‘Rock star’ economist Piketty defends data in best-selling book

Thomas Piketty, the French economist who wrote a best-selling book on inequality, has defended his work against criticism by the Financial Times of shortcomings in his data.

As leading international economists debated the findings, Prof Piketty said the FT was “being ridiculous” by questioning whether there was an upward trend in wealth concentration among the richest.

Professor Piketty’s 577-page work, a sweeping analysis of changes in wealth and income over two centuries, concludes that “the central contradiction of capitalism” is the tendency for wealth to become more concentrated in the hands of the already rich.

The FT last week reported transcription errors and incorrect formulas in the spreadsheets provided by Prof Piketty to back up his book “Capital in the 21st Century”. It also said some of the data appeared to be cherry-picked or constructed without an original source.

The FT’s report concluded there was “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”.

When contacted by the FT ahead of publication for his response to the findings, Prof Piketty said he had “no doubt that my historical data series can be improved and will be improved in the future.”

But, he added he would be “very surprised if any of the substantive conclusion about the long-run evolution of wealth distributions was much affected by these improvements.”

In the wake of publication of the FT’s findings, Prof Picketty said the available data on wealth was “imperfect” but insisted there was widespread recognition that his central thesis was correct.

“Where the Financial Times is being dishonest is to suggest that this changes things in the conclusions I make, when in fact it changes nothing,” he told the French news agency, AFP. “More recent studies only support my conclusions, by using different sources.”

The FT’s critique of his data sparked intense debate, as admirers and critics of the work scrambled to assess the impact of the data flaws on his thesis that wealth inequalities are heading back up to levels last seen before the first world war.

Some issues concern sourcing and definitional problems. Some numbers appear simply to be constructed out of thin air.

Paul Krugman the Nobel laureate based at Princeton University who has hailed Prof Piketty's work as potentially the most important economics book of the decade, said the author would need to answer the questions raised by the FT in detail. But he dismissed the FT's finding that there was "no obvious upward trend" in wealth concentration among the richest people over the last 50 years as evidence that the FT itself was "doing something wrong".

Writing in the New York Times, he said: “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.”

Other experts said the inconsistencies uncovered by the FT underlined their concerns over Prof Piketty’s work. Martin Feldstein, the Harvard economist who is President Emeritus of the National Bureau of Economic Research said the French economist’s “claim of the inevitable increase in inequality in all countries rests on a false theory of how wealth accumulates in a market economy.”

Prof Feldstein argued that the concentration of wealth had been exaggerated in Prof Piketty’s analysis because it did not take into account the wealth individuals had for their retirement, including their social security and health benefits, and the income that would come from employer-provided pensions.

He also took issue with Prof Piketty’s estimate of the increased income inequality in the US, saying it was “based on a flawed interpretation of US income tax data”.

For Prof Feldstein, the French academic fails to recognise the impact on reported taxable income of the changes that have occurred in US tax rules since 1980.

He also criticised the analysis for omitting government transfer payments such as social security and food stamps which, he said, ”constitute a large and growing share of the personal incomes of middle- and lower-income households”.

Financial Times