Phil Magness on Piketty's U.S. Wealth Data
All of that stated briefly, the low point for wealth concentration on Piketty’s chart (see the upward kink after the 1970s datapoint on Figure 10.5 above), and the point at which a supposed reversal in US wealth concentration trends begins, also corresponds to the period of the biggest decennial data gap in the Kopczuk-Saez data set. Despite this deficiency, Piketty’s 1970s average (again, based on only 2 data points in a decade that was also particularly notorious for its business cycle turmoil and economic fluctuation) is presented with a weight no different from prior decades in the 20th century where 10 full years of estimated data is readily available, or from subsequent decades where he switches, at least in part, to more complete supplemental data sets.
This is from historian Phil Magness, “Piketty Tricketty & Historical US Wealth Data,” May 25, 2014.
I’m reviewing Piketty’s book but have now read maybe 20 reviews of it without cracking the book. With all the controversy now about Piketty’s data, this will be a harder-than-usual review to write. I do find the above stunning though. The bottom line of the above is that Piketty took only 2 years of data for the 1970s to compute the shares of various groups for the 1970s.
Why does this matter? Here’s why. Magness writes:
The second begins to highlight the problems created by the uneven and sporadic distribution of source data that I just mentioned when Piketty constructs his decennial averages. By converting unevenly distributed root estimates into an evenly distributed decennial average, he ends up artificially creating a very pronounced “kink” in his Figure 10.5 [in the 1970s] with a clear downward trend predating it and an equally clear upward trend emerging from it over the next three decades. The political implication, of course, is that the unequal distribution of wealth in the United States is undergoing a consistent and uninterrupted rise towards levels unseen since at least the 1930s and will presumably continue beyond.
Contrast that with the yearly raw source data from which Piketty’s chart (at least through the 1970s, and then modified thereafter with supplemental sets) is directly derived and recalibrated. The aforementioned 1970s gap is readily evident, with no means of determining whether a the seemingly sharp drop in 1976 was in fact sustained throughout the sizable data gaps to either side of it, or to what extent it accurately captures the decennial figure Piketty then extracts for the 1970s.
Here’s the relevant table from a National Tax Journal article by Wojciech Kopczuk and Emmanual Saez that give the actual data on top wealth shares for each year, rather than giving an average over a decade.