FT's Giles Finds Piketty's 'Wealth Inequality' Work Riddled With 'Data Problems' — And Wrong
French economist Thomas Piketty has become a darling of the left for allegedly "proving" that, as paraphrased by Chris Giles at the Financial Times, "wealth inequalities are heading back up to levels last seen before the first world war." The Media Research Center's Julia Seymour has described Piketty as a "'rock star' of the far-left," an accurate assessment given praises heaped upon his book and especially his public policy prescriptions by the likes of Alternet and Vox's especially gullible Matthew Yglesias. Seymour also notes that Piketty's work has received a great deal of favorable notice in the establishment press, and that he has met "with the Treasury Secretary" and "(President) Obama’s Council of Economic Advisers."
Of course these "oligarch groupies," as Jeffrey Lord describes them, love him. Piketty favors an 80 percent tax on incomes above $500,000 and a progressive global tax on real wealth (i.e., after subtracting debt). The problem is that FT's Giles, having done a deep dive into the economist's data and spreadsheets, has found serious problems in the professor's work which nullify his conclusions.
Giles has documented his findings in a summary article and a thoroughly detailed blog post. He has found "a series of errors that skew his (Piketty's) findings" consisting of "mistakes and unexplained entries in his spreadsheets."
Here are several paragraphs from Giles's summary published early Friday afternoon (Eastern Time US):
... 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.
... In his spreadsheets ... 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.
Contacted by the FT, Prof Piketty said he had used “a very diverse and heterogeneous set of data sources ... [on which] one needs to make a number of adjustments to the raw data sources.
“I have no doubt that my historical data series can be improved and will be improved in the future ... 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,” he said.
At the very least, Piketty has admitted that he didn't mind making "a number of adjustments to the raw data sources" without telling anyone that he had made them.
But it gets worse — much worse — once one looks at Giles's detailed blog post:
... when writing an article on the distribution of wealth in the UK, I noticed a serious discrepancy between the contemporary concentration of wealth described in Capital in the 21st Century and that reported in the official UK statistics. Professor Piketty cited a figure showing the top 10 per cent of British people held 71 per cent of total national wealth. The Office for National Statistics latest Wealth and Assets Survey put the figure at only 44 per cent.
This is a material difference and it prompted me to go back through Piketty’s sources. I discovered that his estimates of wealth inequality – the centrepiece of Capital in the 21st Century – are undercut by a series of problems and errors. Some issues concern sourcing and definitional problems. Some numbers appear simply to be constructed out of thin air.
When I have tried to correct for these apparent errors, a rather different picture of wealth inequality appeared.
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 ..."
With specific examples, Giles lists the suspect and manipulative methods. Here is a digest of most of them:
... Frequently ... the source material is not the same as the numbers he publishes.
... On a number of occasions, Prof. Piketty modifies the figures in his sources. This might not be a problem if these changes were explained in the technical appendix. But, with a few exceptions, they are not ... (Giles cites a total of three "seemingly arbitrary adjustments to the source data." — Ed.)
... Prof. Piketty constructs time-series of wealth inequality relative for three European countries: France, Sweden and the UK. He then combines them to obtain a single European estimate. To do so, he uses a simple average. ... (i.e., failing to weight for population — Ed.)
... Because the sources are sketchy, Prof. Piketty often constructs his own data. One example is the data for the top 10 per cent wealth share in the US between 1910 and 1950. (Giles goes on to identify 17 dozen such "constructions" covering periods as early as 1810 and as late as 2000. — Ed.)
... Picking the wrong year for comparison ... for example, Prof. Piketty uses data from 1935 Sweden for his 1930 datapoint, when 1930 data exists in his original source material.
... Cherry-picking data sources — There is little consistency in the way that Prof. Piketty combines different data sources ... (and they) are not always the best possible ones.
Overall, Giles asserts as a result of his work that "There is no obvious upward trend (in wealth distribution). The conclusions of Capital in the 21st century do not appear to be backed by the book’s own sources."
Business Insider's related headline: "The FT Isn't Just Saying Piketty Made A Mistake — It's Saying He Manipulated Data."
Given how all-in the Obama administration and the establishment press have been in their praise of Piketty, it will more than interesting to see how they react to Giles's work. This is beginning to look like the rough economic equivalent of the 2009 and 2011 Climategate emails which exposed the agenda-driven data manipulations and machinations inherent in human-caused global warming "science" for all with open minds to see.
My predictions, in pictures:
Cross-posted at BizzyBlog.com.