Piketty on the Rocks

For having uncovered the inherent contradictions in capitalism, French socialist economist Thomas Piketty became a best-selling American author.

American liberals, progressives and leftists thrilled to the notion that capitalism inevitably manufactures inequality. They drove his rather academic book to the top of the Amazon best seller list.

As I have noted on the blog, Piketty’s policy proposals are more interesting in America than they are in France. In his home country Piketty is known as a close advisor for the French socialist party. The government of Francois Hollande has adopted many of them, with some variations.

By now everyone in France knows that they have failed, so no one takes Piketty very seriously.

In the meantime, Piketty’s reputation in the Anglosphere has just suffered what appears to be a devastating hit. The highly reputable Financial Times has just published an article claiming that Piketty fudged the numbers in his analysis. See also the analysis on Quartz.

FT editor Chris Giles summarizes his article:

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.

Prof Piketty, 43, provides detailed sourcing for his estimates of wealth inequality in Europe and the US over the past 200 years. 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.

Business Insider explains that it's not just about making a mistake. Giles has accused Piketty of manipulating data to fit a pre-existing idea.

[Giles’s] most damning claim: Piketty altered U.K. data to show that wealth distribution there is worse off than it appears to be.

Piketty says the share of income going to the top 10% never fell lower than 60%, and since the end of the 1970s has returned to 70%, a level not seen in 70 years.

But the data Piketty himself cites shows the top 10% share of wealth is no greater than 50%, and may be as low as 42%.

Giles writes: "This appears to be the result of swapping between data sources, not following the source notes, misinterpreting the more recent data and exaggerating increases in wealth inequality."

I am not qualified to evaluate the evidence. I simply point out that, in the world of economic ideas, and potentially economic policy, this is a very big deal, indeed.