Piketty vs. Evidence

Economist Thomas Piketty, author of “Capital in the 21st Century,” says rising inequality requires wealth taxes to redistribute gains. A new study says historical evidence challenges his theory.

The Wall Street Journal reported on a new IMF study analyzing Piketty’s hypothesis “that income inequality has risen because returns on capital—such as profits, interest and rent that are more gleanings of the rich than the poor—outpaced economic growth.” IMF economist Carlos Góes

tested the thesis against three decades of data from 19 advanced economies. “I find no empirical evidence that dynamics move in the way Piketty suggests.” In fact, for three-quarters of the countries he studied, inequality actually fell when capital returns accelerated faster than output. Those findings support previous work by Daron Acemoglu of the Massachusetts Institute of Technology and political scientist James Robinson, now of the University of Chicago, suggesting Mr. Piketty’s thesis was far too simplistic for the complexities of real-world economies that are affected by politics and technology. Mr. Góes says his study also provides evidence that Mr. Piketty’s assumption that saving rates remain stable is flawed. Rather, the data shows changes in the savings rate are likely to offset most of the effects of an increase in capital share of national income.

I’ve written about the criticisms of Piketty before. They seem to be piling up.