As reported by TheBlaze last Friday, the number one bestselling book written by the darling of the Left, socialist French economist Thomas Piketty, has come under fire over allegations of data errors and outright manipulation based on a bombshell investigation conducted by the Financial Times.
These data errors and manipulations lead to a devastating conclusion:
"Two of Capital in the 21st Century’s central findings – that wealth inequality has begun to rise over the past 30 years and that the US obviously has a more unequal distribution of wealth than Europe – no longer seem to hold.
Without these results, it would be impossible to claim, as Piketty does in his conclusion, that "the central contradiction of capitalism" is the tendency for wealth to become more concentrated in the hands of the already rich and
'the reason why wealth today is not as unequally distributed as in the past is simply that not enough time has passed since 1945.'"
In the exposé, the Financial Times' Chris Giles examines the source data that Piketty made available backing his "Capital in the Twenty-First Century," alleging the following errors, which Giles goes on to describe in detail, backed by analysis he too has made publicly available:
- The source material is not always the same as the numbers Piketty publishes - most likely as a result of transcription errors according to Giles
- On a number of occasions, Prof. Piketty modifies the figures in his sources, without explanation for the adjustments he applies
- Prof. Piketty averages wealth data across countries as opposed to weighting figures by population size, a potential methodological error
- Prof. Piketty constructs data at times where there appears to be no source or where the source is not described either accurately or fully
- Prof. Piketty at times uses data from a given year as the starting point for a given decade, when data for the beginning of said decade already exists (i.e. using data from 1935 as the 1930 data point, when 1930 data from the same data source is available)
- Prof. Piketty's method to compute wealth data is not "apples-to-apples" across different nations and time periods
- Prof. Piketty cherry-picks certain data sources, which according to Giles has the effect of showing wealth inequality in the U.S. and U.K. to be rising as opposed to remaining constant
Giles argues that the end result of such errors and data manipulation is "to make wealth concentration among the richest in the past 50 years rise artificially." Further, Giles concludes that based on his own efforts to correct for such errors on a country-by-country basis, "wealth concentration among the richest people has been pretty stable for 50 years in both Europe and the US."
Piketty responded to the Financial Times investigation, writing in part:
"For the time being, we have to do with what we have, that is, a very diverse and heterogeneous set of data sources on wealth: historical inheritance declarations and estate tax statistics, scarce property and wealth tax data, and household surveys with self-reported data on wealth (with typically a lot of under-reporting at the top). As I make clear in the book, in the on-line appendix, and in the many technical papers I have published on this topic, one needs to make a number of adjustments to the raw data sources so as to make them more homogenous over time and across countries. I have tried in the context of this book to make the most justified choices and arbitrages about data sources and adjustments. I have no doubt that my historical data series can be improved and will be improved in the future (this is why I put everything on line). In fact, the “World Top Incomes Database” (WTID) is set to become a “World Wealth and Income Database” in the coming years, and we will put on-line updated estimates covering more countries. But I would be very surprised if any of the substantive conclusion about the long run evolution of wealth distributions was much affected by these improvements."
Piketty goes on to discuss more recent findings on U.S. data published subsequent to the release of his book, which he feels further his arguments on inequality, and also notes that his findings exclude wealth held off-shore, which he feels skews inequality data to the downside.
In a subsequent interview, Piketty called the Financial Times' allegations "ridiculous."
The charges leveled at Piketty by Chris Giles in terms of the veracity of Piketty's data and methodology -- which some have compared to errors in data assembled by economists Carmen Reinhart and Kenneth Rogoff backing their conclusions on debt and economic growth -- represent the latest in a series of challenges to Piketty's magnum opus.
The blogosphere is atwitter over the Financial Times' investigation, a round-up of which you can find below:
- Piketty's Wealth Inequality Book a 'Big Mess': AEI [CNBC] - "The highly acclaimed book on wealth inequality, "Capital in the Twenty-First Century" by French economist Thomas Piketty, is "fundamentally flawed," said Kevin Hassett, director of economic policy studies at the conservative American Enterprise Institute.Hassett, a former adviser to Republican presidential campaigns, was responding to a Financial Times investigation into Piketty's data. The FT said it found problems, including unexplained entries in the author's spreadsheets, cherry-picking of sources and transcription errors. "The book is really a big mess," Hassett said in an interview Tuesday on CNBC. "The whole second half of the book where he talks about the demise of capitalism is just fundamentally flawed. And the FT is just the tip of the iceberg." Appearing with Hassett on "Squawk Box," Jared Bernstein, former chief economist to Vice President Joe Biden, said he's also "critical of the mistakes" the FT uncovered. But the discrepancies are only on the wealth data, he added. 'So the income data still looks solid.'"
- A Piketty Problem? [The Economist] - "Mr Giles's analysis is impressive, and one certainly hopes that further work by Mr Giles, Mr Piketty or others will clarify whether mistakes have been made, how they came to be introduced and what their effects are. Based on the information Mr Giles has provided so far, however, the analysis does not seem to support many of the allegations made by the FT, or the conclusion that the book's argument is wrong....in time, it will be clear enough whether Mr Piketty is the prophet some reckon or something else."
- Be Skeptical of Both Piketty and His Skeptics [FiveThirtyEight] - "Science is messy, and the social sciences are messier than the hard sciences. Research findings based on relatively new and novel data sets (like Piketty’s) are subject to one set of problems — the data itself will have been less well scrutinized and is more likely to contain errors, small and large. Research on well-worn datasets are subject to another. Such data is probably in better shape, but if researchers are coming to some new and novel conclusions from it, that may reflect some flaw in their interpretation or analysis. The closest thing to a solution is to remain appropriately skeptical, perhaps especially when the research finding is agreeable to you."
- What do the Piketty data problems really mean? [Marginal Revolution] - "...when you cut through the small stuff, the new empirical problem seems to be that UK revisions, combined with a population-weighted series for Europe, contradicts Piketty’s claim of rising wealth inequality for Europe. I would call that a serious problem. I am not impressed by the “downplaying” responses which focus on coding errors, Swedish data points, and the other small stuff. Let’s face up to the real (new) problem, namely that [data] robustness suddenly seems much weaker. If Piketty’s results don’t survive population weighting (and what are apparently the superior UK numbers), that suggests the overall rise in European wealth inequality is not very robust to how the pie is carved up and also that it is not backed by dominant, "rule the roost" sorts of forces."
- Is Piketty a Fraud [National Review Online] - "Piketty’s real problem, though, is not that he needs to answer for why he chose the data the way he did — NR contributor Scott Winship, for one, is quite familiar with Piketty’s U.S. data and thinks it’s honest. Rather, it’s that Piketty’s data is simply so incomplete and so sensitive that it’s not sufficient to make up the empirical half of his grand theory of the fate of capitalist societies — and therefore certainly not sufficient to justify the policies he recommends (an 80 percent top income tax rate and a global tax on wealth) to avoid that fate."
- Is Piketty All Wrong [New York Times/Paul Krugman] - "I don’t know the European evidence too well, but the notion of stable wealth concentration in the United States is at odds with many sources of evidence. Take, for example, the landmark CBO study on the distribution of income...Giles is proving too much; if his attempted reworking of Piketty leads to the conclusion that nothing has happened to wealth inequality, what that really shows is that he’s doing something wrong. None of this absolves Piketty from the need to respond to each of the individual questions. But anyone imagining that the whole notion of rising wealth inequality has been refuted is almost surely going to be disappointed."
- Did Thomas Piketty Get His Math Wrong? [New York Times (The Upshot)] - "It is always a difficult challenge trying to examine economic history given spotty data from the past and variations in how different countries collect and define data. The new Financial Times report will surely be examined by specialists and start an important debate over what we really know about wealth inequality — and whether the best-selling economics book of the year gets its figures right."