Thomas Piketty's economic data 'came out of thin air'

Thomas Piketty's economic data 'came out of thin air'

French economist's bestselling book on growing inequality in west undermined by 'inexplicable' data, says Financial Times

Jamie Doward

theguardian.com, Saturday 24 May 2014 / http://www.theguardian.com/business/2014/may/24/thomas-picketty-economics-data-errors

Only a few days ago, the "rock star" economist Thomas Piketty had the world at his feet. He had lectured at the White House, the International Monetary Fund and the United Nations.

His 577-page Capital in the Twenty-First Century, an unexpected bestseller, was economics' answer to The Da Vinci Code. Based on a simple premise – that the dynamics of wealth accumulation are causing global inequality levels to widen – it was lauded by economists and business leaders alike.

Lord Turner, the former chairman of the Financial Services Authority, described Capital as "a remarkable piece of work," while the Nobel prizewinning economist, Paul Krugman, writing in the New York Review of Books, said Piketty's work will "change both the way we think about society and the way we do economics".

Now, in a move that has delighted his manifold critics on the right, who view Piketty's tome as a dangerous, modern-day successor to Karl Marx's Das Kapital, the 43-year-old French economist has found himself attracting a less welcome form of attention. The Financial Times has suggested that Piketty's work contains a series of errors that appear to fatally undermine large parts of his thesis. The normally restrained paper claims that some of the data Piketty uses to support his arguments about yawning inequality in Britain and Europe are dubious or inexplicable. Some of this, the paper suggests, may be down to straightforward transcription errors. More damningly, the FT claims, "some numbers appear simply to be constructed out of thin air".

The paper goes as far as to suggest its findings are similar to those last year that undermined the work of the Harvard economists, Carmen Reinhart and Kenneth Rogoff, which analysed the relationship between growth and debt and was subsequently found to have been based on a flawed spreadsheet.

Bloomberg described the claims as a bombshell and there has been no shortage of commentators suggesting the story is huge. Some on the right have also been gleeful, suggesting the FT's story will scupper Piketty's chances of landing a Nobel prize. But, as the dust settles, even many of his critics have been reluctant to claim that Piketty has been left badly wounded by an impenetrable row over the selection and interpretation of data, nor do they accept that the FT's claims have done much to damage his over-arching thesis.

Piketty himself told the FT: "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." It was Piketty who made the data freely available so that others could check his work and influential publications and think tanks have given him their backing.

The Economist concluded that "analysis does not seem to support many of the allegations made by the FT, or the conclusion that the book's argument is wrong".

If anything the row has fuelled further interest in a book that is still in Amazon's top 20 and has reportedly sold more than 200,000 copies, an unprecedented amount for an economics book.

Declan Gaffney, writing on the Institute for Public Policy Research blog, concluded: "No doubt that framework will be modified over time in the light of new evidence and theory, but it seems likely that we will be looking at wealth concentration and broader aspects of economic and social change through the lens of Capital for a long time to come."

For the lay person attempting to referee the row, and having to interpret such abstruse concepts as the Gini coefficient and, as Gaffney neatly summarises, whether "the r > g inequality is amplifying the reconcentration trend", illumination is hard to discern. For its critics, further confirmation of why economics is called the dismal science.