Is Thomas Piketty a Fraud?

French economist Thomas Piketty is the darling of the international Left. His book, Capital in the Twenty-First Century, argues that in a free economy, wealth is inexorably concentrated in fewer and fewer hands. He credits (!) the two world wars and the Great Depression with temporarily interrupting this process and giving rise to more equality, but now, he says, concentration of wealth has resumed in both Europe and America. Piketty proposes, as a solution, a global tax on wealth. You can imagine the excitement with which Piketty has been received on the Left, especially since his book is based on actual data! It includes charts and graphs that are based on spreadsheets! Even critics of Piketty’s theories have generally praised his systematic accumulation of data on the subject of the ownership of wealth.

But two reporters for the Financial Times, Chris Giles and Ferdinando Giugliano, took the trouble of checking Piketta’s numbers against the source data that he relies on. It turns out–to put it bluntly–that Piketty is a fraud. Giles writes:

[W]hen 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….

Giles describes several categories of issues that he found with Piketty’s data:

a) Fat fingers

Prof. Piketty helpfully provides sources for the data he uses in his work. Frequently, however, the source material is not the same as the numbers he publishes. …

b) Tweaks

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, raising questions about the validity of these tweaks. …

c) Averaging

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. This decision (shown in the screen grab below) is questionable, as it gives every Swedish person roughly seven times the weight of every French or British person. …

d) Constructed data

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. None of the sources Prof. Piketty uses contain these numbers, hence he assumes the top 10 per cent wealth share is his estimate for the top 1 per cent share plus 36 percentage points. However, there is no explanation for this number, nor why it should stay constant over time.

There are more such examples. …

e) Picking the wrong year for comparison

There is no doubt that Prof Piketty’s source data is sketchy. It is difficult to find data that relates to the start of each decade as his graphs demand. So it is only natural that he might say 1908 is a reasonable data point for 1910 on the graph.

It becomes less reasonable when, for example, Prof. Piketty uses data from 1935 Sweden for his 1930 datapoint, when 1930 data exists in his original source material. …

f) Problems with definitions

There are different ways to compute wealth data ranging from estimates based on records at death to surveys of the living. These methods are not always comparable.

In the source notes to his spreadsheets, Prof. Piketty says that the wealth data for the countries included in his study are all obtained using the same method. …

But this does not seem to be true.

g) Cherry-picking data sources

There is little consistency in the way that Prof. Piketty combines different data sources.

Sometimes, as in the US, he appears to favour cross-sectional surveys of living households rather than estate tax records. For the UK, he tends to avoid cross sectional surveys of living people.

Prof Piketty’s choices are not always the best possible ones. A glaring example is his decision relative to the UK in 2010. The estate tax data Prof. Piketty favours comes with the following health warning.

“[The data] is not a suitable data source for estimating total wealth in the UK, or wealth inequality across the whole of the wealth population; the Wealth and Asset survey is more suitable for those purposes”.

These choices matter: in both the UK and US cases, his decision of which type of data to use has the effect of showing wealth inequality rising, rather than staying constant (US) or falling (UK).

So what happens if you correct Piketty’s errors? This appears to be the key chart, particularly the two graphs on the bottom. It is apparent that the superficial plausibility of Piketty’s account derives from his own “tweaks” and misrepresentations, not from the underlying data:


I find it entertaining that as to the U.S., Piketty has fabricated data for the years 1870 through 1960, where none exists. I would note, too, that the data sources Piketty uses are themselves far from unimpeachable. Some, like Ed Wolff, are leftists who have devoted their careers to trying to magnify inequality. Still, this is obviously significant as to the United States:

The top 1 per cent wealth share has many more data points, including a long-running time series from Kopczuk-Saez (2004). This series gives numbers remarkably similar to those from European data in both level and trend after the Second World War.

In constructing his long-run series (in blue), Prof. Piketty migrates from the Kopczuk-Saez data to that of Wolff (1994, 2010) and Kennickel (2009), even though these are measured on a very different basis. The result is that his line does not have the fall in inequality seen by Kopczuk-Saez but instead shows a rise.

What Giles describes is sheer dishonesty. He concludes:

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.

Contacted by the Financial Times for comment, Piketty responded insouciantly but did not take issue with anything that the FT reported. Piketty wrote:

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…. [O]ne 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.

Ah, yes, “adjustments” are necessary! This reminds me of the global warming hoaxers, who typically “adjust” their data in ways they do not acknowledge, let alone justify, before they publish them. Here, as in the case of the warmists, the funny thing is that the “adjustments” always tend in the same direction.

Of course, Giles and Giugliano will not have the last word. The debate over Piketty’s sources and the integrity of his conclusions is just beginning. One wonders, though: why didn’t any economists take the trouble to do what Giles and Giugliano, two reporters, did? And why did so many liberals leap to endorse Piketty’s data when they obviously had no idea whether it was valid or not? Paul Krugman, for example:

[I]f you think you’ve found an obvious hole, empirical or logical, in Piketty, you’re very probably wrong. He’s done his homework!

Well, we know the answer to that one.

Perhaps, as the debate unfolds, Piketty will be able to salvage some remnant of his work. At this point, however, Capital In the Twenty-First Century looks like an economics version of Piltdown Man.

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