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Piketty’s Serious Flaws

Thomas Piketty’s Capital in The Twenty First Century, has spawned a cottage industry of dissent.  Piketty uses masses of data to illuminate a growth in inequality, that he surmises is an inevitable result of capitalism and can only be resolved by painfully high taxes on the rich. For the left it is a pivotal work that brings data and credentialism to their ideology that capitalism is so flawed that it requires constant and strong control from the state.

Anti-Piketty is a collection of noted economists and political thinkers that find significant flaws with Piketty’s work.  These critiques include serious flaws with the data itself and how it is used, the difficulty of measuring the forms of income and inequality itself, conclusions that are not supported by the data, and a philosophically flawed concept of wealth, growth and capitalism.

From   Chapter 13 of Anti-Piketty. The Financial Times vs. Piketty,   by Chris Giles

The FT (Financial Times) revealed many unexplained data entries and errors in the figures underlying some of the book’s key charts, few of which were adequately explained by Piketty after being challenged. Those unexplained entries and adjustments were sufficiently serious to undermine Piketty’s claim that the share of wealth owned by the richest in society has been rising and “the reason why wealth today is not as unequally distributed as in the past is simply that not enough time has passed since 1945” (Piketty 2014, 372).

After referring back to the original data sources, the FT investigation found numerous mistakes in Piketty’s work: simple fat-finger errors of transcription; suboptimal averaging techniques; multiple unexplained adjustments to the numbers; and data entries with no sourcing, unexplained use of different time periods, and inconsistent uses of source data. Together, the flawed data produce long historical trends on wealth inequality that appear more comprehensive than the source data allow, providing spurious support to Piketty’s conclusion that the “central contradiction of capitalism” is the inexorable concentration of wealth among the richest individuals.

Once the data are cleaned and simplified, the European results do not show any systematic tendency toward rising wealth inequality after 1970. The U.S. source data are too inconsistent to draw a single long series. But when the individual sources are graphed, none of them supports the view that the wealth share of the top 1 percent has increased in the past few decades. There is, however, evidence of a rise in the top 10 percent wealth share since 1970.

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Category: Economics

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