Quite a day for Thomas Piketty, best-selling author of Capital in the Twenty-First Century. First the French economist appears on a special cover of Bloomberg Businessweek styled to look like Tiger Beat (my fave!). Now he’s out with a persuasive 10-page response to charges by the Financial Times that he “appears to have gotten his sums wrong.”
Our cover story, by Bloomberg View columnist Megan McArdle, is headlined “Pikettymania: Why America Has Wealth Inequality Fever.” McArdle touches briefly on the accusation by Chris Giles, the FT’s economics editor, that Piketty made mistakes in his spreadsheets, writing that “even many of his critics seem to agree the supposed errors aren’t fatal.”
Piketty has defended his work repeatedly since the FT story came out on May 23, but this is his first detailed rebuttal. It’s framed as an addendum to the technical appendix of chapter 10 of his book, on inequality of capital ownership. In other words, it’s a bit stiff. Piketty may be making a dry joke in the first sentence when he writes: “I interpret [the criticisms] as requests for additional information.”
The Financial Times leveled a lot of criticisms of Piketty, but the most serious was that he drastically overstated the degree of inequality of wealth in Britain in recent history. The FT said the top 10 percent of British households controlled about 44 percent of national wealth in 2010, whereas Piketty put the group’s share of wealth at 71 percent. “This is a very large difference indeed,” Piketty writes. He says the newspaper based its numbers on self-reporting by households in a survey, while he used more reliable estate tax statistics. Worse, Piketty says, the FT used estate tax statistics for older decades, then switched to self-reporting. “Such a methodological choice is bound to bias the results in the direction of declining inequality,” he writes.
The FT’s Giles has yet to respond to the response. In a post today on the newspaper’s Money Supply blog, Emily Cadman notes Piketty’s missive but doesn’t address its merits.
Academics love to end their writings with a call for further investigation, and Piketty doesn’t miss the opportunity to do so here. “This is nevertheless an interesting debate for the future, and we should all agree that we know too little about it.”