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Did Thomas Piketty Get His Math Wrong?
MAY 23, 2014
Neil Irwin
@Neil_Irwin
One of the most common approaches for people writing about Thomas
Pikettys blockbuster book Capital in the 21st Century, about global
inequality, has been to critique his theories and predictions while
effusively praising his data collection. Mr. Piketty, after all, did yeomans
work compiling data from tax and other records to try to determine a
history of wealth inequality around the world.
But now The Financial Times is throwing doubt on the data at the
5/25/2014 Did Thomas Piketty Get His Math Wrong? - NYTimes.com
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core of Mr. Pikettys work, in a blockbuster report that will open a new
debate on how reliable the books excavation of historical patterns of
income and wealth truly are. At issue: Is the most influential economics
book of the year built on bad math?
The central theme of Prof Pikettys work is that wealth inequalities
are heading back up to levels last seen before the first world war, writes
Chris Giles, the economics editor of The Financial Times. The
investigation undercuts this claim, indicating there is little evidence in Prof
Pikettys original sources to bear out the thesis that an increasing share of
total wealth is held by the richest few.
Here is a detailed walk-through of the problems Mr. Giles alleges, and
Mr. Pikettys detailed response. We have contacted Mr. Piketty, a French
economist, and his publisher, Harvard University Press, for further
comment. May 24 update: In an e-mail to me Saturday morning, Mr.
Piketty wrote: Of course I welcome open debate and new series. This is
why I put everything online.
The Financial Times draws comparisons with the spreadsheet and
other errors discovered last year that undermined work by Carmen
Reinhart and Kenneth Rogoff on the relationship between government
debt and growth. But what problems did The Financial Times discover
and how much do they potentially undermine Mr. Pikettys book?
Some of the issues identified by Mr. Giles appear to be clear-cut
errors, and others are more in the realm of judgment calls in analyzing
data that may not be fully explained by Mr. Piketty but are not necessarily
wrong. Here are some of the specific potential problems that The Financial
Times identifies and how they may come to bear on how we think about
wealth, inequality and Mr. Pikettys exploration of it.
Simple data errors. In the Reinhart-Rogoff case, a simple math
error in an Excel spreadsheet had a relatively small impact on their final
result, but it generated an outsize share of the attention to a broader
critique of their data.
Mr. Giles identifies a couple of places where Mr. Pikettys
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spreadsheets include what appear to be incorrect numbers, pulling a
number for share of wealth held by the top 1 percent in Sweden from 1908
instead of the 1920 level that was intended. These errors may be
embarrassing and easy to understand but can also be inevitable when
pulling thousands of data points together as part of a large study. It is not
clear that they have a major impact on Mr. Pikettys conclusion, though it
would be unsurprising, based on the Reinhart-Rogoff experience, if they
get significant attention.
Arbitrary or unexplained changes. Mr. Giles examined many
of the formulas in Mr. Pikettys spreadsheets and found unexplained
modifications to some of the data points, for example adding two
percentage points to the share of wealth held by the top 1 percent in the
United States in 1970, and calculating the share of British wealth held by
the top 10 percent in 1870 by adding seemingly arbitrary numbers to the
share held by the top 1 percent.
Questionable methods to arrive at conclusions. Mr. Giles
notes that Mr. Piketty arrives at estimates of European wealth inequality
by averaging results for three countries where he has data, Britain, France,
and Sweden, arguing that this is a poor way to weight because of Swedens
much smaller population.
More significantly, Mr. Giles argues that Mr. Piketty constructed data
where there is no cited source. For example, in data for the top 10 percent
wealth share in the United States before 1950, none of the sources Prof.
Piketty uses contain these numbers, hence he assumes the top 10 percent
wealth share is his estimate for the top 1 percent share plus 36 percentage
points, he wrote. However, there is no explanation for this number, nor
why it should stay constant over time.
Mr. Giles also argues that Mr. Piketty combines different data sources
arbitrarily, using surveys of households in the United States versus estate
tax data for Britain, for example.
But does it matter? Mr. Giles attempts to reconstruct estimates of
wealth inequality, correcting for what he describes as Mr. Pikettys errors.
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He finds significantly less evidence of a rising disparity.
Speaking of Britain, for example, Mr. Giles writes, There seems to be
little consistent evidence of any upward trend in wealth inequality of the
top 1 percent. He further writes that if one incorporates the different
British data into numbers for Europe as a whole, and weights by
population instead of weighting Britain, France and Sweden equally,
there is no sign that wealth inequality in Europe is rising again.
That is a damning conclusion, and if it holds up to scrutiny, would
significantly undermine the case Mr. Piketty mounts. But Mr. Giles himself
writes that while this post is clear about what is wrong with Pikettys
charts, it is much less certain about the truth.
Mr. Piketty, in his response to The Financial Times and in his e-mail
on to me, said that research using other methodologies has affirmed his
broad findings, citing work by Emmanuel Saez and Gabriel Zucman
published since his book was written.
As I make clear in the book, in the online appendix, and in the many
technical papers I have written on this topic, one needs to make a number
of adjustments to the raw data sources so as to make them more
homogeneous over time and across countries, he told the F.T. He added,
I have tried in the context of this book to make the most justified choices
and arbitrages about data sources and adjustments. I have no doubt that
my historical data series can be improved and will be improved in the
future (this is why I put everything online).
He did not specifically address the accusations of data-entry errors or
give detailed responses to some of Mr. Giless criticisms about questionable
assumptions that underlie Mr. Pikettys broader work.
But in his e-mail to me, he wrote with an almost jovial tone: Every
wealth ranking in the world shows that the top is rising faster than average
wealth, adding, If the FT comes with a wealth ranking showing a
different conclusion, they should publish it!
It is always a difficult challenge trying to examine economic history
given spotty data from the past and variations in how different countries
5/25/2014 Did Thomas Piketty Get His Math Wrong? - NYTimes.com
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collect and define data. The new Financial Times report will surely be
examined by specialists and start an important debate over what we really
know about wealth inequality and whether the best-selling economics
book of the year gets its figures right.
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A version of this article appears in print on May 24, 2014, on page B1 of the New York edition with
the headline: Economists Inequality Study Faces Questions.
2014 The New York Times Company