Sunday, January 25, 2015

Responding to Levi Russell...

...because I don't blog much these days so why not bring it up into a main post that a few other people might read.

Levi Russell starts a little rough on me: "This post seems like a bunch of appeal to authority. Are Magness & Murphy not allowed to analyze the data and let it speak for itself?"

I don't think we have the same understanding of the term "appeal to authority". I'm not arguing that the accuracy of any of these claims is demonstrated by the authority of those making the claims, I'm highlighting that multiple well done independent analyses lend weight to the claim. Appeal to authority is really a logical fallacy anyway, and I'm not making a logical claim at all. I am making a generalization about the body of evidence we have available on these questions. And yes of course they are allowed to analyze the data. Nobody's said they aren't. I don't think data speak for themselves, though.

Russell continues: "They seem to have cited several relevant papers with big names on them. Certainly if there is some standard adjustment being made, it can be found in the articles of the big shots. If not, maybe there's a real problem here. I mean, I can understand that in a huge book (aimed, as it is, at a lay audience) your technical appendix might be a little sparse. However, in the individual papers M&M cite, these standard adjustments had better be pretty damn clear, right? Sort of like everyone citing Freund 1956 when discussing certainty equivalents and expected utility."

Yes! This is very much my point! They cite many (though not all) of, for example, the Kennickel papers which are the source of those adjustments that are added and yet in the paper they refer to those adjustments as "appending fixed percentages without further explanation". That is my concern, not their reference list! And those aren't even fancy adjustments in many cases. They're just data sources. There are adjustments that I've talked about with Magness and Murphy elsewhere (i.e., not in relation to this paper - which covers the U.S., the Soviet bloc stuff, etc.). Atkinson's adjustments of the UK series, for example. Those are described in great detail in Atkinson. But working through those adjustments is not what you get from the Murphy and Magness paper. And since they don't work through it and show me anything's wrong with it I'm going to trust Atkinson, his peer reviewers, and of course his peers who use the work on that. I don't personally know enough about the adjustment to second guess these guys.

He goes on: "Keep in mind here, I really don't care much what Piketty says about the inequality data. I'm concerned about causality and I don't think "r>g" is enough to justify an 80% wealth tax to "solve" the inequality problem."

So r > g doesn't justify 80% wealth tax unless I'm missing something. r > g is just a standard result from any growth model and the values of r and g determine the capital share. I feel like I'm missing something here.

Finally: "The real issue, as I see it, is theoretical. Bob has a lot of good stuff on this, but even basic sophomore-level finance sort of puts the kibosh on Piketty's flawed POV. (See here: http://blog.independent.org/2014/05/15/pikettys-capital-ii/)"

I'll take a look at it. Much of what Bob's said I agree with, though sometimes I don't attach the same significance to it (i.e. - how much the Cambridge Capital Controversies matter, etc.).


9 comments:

  1. It's late and I'm firing this off quickly, but: Daniel it sounds like you are complaining that we didn't carefully explain the motivation of Piketty's moves regarding the UK data. Since we don't discuss UK data in the paper, our omission is somewhat defensible, right?

    ReplyDelete
    Replies
    1. Kennickel is US, not UK.

      I also mentioned Atkinson but that's why I wrote "There are adjustments that I've talked about with Magness and Murphy elsewhere." - because that wasn't in the paper. Sorry if that was unclear. I mentioned Atkinson as an example of what Levi was talking about because he's actually doing more complicated statistical adjustments.

      Delete
    2. I parenthetically clarified the "elsewhere" sentence.

      Delete
    3. Daniel, You write: "But working through those adjustments is not what you get from the Murphy and Magness paper. And since they don't work through it and show me anything's wrong with it I'm going to trust Atkinson, his peer reviewers, and of course his peers who use the work on that.” But Atkinson is discussing British data, right? So when you say you’re going to trust Atkinson, fine, but I don’t see why you’re stating it here since M&M didn’t challenge the British data or the adjustments to the British data.

      Delete
    4. That's why I say I've discussed Atkinson with Murphy and Magness elsewhere, yes.

      Delete
  2. This comment has been removed by the author.

    ReplyDelete
  3. edit: wanted to add some more

    Thanks for clarifying. I agree that if previous authors went into detail about the data adjustments, then it’s incumbent on M&M to discuss them and point out why they think they’re wrong. It was my impression that Piketty didn’t even cite those adjustments, which he clearly should have done. M&M are certainly capable of working through all that, though, even if they aren’t big-shots in the inequality literature. Surely you’d agree. My appeal to authority comment was perhaps a bit much, but your comments on this topic have sounded a lot like "How can you question these guys?! They're the top guys in the field!"

    On the r>g and 80% wealth tax: In reading several (positive and negative) reviews, it was my understanding that r>g was Piketty’s justification for an 80% wealth tax. I suppose all those reviews could be wrong. I recall one positive review (can’t remember the author at the moment) was concerned that Piketty was using the elasticity of substition without adjusting for depreciation and is thus misinterpreting the implication. As my previous comment suggests, I think his theoretical issues are more fundamental.

    Holcombe’s short reviews are very good, especially the one I linked. Of course, there are others. Steve Horwitz liked to a video of one of his lectures on Piketty’s capital theory at Coordination Problem.

    Anyway, thanks for the reply.

    ReplyDelete
    Replies
    1. re: "M&M are certainly capable of working through all that, though, even if they aren’t big-shots in the inequality literature. Surely you’d agree."

      I'm not sure I'd agree on that. I guess it all depends on what we're talking about. If it's about looking for the table in Kennickel that has the number Piketty adds to the 1% figure to get the 10% figure (which is not in K&S) they're definitely capable of that. I imagine there's a lot of other stuff that's harder.

      I think a lot of people have botched the r > g thing. I suggested looking at Mankiw and Piketty at AEA on that Acemoglu on EconTalk, and Ray. I think they all offer a clearer sense of the whole r > g thing.

      Delete
    2. Levi - would you mind sending me your forthcoming Austrian business cycle theory paper? If you're OK with that you can send it to dan dot p dot kuehn at gmail.com.

      Delete

All anonymous comments will be deleted. Consistent pseudonyms are fine.