First, liberal economists damned Thomas Piketty’s book, Capital in the Twenty-First Century, with a stream of faint praise by applauding the quality of Piketty’s data while admitting to concerns about the quality of his economic logic. Then, Larry Summers took Piketty’s logic to the woodshed. Marty Feldstein followed by denouncing Piketty’s interpretation of the U.S. data.
Meanwhile, Bonnet et al found that Piketty’s findings were entirely attributable to real estate, which does not substitute for labor. Now, Chris Giles, Economics Editor of the Financial Times, raises concerns about the integrity of Piketty’s data. Giles’ adjustments, however, appear inconsequential. The Manhattan Institute’s Scott Winship stated his conclusion in an amusing way: “Only a couple of issues Giles highlighted … appear to matter, but in the worst case for Piketty, they would make the originally unimpressive trends look less ambiguously benign.”
It would be unfortunate if Piketty is declared the winner of this debate and it enhances his credibility. Even liberal economists including Summers (“[Piketty] misreads the literature”), Krugman (“an intellectual sleight of hand”), DeLong (“Piketty has no theory”), and Solow (“you eat your wage, not your share of national income”) have all taken steps to distance themselves from his theories. And, Bonnet et al (“any conclusion in terms of inequalities is hard to infer”) and Feldstein (“His thesis rests on … a flawed interpretation of U.S. income tax data”) have critisized his interpretation of the data directly. As long as the debate is over data—Piketty’s strength—and not the weakness of his theories, Piketty avoids his real problem.
I elaborate on the problems with Piketty’s theories on Bloomberg TV’s In the Loop with Betty Lui.