of property returns higher upwards income growth (“r>g”).
In conclusion, I am fairly skeptical most structural macroeconomic theories that purpose economical information over long fourth dimension intervals. Developed economies afterwards World War II deed quite differently than inward before periods, in addition to the dissimilar countries followed the same fads inward macroeconomic policy. Correspondingly, nosotros terminate upwards with a effectively express information educate from which nosotros tin depict conclusions.
See also:
- My review of Thomas Piketty’s Capital inward the Twenty-First Century.
- Dan Kervick summarises the theory inward Piketty’s mass here.
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