The Quick Summary of My Paper (With Magness) on Piketty

The Quick Summary of My Paper (With Magness) on Piketty
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Phil Magness, a historian at George Mason University, and I have a new paper critiquing the empirical contribution of Thomas thomas-piketty-economist-will-huttonPiketty’s runaway bestseller, Capital in the Twenty-First Century. Because Piketty is such a hot topic right now, FoxNews and some other media outlets reported on our paper (along with a different paper by Berkeley economist Alan Auerbach and AEI scholar Kevin Hassett). In this post I’ll summarize our main points, then quote from Piketty’s response to FoxNews to show what a slippery fellow he is.

My Paper With Magness

Our paper is lengthy but it is not difficult to read, and we give several different examples of Piketty’s dubious moves so that you can sample them as much as your stamina allows.

In the beginning, we start with no-brainers, the boneheaded historical errors in Piketty’s book that would be shocking if contained in a high school term paper. (Really.) Specifically, Piketty makes a big deal of the “facts” that Herbert Hoover wanted to liquidate businesses, and that he had cut income tax rates. Then, in Piketty’s narrative, FDR came along and jacked taxes way up. The problem is that this is all false. It was Calvin Coolidge who had lowered tax rates, and Herbert Hoover who jacked them way up. (Of course Congress has to pass the bills and then the president signs them, but you know what I mean.)

Elsewhere in the book, Piketty gives a summary of what happened to the federal minimum wage under various U.S. presidents. Here his narrative is so at odds with the actual facts that it’s hard to know what happened. I encourage you to open our paper and at least read that section to see what I mean.

The thing about these two smoking gun examples is that Piketty’s mistakes were not random. No, he used his convenient errors in order to spin a narrative about coldhearted pro-business Republican presidents, in contrast to the Democratic heroes of the workers (namely FDR, Bill Clinton, and Barack Obama).

Now to be sure, these particular errors don’t affect the main thesis of the book. But Phil and I included them to show just what kind of scholarship Piketty is capable of. We wanted readers to keep these examples in mind when we showed, later in the paper, the very alarming things that Piketty did with his graphs on wealth inequality.

The More Serious Problems With Piketty

To summarize what Piketty has done in the part of his book that most people are saying is impeccable: Piketty creates composite graphs of wealth concentrations going back more than a century. In doing so, he of course draws on disparate data sets, since nobody else had provided a comparable estimate.

The problem is that in many places, Piketty makes very unusual choices in how to construct his composite. For example, he will not be consistent in choosing the nearest data point from a given series (if he wants to pick a single number to represent the decade, for example), and in some cases he literally just makes up numbers and hand-plugs them into his spreadsheet cells. (If you’re wondering, “What do you mean by that accusation, Murphy?” then I encourage you to read our paper. It’s hard to summarize the liberties Piketty took with some of his data points.) What’s worse, if you were reading Piketty’s book and looked at his nice graphs, you the innocent reader would have no idea which of the data points were taken from the underlying data sources, and which were numbers invented by Piketty. So even if you agreed with his judgment in picking certain numbers and plugging them in, surely you would think he should warn his readers.

More relevant to our critique, however, is that Piketty’s composite graph for U.S. inequality shows a more pronounced uptick since the 1970s than any of the underlying data sources. See for yourself, using Chris Giles’ reconstruction from his FT critique (which I explain here):

In the chart above, the blue lines show Piketty’s chart (from his book) on the top 10% and top 1% concentrations of wealth ownership. The red lines are the various data sources upon which Piketty draws, to construct those blue lines.

So look in particular at the bottom lines. Not a single one of the data sources shows as pronounced an increase in inequality as Piketty’s composite of those sources. You would think (a priori) that if someone mixed together several different estimates of something, that the composite would end up showing a trend in between the extremes of the individual sources. But no, to repeat, Piketty has selected his sources and “refined” them in a way that just so happens to make the increase in inequality from the 1980s onward more pronounced than in any of the original sources.

Piketty’s Response

Maxim Lott, author of the FoxNews story, asked Piketty for a comment. Here’s what Piketty said:

Asked about the above issues, Piketty told 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

OK that is pretty astounding. I encourage readers who haven’t done so, to click on our paper and just read the short sections on the Hoover/FDR tax rates and the minimum wage discussion. If those were “typos,” then when Bill Clinton said he didn’t have sexual relations with Monica Lewinski, it was a “slip of the tongue.”

But here’s the real kicker. To show that his conclusions are in line with the other literature–and hence that the concerns raised by Magness and me, as well as Auerbach and Hassett, must be petty whining over trivial details–Piketty went on to tell FoxNews:

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

No, this is simply not true, and is yet more evidence (as if it were needed) that Piketty is a slippery fellow who under no circumstances can be trusted to honestly report facts.

We explain this all in our paper for the interested reader, but the snapshot is this: Prior to Piketty’s book, the gold standard in this literature was a wealth series based on estate tax return data that showed wealth inequality had been flat for decades, and was arguably at the lowest point in its long history as of the mid-2000s. And this series wasn’t published by right-wing economists, it was in fact put out by the same Saez who is now part of the Saez-Zucman series that Piketty says is the best.

Furthermore, the other co-author on this original estate tax series is Columbia University’s Wojciech Kopczuk, who has a 2014 paper accepted in the Journal of Economic Perspectives responding to the new Saez-Zucman series, and explaining the reasons it differs so much from the other two competitors in this literature (namely, the estate tax data and the survey of consumer finance data). There are serious difficulties with the Saez-Zucman results, and their explanation for why their results differ so markedly from the estate tax series rely on extreme assumptions about the super-rich having much lower mortality rates than the merely rich.

My point here isn’t that the Saez-Zucman results are demonstrably wrong, but that Piketty is utterly misleading people by saying “Everybody recognizes” that they are the best series, and therefore his book underestimated the increase in inequality.


It is ironic when you think about it. When Piketty’s book first came out, even leftist economists admitted there were major, fundamental problems with the theory underlying it. (See for example my discussions of Brad DeLong and then Larry Summers’ reviews of Piketty.) But everybody agreed that Piketty’s empirical work was top-notch.

Now that more and more critics are reporting that Piketty’s book is riddled with errors and questionable moves in its treatment of historical facts, ranging from the ridiculous to the subtle, his apologists fall back on, “Well, even if you put aside those problems, the book’s conclusions still stand.”

So yes, if you throw out Piketty’s underlying theory, and the empirical evidence that supposedly verified it, then Piketty’s book is still a great thing–because it demonizes the rising power of the rich and calls for massive income and capital taxes. It’s refreshing that this truth has been rendered so plain over the past 9 months since the book came out.

  • Ross Levatter

    What is Amazon's refund policy for unread books purchased 9 months ago?

    • Andre Lalonde

      I don't know, but don't ask Pketty either.

  • vangelv

    Sadly, this entire sorry episode may be an argument against the optimism being pushed by Lew Rockwell, Ron Paul, Thomas Woods, and other Austrians who tell us that as long as we keep our emphasis on education we will prevail over the long term. From what I can see the history of Western political and economic thought shows that Mises was right when he pointed out that in order for intellectuals to be able to support socialist arguments they had to abandon reason and logic. That dismissal of rationality, when combined with the fact that this the debate is being waged with incomplete, arbitrary, and inaccurate data creates a high hurdle for Austrians.

    From what I can tell, who people believe depends entirely on the narrative and the 'reputation' of the individual debaters. And the last time I looked the reputation of the statist economists was much better than that of the Austrians because public intellectuals that create and shape reputations have an interest in maintaining the illusion that we need government to solve the problems of ordinary people.

    I have also been reminded that the statists always have the thymos card to play against our position. Most intellectuals believe that a just world would reward intellect and hard work and are upset when they see the market provide higher monetary rewards to successful businessmen or professional athletes than it does to university professors. This sentiment is widespread as ordinary people don't understand why hard work and good intentions do not get the compensation that is deserved. They assume that it is the market that is cheating them out of what they are due and are much more likely to side with statists who provide false narratives devoid of logical consistency than with Austrians who try to use facts and logic as support for their position. They rightfully observe that the statists tend to have more recognition and rewards than the Austrians and find it natural to side with the accepted arguments than with radicals who do not have much to show for their efforts. They ask why is it that Thomas Woods gets so little for giving a talk than Thomas Piketty? How bad can Krugman be if he is granted a Nobel Prize? And if Bob Murphy is so smart where is his Nobel?

    In the face of all this I do not see how it is possible to make much of a headway even among smart people who we would think are natural supporters of the Austrian position. In fact, many of the people that I talk to think that it is the Austrians who are irrational because they give up opportunities for personal gain to stand on principle. As a friend of me pointed out, we may be right about the problems with patent law but as a patent lawyer he wants to make as much money as he can to support his family. Is it even possible for him to act as a libertarian and still do as well in his career? We all know that Piketty was wrong and that he manipulated the data. We also know that the BLS manipulates economic data and that the various government agencies who are supporting the AGW myth manipulate their data to support a discredited political narrative. We can actually take the time show to people that we are right. But it is still not getting us anywhere because only the Remnant is ready to hear the message. If someone can make a case for the optimist side I am more than willing to listen.

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Robert P. Murphy is the Senior Economist at the Institute for Energy Research, and a Senior Fellow with the Fraser Institute. He holds a PhD in economics from New York University. Murphy is the author of Choice: Cooperation, Enterprise, and Human Action (Independent Institute, 2015) as well as numerous other books and hundreds of articles.

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