Is Piketty a Fraud?

by Patrick Brennan

No, probably not. But an investigation by the Financial Times reveals the extent to which the French economist, author of the bestselling Capital in the Twenty-First Century, had to adjust his data to arrive at a neat picture of wealth inequality over the course of the last couple hundred years. This is what economists must do if they want to make a sweeping argument like Piketty’s. His argument, relying on theoretical and empirical work, was that wealth inequality inevitably grows in capitalist societies, which involves assembling sparse historical data and interpreting it properly in order to discover what the past really looked like and where income and wealth really are flowing now. Such work is important but incredibly difficult.

He had an even tougher task than Carmen Reinhart and Ken Rogoff did when they set out to examine whether a high level of national debt causes a country to see slower economic growth, and their finding, that it does, was widely touted, especially by conservatives, until their data was more closely examined and revealed to show a much weaker result, if not the opposite.

One alternative to taking economic empirical work seriously is what Paul Krugman did today after the Piketty problems were revealed — cite magazine wealth lists and shamelessly flaunt your confirmation bias.

The following video, with two of the FT journalists who looked at Piketty’s data, explains a couple of the problems they found. 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.

Head over to the Agenda for a more in-depth explanation of the problems with Piketty’s data and why it never proved his case in the first place.