Home' Trinidad and Tobago Guardian : June 1st 2014 Contents JUNE 1 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
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Thomas Piketty is in no doubt
that data underpin the con-
clusions of his best selling eco-
nomics book, "Capital in the
He writes, in the introduction: "Compared
with previous works, one reason why this book
stands out is that I have made an effort to
collect as complete and consistent a set of
historical sources as possible in order to study
the dynamics of income and wealth distribution
over the long run."
While the conclusions of his work, including
his call for an international wealth tax, have
stirred controversy among academics, com-
mentators and policymakers, even his critics
have generally praised the ambition and quality
of the data presented in the text.
Reviewing the book this month, Lord
Mervyn King, former governor of the Bank of
England, said: "The principal weakness of the
book is that the carefully assembled data do
not live up to Piketty s rhetoric about the
nature of capitalism."
The sense of diligence in Professor Piketty s
compilation of trends in wealth is bolstered
by an online technical annex and spreadsheets
containing the data, with sources.
An investigation by the Financial Times,
however, has revealed many unexplained data
entries and errors in the figures underlying
some of the book s key charts. These are suf-
ficiently serious to undermine Prof 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."
After referring back to the original data
sources, the investigation found numerous
mistakes in Prof Piketty s work: simple fat-
finger errors of transcription; suboptimal aver-
aging techniques; multiple unexplained adjust-
ments to the numbers; data entries with no
sourcing, unexplained use of different time
periods and inconsistent uses of source data.
Together, the flawed data produce long his-
torical trends on wealth inequality that appear
more comprehensive than the source data
allows, providing spurious support to Prof
Piketty s conclusion that the "central contra-
diction of capitalism" is the inexorable con-
centration of wealth among the richest indi-
Once the data are cleaned and simplified
the European results do not show any tendency
towards rising wealth inequality after 1970.
The US source data are also 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 one per cent has increased in the past
There is some evidence of a rise in the top
10 per cent wealth share since 1970.
The FT uncovered several types of defect.
One apparent example of straightforward
transcription error in Prof Piketty s spreadsheet
is the Swedish entry for 1920. The economist
appears to have incorrectly copied the data
from the 1908 line in the original source.
A second class of problems relates to unex-
plained alterations of the original source data.
Prof Piketty adjusts his own French data on
wealth inequality at death to obtain inequality
among the living. However, he used a larger
adjustment scale for 1910 than for all the other
years, without explaining why.
In the UK data, instead of using his source
for the wealth of the top 10 per cent population
during the 19th century, Prof Piketty inexpli-
cably adds 26 percentage points to the wealth
share of the top one per cent for 1870 and 28
percentage points for 1810.
A third problem is that when averaging dif-
ferent countries to estimate wealth in Europe,
Prof Piketty gives the same weight to Sweden
as to France and the UK; even though it only
has one-seventh of the population.
There are also inconsistencies with the years
chosen for comparison. For Sweden, the aca-
demic uses data from 2004 to represent those
from 2000, even though the source data itself
includes an estimate for 2000.
Prof Piketty s documents explaining his
sources and methods, suggest that he uses
similar data from death duty records around
the world. In fact, he interchanges between
such source material and surveys of the living,
which often give very different answers.
Switching between the two sorts of data series,
particularly for the US is important to his
Some of the biggest defects relate to the
UK data, where his original sources consistently
show very large declines of near 10 percentage
points in wealth held by the rich in the highly
inflationary 1970s. Conversely, Prof Piketty
shows the super rich held a greater share of
wealth by 1980 and the top 10 per cent saw
their share fall only 1.5 percentage points.
The official data series that Prof Piketty
says he used for the UK after 1980 shows little
increase in inequality over the next 30 years,
while his figures show a steep rise.
Chris Giles and Ferdinando Giugliano
Is Piketty's inequality data flawed?
Financial Times challenges 'Capital in the 21st Century'
Let me first say that the reason why I put
all excel files on line, including all the detailed
excel formulas about data constructions and
adjustments, is precisely because I want to
promote an open and transparent debate about
these important and sensitive measurement
issues (if there was anything to hide, any "fat
finger problem" why would I put everything
Let me also say that I certainly agree that
available data sources on wealth are much less
systematic than for income. In fact, one of the
main reasons why I am in favor of wealth tax-
ation and automatic exchange of bank infor-
mation is that this would be a way to develop
more financial transparency and more reliable
sources of information on wealth dynamics
(even if the tax was charged at very low rates,
which you might agree with).
For the time being, we have to do with
what we have, that is, a very diverse and het-
erogeneous set of data sources on wealth:
historical inheritance declarations and estate
tax statistics, scarce property and wealth tax
data, and household surveys with self-reported
data on wealth (with typically a lot of under-
reporting at the top).
As I make clear in the book, in the on-line
appendix, and in the many technical papers I
have published on this topic, one needs to
make a number of adjustments to the raw data
sources so as to make them more homogenous
over time and across countries. I have tried in
the context of this book to make the most jus-
tified choices and arbitrages about data sources
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 on line).
In fact, the "World Top Incomes Database"
(WTID) is set to become a "World Wealth and
Income Database" in the coming years, and
we will put on-line updated estimates covering
more countries. 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.
For instance, my US series have already been
extended and improved by an important new
research paper by Emmanuel Saez (Berkeley)
and Gabriel Zucman (LSE). This work was
done after my book was written, so unfortu-
nately I could not use it for my book. Saez and
Zucman use much more systematic data than
I used in my book, especially for the recent
period. Also their series are constructed using
a completely different data source and method-
ology (namely, the capitalisation method using
capital income flows and income statements
by asset class). The main results are available
As you can see by yourself, their results con-
firm and reinforce my own findings: the rise
in top wealth shares in the US in recent decades
has been even larger than what I show in my
In the attached graph, I have compared their
series with the approximate series that I provide
in the book and the general historical profiles
are very similar. This is exactly what I expect
as we collect more data in other countries as
well: we will certainly improve upon my series
and adjustments (some of which can certainly
be discussed), but I don t think this will have
much of an impact on the general findings.
Finally, let me say that my estimates on
wealth concentration do not fully take into
account offshore wealth, and are likely to err
on the low side. I am certainly not trying to
make the picture look darker than it it. As I
make clear in chapter 12 of my book (see in
particular table 12.1-12.2), top wealth holders
have apparently been rising a lot faster average
wealth in recent decades, at least according to
the wealth rankings published in magazines
such as Forbes. This is true not only in the
US, but also in Britain and at the global level
(see attached table).
This is not well taken into account by wealth
surveys and official statistics, including the
recent statistics that were published for Britain.
Of course, as I make clear in my book, wealth
rankings published by magazines are far from
being a perfectly reliable data source. But for
the time being, this is what we have, and what
we have suggests that the concentration of
wealth at the top is rising pretty much every-
Of course, if the FT produces statistics and
wealth rankings showing the opposite, I would
be very interested to see these statistics, and
I would be happy to change my conclusion.
Please keep me posted.
Prof Piketty responds to the FT:
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