Has Thomas Piketty Pulled a Reinhart and Rogoff?


Well, a team at the FT under Chris Giles has claimed to have discovered serious errors in the data spreadsheets underlying Thomas Piketty’s work. A few housekeeping issues before I proceed.

First of all, I do not have the time needed to go through the spreadsheets to confirm Giles’ findings; I am not being paid by the FT to do so (offers to do so will be seriously considered however!). I am taking Giles’ data at its word. This is because Giles’ does not strike me as a hit piece at all. I think that him and his team have genuinely found what they claim to find.

Secondly, I pointed out that Piketty’s use of data was suspect after reading just a few hundred pages of the book. I was less so referring to the data used than in the manner in which it was used. Something that often gets lost in these debates about the accuracy of data is that data means effectively nothing unless you are careful in the manner you interpret it. Reading Piketty’s book I found numerous highly contentious interpretations of the data. That said, I can appreciate that we will all have our own interpretations and that the first step is to all agree on the data we are using.

The first thing to note is that Giles is dealing with the data on wealth inequality and not income inequality. The former is, and Piketty stressed this both in his book and in his response to the FT, far more uncertain than the latter. The ability to get data on wealth inequality is thwarted by any number of facts; from the reluctance of the rich to talk about their wealth holdings, to the fact that much wealth is held in a ‘dark zone’ overseas outside of the reach of statistical agencies.

That said, some of the errors that Giles uncovers are pretty embarrassing. Take, for example, the issue of averaging in Europe. Giles writes,

Prof. Piketty constructs time-series of wealth inequality relative for three European countries: France, Sweden and the UK. He then combines them to obtain a single European estimate. To do so, he uses a simple average. This decision (shown in the screen grab below) is questionable, as it gives every Swedish person roughly seven times the weight of every French or British person. Using an average weighted by population appears more sensible.

I don’t know why on earth you would use a simple average in this regard. This does not strike me as being a simple ‘fat finger’ error. Piketty must have thought about what he was doing. He must have said to himself, “oh, I’ll just do a standard average of these very different countries”. That seems to me a very silly thing to do indeed.

That said, the reconstructions that Giles puts forward seem to me completely out of whack. Here is the chart that he provides for wealth inequality in the UK. The blue lines are Piketty’s estimates, the red lines are Giles’.


From Giles’ reconstruction you would conclude that wealth inequality has not risen in the UK all that much since 1980. I have seen a lot of data related to this and I simply cannot believe this. It also does not really pass the ‘smell test’ — i.e. it does not really confirm with what we actually see day-to-day.

Consider the following graph from the BIS showing the evolution of the financial sectors in various countries from 1985-2006.

finance share of gdp us nihon uk deu fraSince 1985 the size of the financial sector in the UK has increased by over 50% relative to GDP. It seems difficult to account for this rise of finance without assuming that there is far more idle wealth to be managed relative to GDP than there was in 1985. Since idle wealth disproportionately sits with the wealthy (otherwise they wouldn’t be called ‘the wealthy’, duh!) then we can only assume that wealth inequality has increased.

There are many, many ways of making this same argument in a roundabout way. All of the figures I have seen support the idea that wealth inequality has risen substantially in the UK. In fairness to Giles, he does admit this when he writes,

There is one important caveat. None of the source data at the basis of Piketty’s work is completely reliable. So while this post is clear about what is wrong with Piketty’s charts, it is much less certain about the truth.

Perhaps Piketty has mucked up some of the figures. But his is not the only study dealing with this issue. In that sense, I don’t think that this is a Reinhart and Rogoff moment that discredits the underlying thesis of Piketty’s book. Rather I think that it is just another lesson in data analysis for us all. Lies, lies and damned statistics, as they say.


About pilkingtonphil

Philip Pilkington is a macroeconomist and investment professional. Writing about all things macro and investment. Views my own.You can follow him on Twitter at @philippilk.
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18 Responses to Has Thomas Piketty Pulled a Reinhart and Rogoff?

  1. dansullivan0 says:

    “It’s all a little like the tale of the roadside merchant who was asked to explain how he could sell rabbit sandwiches so cheap. ‘Well,’ he said, I have to put in some horse meat too. But I mix ’em fifty-fifty: one horse, one rabbit.'”

    – Darrell Huff, *How to Lie with Statistics*, p. 116


  2. dnm says:

    “I don’t know why on earth you would use a simple average in this regard.”

    I would say that Picketty’s approach is perfectly reasonable, if he believed that the most important dynamics of the phenomena he was studying existed at the level of the state. So every country, be it large of small, represents a sample from the set of all states, and has an equal right to be considered. Personally, I would prefer to use a median rather than a mean to present the results, but that’s just nitpicking.

    • No. The aggregate he got from this he denoted “Europe”. This is a superstate structure. If he had been making the case that you’re making he wouldn’t have bothered aggregating at all.

      • Swedish says:

        Piketty’s implicit assumption is that Sweden is representative of other European countries where wealth data does not exist: Denmark, Norway, Finland and Germany probably resemble Sweden more than either the UK and France (same union structure, focus on industry, tax system, family values, etc.). It looks quite reasonable (conditional on the lack of data).

      • That could be the case. He should have added a note though… we’ll have to see if this is what he runs with.

  3. I would guess that the “missing wealth” in the UK is hidden offshore. Piketty mentions this both in his book and in his response to the FT, but provides no estimates, though in the book he references Gabriel Zucman’s work on global “hidden wealth”. Giles doesn’t mention this at all. It is of course in the nature of offshore wealth that it should be hidden, but it does compromise efforts to quantify the wealth of those able to exploit tax havens, who by and large are the rich. So Giles’s claim that wealth inequality is not rising in the UK is a tad strong: it is notoriously difficult to prove a negative anyway, but when part of your data is missing (and you don’t know it is missing) it is of course impossible.

  4. dan says:

    Reading reviews and discussions of Pikitty’s book has been great, a real education. However, I live among the long-term unemployed, those whose invisible desperation doesn’t count in any data set — but is somehow soothing to the mainstream phobia for NAIRU or they unwittingly volunteered for some structural unemployment experiment.

    Re-reading your April, 2012 interview with Thomas Palley this paragraph jumped out:

    “[M]any mainstream economists are starting to admit income distribution has played a role in fermenting the crisis (you have to be willfully blind not too see it). Consequently, they are busy trying to incorporate income distribution into their narrative. However, they do so in a way that leaves their core theory about markets and market efficiency unchanged. Unfortunately, journalists and the general public cannot see this and are taken in by this tactic.”

    The mainstream media (mainstream economists) are so skilled at obscuring the plain truth while delivering different messages to different audiences. I have an accelerating fear that’s what’s happening with Piketty.

  5. Pingback: “We all know that wealth inequality has gone up”

  6. Pingback: Has Thomas Piketty Pulled a Reinhart and Rogoff? | naked capitalism

  7. Personally i feel, every country, be it large of small, represents a sample from the set of all states, and has an equal right to be considered.

  8. philippe101 says:


    a question related to the previous discussion about the possibility of unemployment in a barter economy, and the hoarding of real resources.

    If saving = investment, then does hoarding of real resources count as investment in inventories?

    • philippe101 says:

      say for example I own a forest. If I cut down the trees, put them in a pile and then choose to do nothing with them, I’m hoarding that real resource, or investing in inventory, right? In this case my saving of timber equals my investment in timber inventory.

      But if I simply ‘hoard the forest’, by doing nothing with it and refusing to allow anyone else to use it, what is that? Is that also saving and investment in inventory?

  9. ess emm says:

    “I don’t know why on earth you would use a simple average in this regard.”

    Click to access Piketty2014TechnicalAppendixResponsetoFT.pdf

    Piketty’s response: “I do agree that population (or GDP) weighted averages are generally superior to simple arithmetic averages. However I should stress that it really does not make much of a difference here, because all three European countries that I use follow fairly similar long run patterns. Namely, all three countries display high and rising top wealth shares during the 19th century and up until World War 1 (with about 90% of total wealth for the top 10% around 1910); then a sharp decline until the 1960s-1970s (with top 10% wealth shares down to 50-60%); and finally a modest rise since the 1980s – 1990s. So whether one weights the three countries with equal weights or according to population or GDP does not make a big difference. But in case Britain did follow a markedly different pattern than the other countries in recent decades (with a decline in wealth inequality rather than a rise), then putting more weight on Britain than on Sweden becomes a significant issue. So we are back to the previous question: what happened to wealth inequality in Britain in recent decades? The FT seems to believe it has become more equal; however the way they use self-reported wealth survey data is not convincing.”

    FWIW, I dont think Piketty’s proposed transnational wealth tax is radical enough.

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