Financial Times Points To Thomas Piketty Statistical Flaws

Financial Times Points To Thomas Piketty Statistical Flaws
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Thomas Piketty’s book, ”Capital in the Twenty-First Century,” has drawn fire in conservative circles for its egalitarian conclusions in regards to income inequality.  For the first time, however, the core statistical modeling is being questioned by UK’s Financial Times.

Financial Times journalist Chris Giles says that Thomas Piketty’s work, which touched off a firestorm of debate, “contains 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.”

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Little evidence to support Thomas Piketty’s claims, says FT

Giles central claim is that, once the statistical errors are removed from Thomas Piketty’s study, “there is little evidence… to bear out the thesis that an increasing share of total wealth is held by the richest few.”

Giles points to Thomas Piketty’s numbers, particularly where he cites the top ten percent of British people accounted for 71 percent of national wealth on the island nation. Citing a Wealth and Assets Survey, Giles says the number should be 44 percent, not 71 percent.

The primary data called into question is derived from chapter ten of Thomas Piketty’s book.  Giles claims the statistical miscue is not only relevant to the UK, but also the US, France and Sweden. “In (Piketty’s) spreadsheets, however, there are transcription errors from the original sources and incorrect formulas,” he said. “It also appears that some of the data are cherry-picked or constructed without an original source.”

Thomas Piketty stands by results, acknowledges nature of data not entirely “homogenous,” but this doesn’t nullify results

Responding to the critique, Thomas Piketty, 43, stood by his analysis while acknowledging the available data wasn’t perfect but that didn’t invalidate the results.  “One needs to make a number of adjustments to the raw data sources so as to make them more homogenous over time and across countries. I have tried in the context of this book to make the most justified choices and arbitrages about data sources and adjustments. I have no doubt that my historical data series can be improved and will be improved in the future,” he wrote.

Thomas Piketty wrote that he “would be very surprised if any of the substantive conclusions about the long run evolution of wealth distributions was much affected by these improvements.”

If correct, Giles assumptions could have significant reverberations, as Thomas Piketty’s work had been considered at the highest levels. In addition to being a best seller and generating widespread media buzz, the author recently made a presentation to US Treasury Secretary Jack Lew on income inequality as well as delivering a presentation to the International Monetary Fund.

For his part, Thomas Piketty provided a link to his Excel worksheet, then concluded “As you can see by yourself, their results confirm and reinforce my own findings: the rise in top wealth shares in the US in recent decades has been even larger than what I show in my book.”

Peer reviewed conclusions?

Citing an “independent specialist” that “shared FT’s concerns,” FT’s statistical critique appeared to be peer reviewed, but it is unclear the acadamic rigor to which this review was conducted.  The controversy is sure to ignite further academic scrutiny.

Economists such as Professor Paul Krugman, who also writes a popular New York Times column and blog, drew the conclusion the book “will be the most important economics book of the year – and maybe of the decade.”

That, now, remains to be seen.

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Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)
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