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Why data is important

The economists James Heckman and Thomas Piketty explain how collecting data has been fundamental to their work on inequality.
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[Heckman] Data essentially allow us to discriminate among alternative explanations. [Piketty] I think theory can be useful but I think sometimes economists spend too much time doing very sophisticated theory without knowing what are the facts that they are trying to explain and understand. [Heckman] When Adam Smith was writing The Wealth of Nations many deep ideas that he had came but he didn’t have a body of data. [Piketty] When I started as a graduate student I realized that there was actually very little data collection. [Heckman] We might observe some fact. Then we want to know well, is this fact an anomaly? [Piketty] So we have to measure these things to make proper comparisons to see, you know, when these claims are justified.
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[Heckman] And then the second question would be, even if it’s a repeated finding, what are the mechanisms that give rise to that repeated finding? [Piketty] Better data is not going to make the world a peaceful place but at least it can allow us to have a more informed discussion. [Heckman] As you try to collect data and you try to use every source of information available to you. [Piketty] Go back to the historical data. Collect in a much more systematic manner than what was done before. [Heckman] So I’ve looked at data from what are called cross-sections; looking at different individuals, following the same people over time. [Piketty] Taxation is always more than taxation.
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It’s also a way to produce information, you know, to society. [Heckman] So you look at multiple sources of data, all of it non experimental. [Piketty] It’s a way to produce legal categories, statistical categories, which can then be used by economists and other social scientists. [Heckman] And also using economic theory to help organize your thinking. [Piketty] The history of income and wealth is not just a pure economic history; it is a political history, or social history. [Heckman] Parts of the story may not yet be fully understood and that’s the challenge. [Piketty] Instead of just proving sophisticated mathematical theorems in order to impress others we should just, you know, try to collect data, establish facts, and try to learn something.

Data about regions of the world, and the people in it, is the starting point of all economic studies on inequality. In this video, the economists James Heckman and Thomas Piketty explain how collecting data has been fundamental to their work on inequality and the policies to reduce it.

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Measuring Economic Inequality in Today’s World

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