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Wherever the debate about the data in Thomas Piketty’s work on inequality may lead, there’s at least one bright side: The argument itself reflects a desirable shift in the field of economics toward answering questions that matter.
Economics, at its best, is about what makes us better off and how we can have more of it. For decades preceding the financial crisis, though, the mainstream strayed from that laudable goal. The workhorse models economists used to understand the world became largely thought experiments that bore little relation to reality.
Piketty’s approach is completely different. He focuses on three profoundly relevant questions: What is happening with inequality, is it a problem for society, and what can be done about it? He has spent much of his academic career cobbling together the data on income and wealth needed to find answers.
Many, including Bloomberg View, reasonably disagree with the conclusions Piketty has drawn. The Financial Times questioned some of the wealth data, contributing to our understanding of a phenomenon crucial to our well-being.
Piketty is not alone. The style of empirical economics he represents is enjoying a sort of renaissance. Consider the work of Raj Chetty and colleagues on equality of opportunity, Carmen Reinhart and Kenneth Rogoff on the history of financial crises, or Justin Wolfers and Betsey Stevenson on happiness.
One takeaway from Piketty’s experience is that empirical work is difficult. Cobbling together big data sets and teasing out the important trends involve all manner of judgment calls. Errors are inevitable, and decisions should be questioned.
In this spirit, whether Piketty or any of these researchers are “right” or “wrong” hardly matters. As long as they are acting competently and in good faith, and generating useful data, they are absolutely heading in the right direction. •