On
May 23, the left's favorite new socialist-themed economics book was
criticized in one of the world's leading business newspapers. This
sharp criticism caused both The New York Times and The Washington Post
to rush to defend the book and criticize the criticism.
A new critique by the Financial Times of Thomas Piketty's book, Capital
in the 21st Century, insists that the author's findings are "undercut
by errors"--mistakes in his spreadsheets that skew the results toward
supporting his thesis.
One
NYT columnist ... decided that even if Piketty is wrong, it doesn't
matter because the Frenchman highlighted income inequality, something
that every liberal just feels in his bones is the real problem in this
world today.
This criticism has alarmed the left, as Piketty's book is their
favorite new endorsement of confiscatory taxation, socialist economic
policy, and an exposition on the efficacy of massive growth in the
power of government.
Piketty's book has been hailed by big government fans the world over
and has become their newest explanation of why capitalism is bad. Much
to the left's applause, Piketty says capitalism inevitably causes
income inequality, a problem that can only be fixed by a "global wealth
tax" and massive government regulations.
But the Financial Times says that "the rock-star French economist
appears to have got his sums wrong."
"The data underpinning Professor Piketty’s 577-page tome, which has
dominated best-seller lists in recent weeks," FT columnist Chris Giles
writes, "contain a series of errors that skew his findings. The FT
found mistakes and unexplained entries in his spreadsheets, similar to
those which last year undermined the work on public debt and growth of
Carmen Reinhart and Kenneth Rogoff."
Reinhart and Rogoff are famous, or perhaps infamous, as influential
economists whose work was later shown to have major spreadsheet errors,
which called into question their whole body of work. It was quite a
controversy among economics professors last year.
FT goes on to say that "there are transcription errors from the
original sources and incorrect formulas" in Piketty's spreadsheets.
Worse, the paper charges that some of the data was "cherry-picked or
constructed without an original source." The latter is a dire
accusation if proven accurate.
"The central theme of Prof. Piketty’s work," FT concludes, "is that
wealth inequalities are heading back up to levels last seen before the
first world war. The investigation undercuts this claim, indicating
there is little evidence in Prof. Piketty’s original sources to bear
out the thesis that an increasing share of total wealth is held by the
richest few."
This was all too much for The New York Times. First, the Gray Lady's
own celebrated economist, Paul Krugman, was effusive with his praise of
Piketty's book on March 23. After that, the Times, unsurprisingly, was
quick to blast the Financial Times for daring to criticize Piketty's
work.
One NYT columnist seemed too decided that even if Piketty is wrong, it
doesn't matter because the Frenchman highlighted income inequality,
something that every liberal just feels in his bones is the real
problem in this world today.
Justin Wolfers briefly explores some of the criticism of Piketty's work
but concludes, "The clearest effect of Mr. Piketty’s efforts is that he
has brought new attention to the distribution of wealth."
"I believe that interest will continue to improve and refine our
understanding of the evolution of wealth inequality," Wolfers insists.
So, for the Times, even if everything Piketty wrote is wrong, it's okay
because the seriousness of the issue is bigger than the mere facts.
Matt O'Brien seems to come to a similar conclusion as Wolfers, but also
avers that even if Piketty's numbers are wrong, "they don't change the
big picture."
In The Washington Post, O'Brien insists that the errors in Piketty's
work are not really big deals. Asking if the problems are serious and
if they should "change what we think about inequality," O'Brien answers
his own query, saying that "the answer seems to be" that the errors are
"not too serious."
Journalists such as Wolfers, O'Brien, and Krugman have also defended
Piketty's book by claiming that there has been no legitimate criticism
of the book. But in fact there has been quite a lot of criticism.
Just to name a few, one such critic is Kevin A. Hassett, director of
Economic Policy Studies at American Enterprise Institute. Hassett
points out that a major flaw in Piketty's numbers is that they do not
seem to recognize that much of the observed increases are attributable
to increases in housing. And if housing is excluded, Hassett says, the
sharp increase in capital is almost eliminated, and the imminent
collapse of capitalism Piketty assumes disappears.
James P. Pinkerton also points out flaws in Piketty's thinking, saying
that Piketty--and his liberal fans--view income inequality as a simple
matter of math: the evil rich just have too much. But simple math does
not ask or answer the question of what might cause income inequality.
Is it born of the various levels of technological expertise of
individual workers, their education, their culture, their intellect,
their motivations? These are important questions that need to be asked.
Additionally, Hunter Lewis of AgainstCronyCapitalism.org points out
that even if this “global wealth tax” is a one-time tax, it would force
"the rich" to begin trying to divest stocks, bonds, real estate, and
other holdings to pay the tax. "But how will that even work?" Hunter
asks.
"How will markets absorb all the selling? Who will be the buyers? And
how will it help economic growth for markets and asset values to
collapse under the selling pressure?" he wonders.
Clearly, such a tax would cause chaos.
Still, Piketty has a plethora of fans, but naturally, those fans are
made up of those who want to grow the power of government. Perhaps
unsurprisingly, Obama has feted the socialist author, the Council on
Foreign Relations has hailed him, and so have the International
Monetary Fund and the United Nations. And just last week, it was
announced that Massachusetts Senator Elizabeth Warren is going to
appear with the Frenchman to extol the virtues of his confiscatory
"global wealth tax." Warren is, of course, one of the most extremely
liberal--or "progressive," as they like to say--members of the U.S.
Senate. She is so liberal, in fact, that she is constantly dogged by
rumors that she is herself a socialist.
Still, instead of being the economics answer the left have been waiting
for, it seems the debate over Piketty's assertions is far from settled.
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