There are a few things on which we agree. First, the source data on wealth inequality is poor. I have written that it is “sketchy” and Prof Piketty says it is “much less systematic than we have for income inequality”. Second, it would have been preferable for Prof Piketty to have used a more sophisticated averaging technique than a simple average of Britain, France and Sweden to derive an estimate for European wealth inequality. Third, the available data suggests a broad trend of reduction in wealth inequality during most of the 20th Century.
There are more aspects on which there remains disagreement. Prof Piketty does not explain the multiple missing data points in his data or tweaks to it; he explains transcription errors as deliberate adjustments to overcome discontinuities in data, but does not provide formulas or an explanation of why these undocumented adjustments should apply to only one data point in a time series; he does not explain why it is consistent to favour household surveys over estate tax records for the US but not the UK; nor why his UK series showing rising wealth inequality differs so materially from his source materials, which show falling UK wealth inequality in eight of the most recent nine decades.
Further debate on many of these items is difficult because Prof Piketty accepts he makes still undocumented adjustments to his data from his original sources, but says they are appropriate because any alternative would not be plausible. The sources he has appear to be secondary to Prof Piketty’s prior expectations of what the data needs to show.
And once again, even when we put aside the problems found by Giles and Giugliano, there are other holes in Piketty’s book that should disconcert readers. Let’s turn over the microphone to Scott Sumner:
I’ve started reading Thomas Piketty’s now-famous Capital in the Twenty-First Century. Over at MoneyIllusion.com I have some observations on the opening chapter (which is all I have read so far.) Here I’d like to focus on one section of the introduction, the discussion of Simon Kuznets. In this passage (p. 14) Piketty discusses Kuznets’ claim that income initially becomes more unequal as countries grow richer, but then ends up becoming more equal as high-income levels are achieved:
The data Kuznets had presented in his 1953 book suddenly became a powerful political weapon.(15) He was well aware of the highly speculative nature of his theorizing.(16) Nevertheless, by presenting such an optimistic theory in the context of a “presidential address” to the main professional association of US economists, an audience that was inclined to believe and disseminate the good news delivered by their prestigious leader, he knew that he would wield considerable influence: thus the “Kuznets curve” was born. In order to make sure that everyone understood what was at stake he took care to remind his listeners that the intent of his optimistic predictions was quite simply to maintain the underdeveloped countries “within the orbit of the free world.”(17) In large part, then, the theory of the Kuznets curve was a product of the Cold War.
When reading the Piketty book, I immediately noticed that he looked at things from a left-wing perspective. So I thought I would check to see whether this paragraph accurately summarized Kuznets’ writings. And this is where my problems began. Notice the footnotes 15, 16 and 17. Footnote 16 quotes one sentence and then cites a book entitled Shares of Upper Income Groups in Income and Savings, (1953, pages 24 to 26.) Footnote 17 cites page 28 from the same source.
I found this book on the Internet, but the two sentences were nowhere to be found. So then I tried googling the quoted sentences, and found a 1955 AER paper by Kuznets. Even better it was 28 pages long. The sentence that was supposed to be on pages 24 to 26 of the 1953 book was on page 26 of the AER paper, and the sentence that was supposed to be on page 28 was actually on page 24 of the same paper. I was slightly annoyed at having to do all this searching, but it’s only one observation and it’s certainly not an important mistake. When I actually read the article, however, I became much more concerned. Piketty’s description of Kuznets’ views was not even close to being accurate. Even worse, his discussion of Kuznets seemed slightly insulting. For instance, on page 15 he refers to the “magical Kuznets curve theory,” which seems pretty condescending to me.
So now, we have a concern that Piketty is misrepresenting his sources. This shouldn’t surprise us; we know that Piketty is misrepresenting Balzac, and one wonders how many more instances of misrepresentation we are supposed to find before concluding that Piketty is dealing from the bottom of the deck. Donald Boudreaux finds more problems with Piketty; the latter simply does not focus sufficiently on individual decision-making.
So, it is plain to see that Piketty’s arguments are anything but infallible. But naturally–and predictably–Paul Krugman ignores the mountain of evidence indicating that Piketty’s analysis is plagued by either incompetence or dishonesty, blithely declares the debate to be over and to have been resolved in Piketty’s favor, and actually has the nerve to accuse the Financial Times of “suffering from creeping Murdochization” by supposedly having joined “a fairly substantial industry on the right of inequality denial.” Of course, there is no evidence whatsoever that Giles and Giugliano are motivated by politics in presenting their work. And of course, it is more accurate to say that when it comes to Krugman’s attempt to deny all of the problems with Piketty’s book, Upton Sinclair’s dictum applies. But this attempt to impute dishonesty to Giles and Giugliano–in the absence of any supporting evidence whatsoever, mind you–is especially desperate and especially pathetic, even when taking into account Krugman’s traditional penchant for demagoguery and cheap rhetoric.