At this point most people’s minds are surely made up, on the issue of whether Thomas Piketty is a wonderful scholar versus a con artist. But I still think it’s worth commenting on this debate, because the innocent onlooker would have no idea of what the actual inequality evidence says, from the rhetorical tricks that Piketty and some of his defenders are pulling. In this post I’ll focus on Paul Krugman’s two (conflicting) reactions to the FT’s critique of Piketty, and then I’ll show just how incredibly misleading Piketty’s summary of the literature is, when he’s addressing a lay audience.

Krugman: Survey Evidence Is Good or Bad, Depending On Whether It Helps His Case

Now that Piketty has given a detailed response to Chris Giles’ FT critique of how Piketty combined various data sources, Krugman weighs in with this summary for his NYT readers:

The central point here is one that’s familiar to anyone who works at length on inequality issues. We have two kinds of data on distribution of both income and wealth: surveys, in which people are asked what they make or own, and tax data. Survey data are better at describing lower-income families, who often aren’t covered by taxes; but they notoriously understate top incomes and wealth, roughly speaking because it’s hard to interview billionaires. Also, survey data start fairly recently — after World War II, and often much later than that.

So Piketty works mainly with tax data, although he also makes some use of survey data; when he combines them, he makes adjustments for the known downward bias of top wealth estimates from surveys. Giles, however, basically noted that some relatively recent survey estimates of large fortunes are smaller than some tax-based estimates for earlier periods, and used this to claim that there isn’t any clear trend toward wealth concentration. Bzzzt! Error!

This should really settle the issue, but of course it won’t. Inequality deniers will pick up on the FT’s bad critique, and it will become part of what they “know” to be true.

Krugman’s summary of the dispute here is totally wrong. Giles wasn’t resting his case on the Office of National Statistics wealth survey; that’s why Giles made those data points optional in his own reconstructed series, as I explain in this post. Just a tip: When Krugman is describing his opponent’s position and leads off with “basically,” what that means is: “The following statement is demonstrably false, but I really really want to be able to say it.”

The main problem with Krugman’s remarks above is that he utterly misleads as to the nature of Giles’ critique. But beyond that, we also have the fun part of comparing his response above, to Krugman’s initial reaction when he first read Giles’ critique. This is what Krugman wrote last week when the FT story broke:

[I]s it possible that Piketty’s whole thesis of rising wealth inequality is wrong? Giles argues that it is…OK, that can’t be right — and the fact that Giles reaches that conclusion is a strong indicator that he himself is doing something wrong…[W]e have, as Piketty stresses, evidence from Forbes-type surveys, which show soaring wealth at the very top.…

And there’s also the economic story. In the United States, income inequality has soared since 1980 by any measure you use. Unless the affluent starting saving less than the working class, this rise in income disparity must have led to a rise in wealth disparity over time.

The point is that Giles is proving too much; if his attempted reworking of Piketty leads to the conclusion that nothing has happened to wealth inequality, what that really shows is that he’s doing something wrong.

None of this absolves Piketty from the need to respond to each of the individual questions. But anyone imagining that the whole notion of rising wealth inequality has been refuted is almost surely going to be disappointed.

So for the ha-ha portion of the blog post, note that apparently surveys of billionaires seem to fit the bill nicely, when they show what Krugman wants. (For purists, note that the ONS survey data [see UK tab here] for UK wealth concentration–the one that Giles likes but Piketty and Krugman say is unreliable–shows the wealth concentration in the hands of the top 1% actually falling slightly from 2006 to 2010, but admittedly that’s not a very long time frame.)

But the crucial point here is that Krugman is saying that it is inconceivable that Giles could be right when he claims that there has been a stable concentration of wealth held by the very rich over the last several decades. According to Krugman, this result is so far removed from what other evidence tells us, that we can safely say Giles is doing something wrong.

Piketty Echoes Krugman on the (Alleged) Consensus in the Literature

As we’ve seen, Krugman thought it was so absurd to argue that wealth concentration have been stable, that he was willing to dismiss Giles’ reconstructed series on that ground alone. Here is how Piketty responded to Giles’ accusations, in an email to the NYT’s Neil Irwin when the FT story first broke:

But in his e-mail to me [Neil Irwin], he [Piketty] wrote with an almost jovial tone: “Every wealth ranking in the world shows that the top is rising faster than average wealth,” adding, “If the FT comes with a wealth ranking showing a different conclusion, they should publish it!”

The moral for innocent bystanders is clear: Chris Giles’ attempt to show relatively stable wealth concentration in the US over the last several decades would be the ONLY such one.

In this context, then, anyone except the true expert in this area of the literature would probably be astounded by this chart from a 2004 NBER working paper:


This chart shows the percentage of wealth in the United States held by the 0.01%. That’s not a typo. I’m not talking about “the 1%,” and I’m not even talking about “the 0.1%.” No, I’m talking about the “0.01%,” in other words the wealthiest one-ten-thousandth of the population. As the chart shows, as of the year 2000 the fraction of wealth they held had been roughly flat since the mid-1980s, and moreover this flat trend was much lower than it had been through most of the 20th century.

Let me give you some more information about this graph, which probably surprises most readers who may have gotten their information from Krugman or Piketty. This graph isn’t based on unreliable survey data; no, it’s based on estate tax data–the kind that Krugman says he likes (at least when Piketty uses it to bolster his case for surging inequality). Further, let me assure you that this graph doesn’t come from the Heritage Foundation or the Cato Institute. No, it comes from a paper co-authored by Emmanuel Saez, who is a co-author with Piketty on many pioneering papers on inequality.


At this point the reader might be horribly confused. Was Piketty just lying to Neil Irwin when he said that every published ranking shows surging inequality? No, what Piketty could have meant was that the Forbes-type surveys show surging inequality among the very top.

That’s the key to all of this, folks, There are careful empirical papers, based on tax return data, that show relatively flat wealth concentrations among the top percentiles in both the US and UK since the early 1980s. What Krugman and Piketty need to do, in order to get monstrously surging inequality, is to not look at the 1%, not even the 0.1%, and not even the .01%, but instead to focus on things like “the richest 400 people on Earth.” THEN you get massive concentration of gains over the last few decades. (But even there, it’s worth pointing out that these aren’t the same 400 people, over time. There is great mobility in this super elite status.) If the Occupy crowd want to remain faithful to the data, they are going to have to change their slogan to: WE ARE THE 99.9999%!

In conclusion, neither Paul Krugman nor Thomas Piketty can be trusted to tell their readers an accurate picture of what the published research actually shows on wealth inequality. When it comes to things like: surveys or tax data? 1% or higher concentrations? the answer for these two is: Does it help me make my case or not?

Mises Canada

Robert P. Murphy is the author of The Politically Incorrect Guide to Capitalism, and has written for,, and EconLib. He has taught at Hillsdale College and is currently a Senior Economist for the Institute for Energy Research. He lives in Nashville.