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Wednesday, April 8, 2015

How Piketty Manufactured Rising Inequality in 6 Easy Steps

Historian Phillip W. Magness is one of Thomas Piketty's most devastating critics. In his Freeman article “Picking Piketty Apart” (based on his research with fellow Freeman contributor Robert P. Murphy), Magness thoroughly refutes many of Piketty's core claims about the history of inequality in the United States. 

His biggest criticism of the French economist's bestselling book, Capital in the 21st Century, is that Piketty cherry-picked his data to show rising US wealth inequality, creating the alleged “U-shaped” trend in inequality over the last 100 years.

Piketty essentially manufactured the upswing of the U-shape by hand selecting his numbers from disparate sources to create the illusion of a 1970s trough … followed by a rebound from the 1980s to the present… A simple breakdown of his sources reveals no fewer than five such swaps between different data sources to produce the desired result.

Piketty stitched together data points from numerous different sources, made unusual and unexplained upward adjustments, left out data that contradicted his premise, and covered up missing data by creating averages for each decade (sometimes from as little as two years' data).

In the end, Piketty's chart on US wealth inequality displayed a trend that none of its original sources showed. Worst of all, he didn't tell his readers that he had done any of this, much less explained his reasoning.

But now Magness has deconstructed the chart and shown, step by step, how Piketty tortured his sources into giving him the result he wanted to see.

Ta-da! It's a terrifying increase in wealth concentration that  if left untaxed — will destabilize society and destroy capitalism from the inside.

Except, as Magness points out, using the same sources and methods, you could construct a series that shows the opposite trend for inequality, with it peaking in the 1980s and declining dramatically ever since.

If your methods can produce opposite results from the same sources, depending entirely on your subjective judgment, you're not doing science — you're doing a Choose Your Own Adventure story where you start from the conclusion and work backwards.

Now that you've seen how it's done, you too can “piketty” your data and massage your narrative into selling 1.5 million books — that almost no one will actually read, but will be widely cited as justification for higher taxes nonetheless.

  • Daniel Bier is the executive editor of The Skeptical Libertarian.