Financial Times Finds “Many” Errors in Piketty Analysis, Argues They Undermine His Thesis

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On what would normally be a very quiet Friday evening, the Financial Times has managed to stir up a significant controversy involving Thomas Piketty’s widely-lauded book, Capital in the 21st Century. Unlike many economists, Piketty provided an online annex and his spreadsheets, which showed the sources he relied on.

According to authors Chris Giles and Ferdinando Giugliano:

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 sufficiently 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 averaging techniques; multiple unexplained adjustments 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 historical trends on wealth inequality that appear more comprehensive than the source data allows, providing spurious support to Prof Piketty’s conclusion that the “central contradiction of capitalism” is the inexorable concentration of wealth among the richest individuals.

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 1 per cent has increased in the past few decades. There is some evidence of a rise in the top 10 per cent wealth share since 1970.

The article discusses the sorts of errors it found in more detail, including what look like data entry errors, unexplained one-off adjustments to data, weightings used in averaging different data sets, and inconsistent time periods used in comparisons. The pink paper argued that two major claims in Piketty’s book, that the concentration in wealth had increased after 1970, and that the share held at the top was greater in the US than in Europe, was absent when his data was corrected.

The Financial Times story had more of a “gotcha” tone that one expects to see in the mainstream media, and compared the mistakes to the famous spreadsheet errors in Carmen Reinhart’s and Kenneth Rogoff’s work on debt to GDP ratios. But at least so far, there is a key difference: only one other study had found results similar to the those claimed by Reinhart and Rogoff. By contrast, Piketty is far from alone in finding rising concentrations of wealth at the very top; Demos points out that a new study published by Garbriel Zucman and Emmanuel Saez paints a post-war picture similar to Piketty’s. Thus the FT’s assertion that their corrections of Piketty’s data show no increase in wealth concentration is an awfully bold claim, and will likely be scrutinized as much as the errors and possible methodological shortcomings that Giles found.

Piketty issued a response that may strike some readers as unduly general, but it isn’t clear whether the Financial Times gave him a complete list of their errors and points of disagreement. But his response isn’t defensive (a contrast with Reinhart and Rogoff), so he at least gets points for being willing to engage in a discussion.

My bet is that the Lance Taylor critique will in the end do much more to undercut Piketty’s findings than the Financial Times corrections and recalibrations, as useful as those are. Taylor challenged the widely-touted Piketty’s assertion that r > g (the rate of return on capital exceeds the growth rate of the economy). NC reader Ben Johannson provided a helpful summary of Taylor’s paper:

1) Taylor makes the point that Picketty’s determinations of the rate of profit and the capitalists’ share of those profits assume a fully employed global labor force due to his use of the neoclassical production function (the one trashed back in the 1950s during the Cambridge capital controversies). This is THE critical error in Picketty’s work, that capital can be aggregated and differences simply assumed away while the reality of effective demand is ignored.

2)The rate of profit and share of net profits will vary over time depending on the business cycles, employment level, monetary policies, technical changes, etc. The neoclassical production function referenced above does not take this into account.

3) The accumulation of wealth at the top is not an autonomous product of “capital”, some natural law of economics which states that it will always produce growing inequality, but rather a product of specific policies which can be reversed. Altering the ratio of output/capital and the share of profits taken by the capitalist class is the better and more easily implemented choice for reducing inequality rather than taxation. In other words rising real wages is more effective in sustaining aggregate demand and attenuating capitalist power, while relying on taxation will fail to address stagnating wages and continue the current trends.

While it is critically important that errors be unearthed and examined for their seriousness, some of the FT’s “gotchas” are clear mistakes, while others appear to be disagreements about how to deal with complex and inconsistent data sets. For instance, as Neil Irwin at the New York Times notes (boldface original):

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….

But does it matter? Mr. Giles attempts to reconstruct estimates of wealth inequality, correcting for what he describes as Mr. Piketty’s errors. 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 Piketty’s charts, it is much less certain about the truth.”

The two most serious-looking types of errors that the Financial Times found were arbitrary data adjustments and data with no source and no explanation as to why/how it was created. This may be simple failure to document adequately or in a worse-case scenario could look a lot like data-diddling.

With Piketty’s book having gotten so much attention over the last few weeks, it’s a given that there will be a lot of eyes on the Giles findings and considerable debate over how much of an impact they have on Piketty’s conclusions. So hold tight and see how this shakes out.

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  1. craazyboy

    Well, while we’re waiting, someone must be working on the Income Inequality book.

    Then the Economist could probably do a quick article – The post WW2 Forbes 400; inflation adjusted using the Big Mac Index.

    If they graph CEO/Average Worker Pay then a lot of data inconstancies and adjustments just cancel out.

    Maybe could use some new data sets – perhaps worker to trust fund ratio?

    We’ve got to get to the bottom of this.

      1. craazyboy

        Be really something if we found out a lot of the “wealth” was stashed away in treasure chests in the Caribbean, and Piketty didn’t find all of it!

        That’s why I think simplified indexes may be easier to develop. For instance, one I use I call “The Bug Spread”. Its the ratio of Bugatti price to VW Beatle price (the peoples car).

        Here’s the new $2.5 million dollar Buggati

        1. craazyman

          tha’t s a very good point.

          if they threw all that in, even throwing it as clumsily as a woman throws a football, you’d get r > 2g if not r > g^2

          There’s no way Professor Piketty is wrong about any of this. He’s underestimating, actually, and probably doing so on purpose to avoid even more virulent accusations. You’d think he was Copernicus or something, the fuss he’s created. hahaha, I hope he gets rich quick and lays around and just laughs at people who criticize him. Maybe smoke some hash and chill, thinking about how hilarious it is that people get red-faced and intellectually fuming pouring over his 700 page book. That would crack me up that’s for sure, especially stoned. It might be hard to stop laughing and you’d have to go to the hospital,

          In fact, it would have to be quadratic since if it was 2g and if g was measured accurately, as a negative number over long periods as life gets harder with each year, then the math won’t work. That’s probably the flaw that nobody has pointed out. It’s actually g^2. Or at least |2g|. But g^2 looks better and is easier to write down

          1. craazyboy

            Ya, or like the Earth is made of Swiss cheese, the huge craters being in Cayman, Isle of Man, Monaco, Panama and Cypress, the motion all governed by a mysterious force apparently centered in Geneva.

            Poor Piketty being crucified over tiny holes in his book.

  2. JaaaaayCeeeee

    Matt O’Brien (at Wonkblog) and Paul Krugman (in his own blog) have posted thoughtfully about Financial Times econ editor Giles’ claims that Piketty’s sources don’t support his conclusions. David Leonhardt’s Upshot blog posts, by Neil Irwin and Justin Wolfers, which seem to mostly just twist the gist.

  3. Moneta

    The economy is multi-variate with a multitude of feedback loops. No model can justly represent it. All models can be torn apart, especially when you start applying human nature and externalities. There are just to many variables for our linear brains.

    The question is not whether the model is wrong or not, it is why we should adopt it or not. Every single model that we have used in the past could have been proven wrong, yet they were used anyway. There is a reason why society did not denounce the provable errors. It is because the model fit with the social ideology in place.

    The god variable of the last few decades has been rates. But now with zirp and many other variables stretched beyond multiple standard deviations, the next few decades will be about clinging to another god variable… Which one will it be?

    The next model to stick will still be contestable but it will go through like a hot knife through butter because they are all contestable and the economy still needs to be managed.

    1. Ben Johannson

      Complexity and the quest for precision are the twin enemies of a useful model. As a general thing I do think a basic understanding of a good model should be achievable in less than thirty minutes. If a reference guide is needed to keep track of all the variables then most likely you’re looking at a toy some economist made to entertain herself.

    2. craazyman

      what f the butter was frozen like a little brick? has that ever happened to you? you’re at a diner and want butter and they bring you a piece of yellow ice frozen inside a peel off plastic tub the size of a small dime? I don’t know about a hot knife going through that? but butter = butter and they don’t count whether it’s ice or not. you just throw it in the model the way a woman throws a football. how does that make sense? it doesn’t make any sense. You try to put that butter on your roll and it buries itself inside the bread like a piece of a rock. then you eat the roll anyway and just deal with it. I bet nobody even read the book. That’s ridiculous. You can just look at things and see them, why do you need a book about them? it’s only a model but you’ve got reality! why not just look at it, right at it. reality is beckoning with a blue sky and a sun. Hopefully something good will happen!

      1. fresno dan

        precisely correct
        and by the way, those Ketchup packages are ridiculously small – not enough ketchup for three French fries….

      2. Moneta

        OK, in terms of softness, I did mean margarine but your description of the use of butter better reflects how they will adopt the new model.

  4. Moneta

    The general population has bought into social Darwinism which is actually based on the wrong interpretation of Darwin’s findings.

    The winners believe they deserve their winnings and that they are better than the losers. And the losers have ended up internalizing this belief system also.

    Maybe inequality data is a beginning in changing our belief system but it will not do the heavy lifting. We need to use intangibles, gut wrenching images, not data.

    The left is being too mathematical trying to use methods that are not fool proof. Feelings are going to win this battle and the right side understood this a long time ago.

    1. PopeRatzo

      There are a host of “gut wrenching images” available to all. Just google “homeless family images”. It’ll tear your heart out.

      1. Moneta

        And my point is that it is not only about images, it’s also about a story that sticks.

        Right now the story is that everyone is in control of their destiny when it is obvious we are not… why does this keep on sticking?

  5. Jim Haygood

    ‘Taylor challenged Piketty’s assertion that r > g (the rate of return on capital exceeds the growth rate of the economy).’

    This is an assertion that can be measured in more direct ways than wealth surveys, by examining actual returns on capital and rates of GDP growth. In a 2002 paper, Rob Arnott and the late Peter Bernstein analyzed U.S. equity and bond returns since 1802. They report (p. 73) that ‘the history of dividend growth shows no evidence that dividends can ever grow materially faster than per capita GDP. Indeed, they almost always grow more slowly.’

    Fleshing out the specifics, they state (p. 80) that real growth in dividends averaged 0.9 percent annually; earnings growth averaged 1.4 percent; while real per capita GDP grew 1.6 percent annually over the 200 years.


    These findings confirm what common sense would expect: capital can’t endlessly outgrow the goods-and-services economy, since capital is merely a claim on future production. If this appears to be happening, then look for a Ponzi scheme.

    1. craazyboy

      Well, if they want to analyze steady state periods in a zero sum world, then I think they need to toss in another equation:

      consumer debt=negative wealth

      Then they may be able to show some progressive stratification over time – at least over the last 30-40 years. I can find the hockey stick consumer debt data, so it can’t be that hard.

      1. craazyboy

        They may be missing the important metric all together. For most of us, life is a life or death situation. Seems to me the important metric is how quickly we would starve to death if current income and/or safety net programs were cutoff.

        I’ll call it “Decay Rate Analysis”. Simple to do – the electrical analog is the discharge rate of a capacitor. All sophomore engineering students do it in lab class – so that’s how easy it is.

        For a capacitor, it’s a first order differential equation, but humans may not behave like capacitors. But the neat part is the shape of the curve doesn’t really matter – you are only “interested” in the time it takes to be fully grounded out.

        Then it’s just a matter of setting the initial conditions with a “family” of wealth data, start the experiment by cutting off the income source, and measure time to ground state.

      2. Jim Haygood

        ‘consumer debt=negative wealth’

        You said it, bro. That’s exactly what Saez and Zucman [referenced by Piketty in his reply to the FT] say too. This quote is from their slide no. 41:

        1913-1929: Saving rates and returns r + q both sharply rising
        with wealth –> explosive inequality dynamics

        1929-1986: Major shocks on asset prices q a ffecting the rich
        disproportionately and highly progressive capital taxes –> compression

        1986-2013: 0 saving at the bottom and high S [savings] at the top –>
        rising wealth concentration

        Higher pre-tax returns for rich today, but diff erential lower than 1 century ago bc. democratization of equities through pensions


        Needless to say, the Fed’s ZIRP is a disincentive to save. So are subsidized mortgages (FHA) and student loans.

        Saez and Zucman’s ‘democratization of equities through pensions’ (which helped the less wealthy) could be amplified by including equities in Social Security’s portfolio. Forcing the working poor to ‘invest’ in Treasuries at near-zero return, while the rich harvest capital gains and dividends, is a diabolically efficient way to heighten inequality.

      1. Jim Haygood

        For equity capital (one of several forms of capital, but an important one), the cumulative realized return ultimately comes from dividends.

        Capital gains reflect a belief that the present value of future dividends has risen. But if those dividends fail to materialize, the capital gains will dissipate.

        As summarized by Saez and Zucman (slide no. 12):

        “Total return r + q  ~ r in the long run [where ‘r’ is pure yield]
        (but huge short run volatility of q and large diff . across assets)”

    2. Paul Boisvert

      Hi, Jim,
      You’re still confusing the rate of return to capital (Piketty’s “r”) with the rate of growth of of the absolute amount of (some or all of) those returns. They are not the same. Watch:

      Assume for the sake of argument that all return on capital is dividends. Suppose in Year 1, the rate of return r is 4%. That means that people who owned stock got on average an income (dividends) of 4% of the average value (price) of their stock in that year.

      Assume in Year 2 that the amount of dividends paid grows in real terms by 0.9%. That does NOT mean that the “rate of return” r also grows by 0.9% (from 4% to 4.036%). This is because the rate of return is also tied to the PRICE of the stock. If the average price of stock in Year 2 were also to have grown by 0.9% in real terms, then the ratio r, which is dividends DIVIDED BY PRICE, will remain the same: 4%. [Please forgive caps, just for emphasis, am not angry at you! :) ]

      Or perhaps the price changes by some other percent in Year 2 (up, down, whatever.) That could change r, but note that it would be the change in price, together with the 0.9% in dividend growth, that determined the value of r. Piketty’s model draws conclusions from r, not from the 0.9% figure, which is meaningless without also knowing the price’s growth. So no conclusions can be based on the 0.9% figure. Piketty’s calculations of r = 5%-ish may be perfectly consistent with a growth rate in dividends of 0.9%. Or not, as Piketty may be wrong in his measurement of r, but the 0.9% figure IN ISOLATION does not constitute any evidence that he is wrong.

  6. middle seaman

    In any large study such as Picketty’s errors occur. We do make mistakes. FT obviously attacks back on behalf of the rich. This counter attack was expected. Inequality exits in the develop world and that beast intents to grow. If it does, it spells the end of the world as we know it.

  7. impermanence

    The truth is always profoundly simply. The great percentage of wealth created on this planet is transferred to to a small minority who do absolutely nothing. THIS is the problem, ALWAYS has been, and ALWAYS will be.

    The -isms are simply rationalizations for the above; the intellectual classes pleased as punch to engage in all kinds of mental contortions in order to avoid that which stares them in the face [their own complicity] .

  8. rob urie

    The census dept. provides crude confirmation of rising income skew since 1967.
    The Federal Reserve provides a survey of consumer finances every three years.
    If most financial wealth is owned by those at the top and financial asset prices have been rising since 1982 then those at the top have benefited. If housing wealth in a smaller percentage of the wealth of the top and housing prices have declined while mortgage debt hasn’t then those further down have lost more as a proportion of their of wealth.
    Estimates vary, but hasn’t CEO compensation gone from 20X average wages in the 1960s to 360X today?

  9. Bruce Wilder

    Giles and Giugliano do what the Right always do: the Big Lie. It becomes a question of what are you going to believe: what your masters want you to believe or your lying eyes. That Capital is taking a larger share of income, that c-suite executives are taking vastly larger incomes, that much of the economy has become a predatory or parasitic morass of schemes to skim and grift, that the public sector has been weakened and has shrunk — these facts are not hidden in spreadsheets; they are in plain sight.

    So Giles and Giugliano use a propaganda technique. They narrow their characterization of Piketty’s web of claims to a suitably narrow and abstract one which is not so easy to observe with the unaided eye; they take a paradigm already “in the air” because of its devastating effect in the case of Rogoff and Reinhart — the “spreadsheet error” — and they combine the two in a pseudo-syllogism leading to a flat out claim:

    “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 . . . But when the individual sources are graphed, none of them supports the view that the wealth share of the top 1 per cent has increased in the past few decades.”

    For propaganda purposes, the sweeping nature of the FT claim is the key to later usefulness in flat-out and sweeping denials that Piketty’s work identifies anything correctly. A year from Greg Mankiw will be telling his Harvard students that Piketty’s claims were discredited, and they should dismiss these unfounded complaints about rampant inequality.

  10. Bruce Wilder

    Piketty’s use of the neoclassical production function, and by implication Solow’s growth model, as part of the framework organizing his analysis was almost certainly necessary to make his presentation comfortably familiar and acceptable to an audience of professional economists, who are used to thinking in these terms.

    It is true that the Cambridge Capital Controversies attacked the vague metaphor of an accumulating capital; and a simple, smooth, convex substitution of capital for labor; and the aggregation of capital, which are combined in the aggregate production function. And, the UK side in the CCC were right, though they pressed their claims in the most abstract, abstruse and esoteric fashion imaginable: the neoclassical production function is a dumb idea in a disaggregate, micro setting and it gets dumber in a macro, aggregate setting.

    It is also an historic fact that the triumph of the UK side in the CCC made no difference whatsoever to the U.S. economics profession. The mainstream in the U.S. adopted the Solow growth model as a foundational framework for all macroeconomic analysis.

    The problem — the obvious conceptual problem in Piketty’s work — is not his polite accommodation of economists’ prejudices. It is that he equates wealth with capital and then tries to measure wealth/capital as something that accumulates independently of the income streams wealth claims, and which is involved in an essential way with the production of goods and income.

    r > g (Piketty’s central claim) invites us to rethink this whole relationship of wealth to capital to the organization of the production of goods. If r is to be greater than the growth in output, the neoclassical production function simply cannot be applied. Even if we were to accept its dubious assumptions, the neoclassical production functions says that accumulating capital ought to force wages up. Solow’s growth model expects a balancing act between capital and labor income. That’s not happening, according to Piketty. He is letting his data contradict the neoclassical production function.

    Let Piketty’s data disprove the neoclassical production function. Don’t get in the way with talk of the CCC. Let Krugman weave a rope with his robots, if he likes, and plan to hang him with it later.

    The important point is to trace how r > g in concrete terms, that is to connect the increasing share of wealth’s claims in national income, and how those increased claims outrun any actual increase in the production of goods. If r > g because wealth is buying highways and turning them into toll roads, or closing credit unions and savings and loans in order to make way for chains of payday lenders, or turning college students into debt peons, that kind of institutional development explains r > g in terms that suggest institutional reforms.

    Piketty treats wealth and capital primarily from the equities/liabilities side of the balance sheet. That’s the side that can be toted up and aggregated. The CCC critique doesn’t apply, because the production function is all about the assets side, the alleged use of resources in production that correspond in some vague (and conceptually incoherent handwavy way) to assets.

    If there’s another useful line of attack on the myth of the production function — and make no mistake the production function works like a myth organizing a worldview in the minds of professional economists — it is in Piketty’s finding that CEO and financier incomes have been skyrocketing. The production function is all about allocational efficiency; management and technology is in the assumptions of the disaggregate production function, and in the parameters and residual, so to speak, in the Solow aggregate version. The role of organization and management, of bureaucracies exercising power — though pervasive in the observable economy — disappear in the economist’s theory of the production function. And, yet, here are CEOs earning hugely increased sums, and exercising power in ways that seem to be driving r > g, as well.

    It is in relation to the power exercised by CEOs and financiers that taxation may be the necessary and essential remedy. As long as the tax regime puts no ceiling on the incomes that can be derived from positions of great power and responsibility — particularly positions, which may be retained only for a short time by the typical incumbent — there’s no chance that concerns for reputation or ambitions for achievement of other kinds can compete with the sociopath’s pursuit of profit. If a CEO can take home north of $10 million in a single year by ruthless and irresponsible exploitation — and if the narrow class of wealth holders constituting the ownership class see this as consistent with their interests and they will, if they too face no ceiling on their gains — the political economy suffers from a chronic and otherwise incurable disease. Taxes must take away this destructive incentive.

    1. Dan Kervick

      It is that he equates wealth with capital and then tries to measure wealth/capital as something that accumulates independently of the income streams wealth claims, and which is involved in an essential way with the production of goods and income.

      I don’t get that claim. On Piketty’s analysis wealth accumulates as a direct consequence of income.

      1. ltr

        “On Piketty’s analysis wealth accumulates as a direct consequence of income.”

        That is just what Piketty writes, and what makes sense.

      2. john c. halasz

        Piketty is really referring to wealth, not capital, in any narrow sense, as a produced means-of-production, which can only be realized from the sale of output. So what Piketty means by “capital”, as a claim on income flows, would anything that can be traded on a market and converted into money, which would include houses (not a means-of-production, but a consumption good), gems or old master paintings, or the market value of derivative contracts, (some $19 trillion currently, out of a notional reference value of $700 tn). Hence he doesn’t distinguish between profits and economic rents. Of course, all claims on income must reference what is actually produced in the “real” economy and all wealth-claims can’t be sold off at once, else their monetary prices would crash and they would cease to function as stores pf “wealth”. But it’s the dynamics of the accumulation process that seems to be at issue. And Piketty, in offering a trans-historical account, doesn’t seem to have much to say, in any explanatory fashion, about that.

        1. Dan Kervick

          That all seems right to me. But it’s not correct to say that “wealth accumulates independently of the income streams wealth claims.” For Piketty, a nation’s wealth accumulates because each year it saves a proportion of its total national income for that year. The income is made up of the income generated by labor and the income generated from the ownership of wealth. So the income stream wealth claims makes a direct contribution the national income, and hence to national savings.

          1. Bruce Wilder

            Total income is equal to production, a joint product of labor and capital.

            The neoclassical production function is an idealized analysis of how the claims on total production can be reconciled into a division of claims on that production, aka incomes due to the various factors of production, aka labor and capital.

            There are a lot of things wrong with the production function as a theory, and I won’t detain you with a recitation of its shortcomings, but here’s the thing: savings are not necessarily investments in productive capital.

            Let me suggest a different model altogether: in a world of risk and uncertainty, there’s a market value for saved money as insurance. People, who have accumulated a lot of money and financial claims (distinct from control of production equipment), have a remarkable ability to absorb risk; people, who have not, do not have this capacity, but, nevertheless, face the same risks. The people with a lot of money can sell insurance to the people without, earning a return on their money, without appreciably increasing output of goods — the return on savings, from the use of saved money in insurance, is a transfer of income from those facing risk without an adequate buffer to those with an excess of risk-bearing capacity.

            As wealth accumulates and concentrates, fewer and fewer people are selling more and more insurance to more and more people, who need it, and more and more of total income is being transferred to the few.

            1. Moneta

              As wealth accumulates and concentrates, fewer and fewer people are selling more and more insurance to more and more people
              That’s why at some point people should create coops and mutuals and stop dealing with the few..

              1. Bruce Wilder


                And, one may note that the U.S. system of savings and loans, which were mutually owned by depositors, were an early target of de-regulation, and destroyed in a financial crisis.

                Public provision of insurance — social insurance — would also seem to be a good thing. And, the social welfare state was most dominant in precisely the period Piketty identifies as most egalitarian.

                1. Moneta

                  In the early 2000s, the big Canadian mutuals demutualized and got IPOed. The banking coops are offering the same bad products to clients. Government has been crushing agriculture coops. And the unions’ current motives are dubious.

                  All these structures were created for a reason and need a cleanup or a fresh start.

            2. Dan Kervick

              National income is not equal to national output on Piketty’s framework, because the former includes capital income that comes from the ownership of assets abroad.

      3. Bruce Wilder

        Perhaps, I didn’t express myself very well.

        The value of an asset is the present value of its expected income stream. Tying an expected income stream to a financial or ownership claim creates wealth. Wealth is, in this sense, simply the capitalized value of legal claims on future income. Wealth and income, in this broad accounting, are the same thing on different time scales, and accounting identities can analyze the relationship of wealth’s income projected into the future to wealth’s market value in the moment.

        The confusion arises, when we imagine “capital”, as a factor of production, corresponding to wealth. Identifying wealth with capital suggests that wealth contributes to production, so that additions to wealth create net additions to income. Capital investment is generally thought socially desirable, because it leads to increased output and increased income for labor as well as for the owners of capital. Capital, at least in some conceptions, is as countable as acres of land or bodies or hours in the labor force, and its existence may be regarded as, if not quite tangible in all cases, separable and distinct from the financial claims, which constitute wealth.

        When we say wealth “accumulates”, what do we imagine is accumulating? Machinery? Improvements to business organization? Robots? Insurance policies? Equity ownership? Debts?

        The most general answer, lurking in Piketty’s Capital, is debt, but it’s not made clear. Debt is not a factor of production in the neoclassical conception of the production function at least, nor, I think, in looser, common-sense notions. Debt is a contingent promise to transfer income at some future date or dates. And, debt, for the lender, is wealth.

        The ambiguity about what makes up wealth — a problem of apples and oranges and orangutans on the asset side of the balance sheet, but not much of a problem at all on the equity/liabilities side — is pointedly made acute by Piketty’s prime thesis: r > g. Why? Because r > g implies that accumulation of wealth, which means increases in the claims wealth makes on total income, are outstripping increases in output, outstripping whatever additions to output, capital investment may be making to output. Sooner or later but inevitably, r > g implies a zero-sum and then a negative-sum game: to keep up r > g, wealth will have to take more than its share of growth, more than it contributes to growth, and eventually reduce the income of labor.

        r > g is a challenge to our conceptions of what wealth is, what capital is, and how they contribute to growth and social welfare. As mild and conventional as Piketty is, in style, he’s confronted us with facts that cannot help but challenge our shared outlook.

        1. ltr

          I think the sum of your analyses are brilliant and wish you could put them together and continue since Piketty’s work is being bashed right and left and I am sure wrongly but do not have your language facility being used to working with data.

        2. ltr

          Even James Galbraith is bashing Piketty, again, in a post today on Mark Thoma’s blog.

  11. Dan Kervick

    I posted a comment on the Taylor piece, but it appears to be hung up in moderation.

  12. Jim Shannon

    Clearly the CentaMillionaire$ and Billionaire$ have corrupted ALL governments and own just about ALL the media as well.
    We clearly need to TAX them ALL of out of existence if we ever hope to stop their corruption of All the Markets as well!
    Shoot the messenger, corruption of governments world wide and their laws and TAX CODES can’t possibly be TRUE!

  13. Patrick

    The fact that the FT felt the need to dig into the “data” to find “errors” indicates that Piketty’s book has seriously rattled the establishment’s meme that deregulation or, failing that, non-enforced regulation is the only way to go. That capitalists need to be free to work their wonders and prosperity for all will automatically follow. They are afraid that the book’s popularity will highlight the inequality problem and, more importantly, indicate that it is the natural outcome of the capitalist system working as it is meant to. That it is not a temporary quirk of the system. For that idea to become fixed in the public mind is dangerous for the financial elite. A population that realizes that it is there merely to be exploited by the few is a group ready to be ignited and to be motivated to take action. So they have to stop the idea taking root.
    We can expect more attacks on the book’s methodology, etc as the weeks go by. Every word will be scrutinized, every table analyzed. A pity the same rigor has never been applied to the efficient market theory or the Austerity solution.

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