A book by a French economist who became a darling of 99 percenters and his lefty peers is riddled with errors, cherry-picked data and flawed premises, according to two new studies.
Thomas Piketty's “Capital in the 21st Century,” which New York Times columnist and Nobel-prize winner Paul Krugman called “the most important economics book of the year — and maybe of the decade,” calls for an 80 percent income tax to stop wealth inequality from increasing. The book earned its author an invitation to the White House to meet with Obama administration Treasury Secretary Jack Lew.
But it contains more than 10 factual errors, according to one new study accepted by the Journal of Private Enterprise and conducted by economists Phillip Magness of George Mason University and Robert P. Murphy of the Institute for Energy Research. The errors they report range from relatively simple mistakes such as getting several historical dates wrong to mis-attributing a massive tax increase to President Franklin Roosevelt that was actually passed by President Herbert Hoover, to incorrectly claiming that the minimum wage never increased under either George W. Bush or George H.W. Bush, who both oversaw increases.
“He cherry-picks, the data sometimes don’t match the sources that he cites, and he changes the data to make the charts look better without accurately documenting it.”
- Kevin Hassett, American Enterprise Institute
The authors write that they see a pattern in the errors.
“[The errors] serve to paint ostensibly market-friendly Republican presidents as ogres, while liberal Democrats are the heroes of the working class,” they write.
They also conclude that, in building some of his charts, Piketty switched between data sets in a way that was biased in favor of his argument. In his graph on wealth in the U.S., for instance, Piketty relied on data from one study going up until 1950, then for 1960 he switched to another study, and then for 1970 he went back to relying on the first study again.
The authors conclude that Piketty used “cherry-picked data points to construct a trend line that mirrors his predictions.”
The authors also found that, in one Piketty graph about US historical tax revenue, he only had data going back until 1900; yet he made the graph go back to 1870 by assuming those years were the same as 1900 and by adding or subtracting a seemingly arbitrary number to make the data appear plausible.
Asked about the above issues, Piketty told FoxNews.com that there may be some typos in the book but said he did not think they affected his central conclusion.
“I am really sorry if I attributed one specific tax decision to FDR instead of Hoover, etc.; many readers do mention typos of this sort, and of course they will be corrected in future editions; but I really do not see anything here that's affecting any conclusion,” Piketty told FoxNews.com.
But a new study claims to find errors that affect Piketty’s fundamental premise. It was done by University of California Berkeley economics professor Alan Auerbach and American Enterprise Institute economist Kevin Hassett, and was presented Saturday at a session of the American Economics Association.
Piketty, in his book, makes the case that the rich constantly get richer using a graph that illustrates that it has increased steadily in the United States over the last half-century.
But the study finds that the graph is largely wrong. For instance, when Piketty’s graph refers to the year “1980”, the number actually comes from data from the year 1989. The authors also found that Piketty simply left several data points off of his chart without explanation.
After revising the chart, the economists found that the proportion of wealth owned by the rich “no longer rises without interruption” and that in fact, “inequality appears to be declining at the end [of the graph].”
Piketty told FoxNews.com that, even using the American authors’ graph, his ultimate conclusion remains intact.
“The increase in inequality would look less steady, but it would still be there,” he said. A comparison of the two graphs is on page 6 of the American authors’ study.
Hassett reponds that the new chart makes the case for measures like an 80% tax rate to stop increasing wealth inequality a lot less clear.
“The trend towards higher inequality would look weaker… [inequality] would have fallen from its 1995 peak,” Hassett said.
But Piketty counters that a recent study found that wealth inequality actually rose even faster than he had reported in his book.
“Everybody recognizes that the Saez-Zucman series are indeed the best series on US wealth inequality we have so far, and that they show an even bigger increase than what I report in my book,” he told FoxNews.com.
Yet many economists do not recognize that.
“There are other recent papers, one… by Kopczuk (a co-author of Piketty’s in the past), plus another based on Fed survey data, by Bricker et al., which argue that other methods of analysis are more accurate and do not show such a trend,” Auerbach of UC Berkeley said.
Piketty said he has been up front that more data collection is needed.
“I made perfectly clear in my book and in my presentation on Saturday that we still know too little about income and wealth distribution… and that we need more democratic and financial transparency about income and wealth dynamics,” he said.
The recent criticisms come on top of issues discovered last year by the Financial Times. Hassett says that, in the end, so many things are off in the book that it affects the conclusion.
“He cherry-picks, the data sometimes don’t match the sources that he cites, and he changes the data to make the charts look better without accurately documenting it,” Hassett said.
The author, Maxim Lott, can be reached at maximlott.com or at firstname.lastname@example.org