Piketty publishes detailed defence of his inequality thesis

French economist Thomas Piketty published a detailed 4,400-word defense of his best-selling book on income inequality against allegations that he relied on faulty data.

In a posting on his website, Piketty provided a blow-by- blow response to charges by the Financial Times newspaper that his book, Capital in the Twenty-First Century, contains suspect statistics and incorrect calculations.

“The FT suggests that I made mistakes and errors in my computations, which is simply wrong,” he wrote.

He said he stood by the book's conclusions: that wealth inequality in Europe and the US has risen in recent decades, and that the gap in the US has widened more than in Europe.

Capital in the Twenty-First Century has been hailed by Nobel-prize winning economist Paul Krugman as "the most important economics book of the year - and maybe of the decade."

Prof Piketty has given presentations on its findings to the White House Council of Economic Advisers, the International Monetary Fund and the United Nations. The 43-year-old professor at the Paris School of Economics examined centuries of data on countries including the US, Sweden, France and the UK to show that returns on capital in excess of economic growth lead to widening disparities in wealth.

In an article published last week, FT economics editor Chris Giles wrote that figures underpinning the 696-page book contained unexplained statistical modifications, "cherry picking" of sources and transcription errors.

He said the mistakes undermine Prof Piketty’s conclusion that wealth inequality in Europe and the US is moving back toward levels last seen before the first World War .

After correcting for the alleged errors, two of the book’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,” according to Giles.

One “serious discrepancy” Giles said he found was in Prof Piketty’s data on the UK. While Prof Piketty cited a figure showing the top 10 per cent of its population held 71 per cent of national wealth, a survey by the country’s Office for National Statistics put the figure at 44 per cent.

In his latest web posting, Prof Piketty disputes that the book contains transcription errors and disagrees with the adjustments to the data proposed by Giles, most of which he calls “relatively minor.”

“The FT corrections that are somewhat more important are based upon methodological choices that are quite debatable,” Prof Piketty said.

In arguing that wealth inequality has not risen in Britain in recent decades, the newspaper relies on household surveys which Prof Piketty said “significantly” underestimate the holdings of the top groups.

He argued that his calculations based on estate tax data are more accurate and show inequality widening in Britain, though less so than in the US. The survey data that the newspaper uses for Britain also skew the average it comes up with for Europe, allowing it to argue mistakenly that inequality for the region has not risen in recent decades, Prof Piketty added.

As for the US, Prof Piketty said the Financial Times ignores recent research that indicates that the rise in wealth inequality in the country has, if anything, been more marked than his book maintained.

Bloomberg