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Hatchet Job at the Financial Times

Off With Their Heads, Thomas Piketty Edition

by ROB URIE

A profoundly misguided and tedious bit of social misdirection was unleashed last Friday when FT (Financial Times) reporter Chris Giles published an ‘expose’ of alleged errors in Thomas Piketty’s research for his book Capital in the Twenty-First Century. Mr. Piketty made his research available to the public to be examined and there is no issue taken here with Mr. Giles or anyone else looking through it to any extent they care to and pointing out perceived errors. However, to the apparent legions of uninitiated, Thomas Piketty was decades late in reporting growing wealth concentration amongst the already wealthy. Regardless of whether there were errors in his research a copious amount of other research showing essentially the same tendencies he identified is available to anyone who cares to look. In fact, a lot of the griping from the economic left, such as it is, was that it took Mr. Piketty putting his research into the wholly improbable frame of mainstream economics before ‘income inequality’ went mainstream as a political issue.

Every three years since the 1980s the Federal Reserve has conducted its Survey of Consumer Finances (SCF) that reports household income, wealth and debt in various configurations across time. The data used in the graphs below is from the SCF and is freely available on the Federal Reserve website found here in Table 4. It is wholly unrelated to Mr. Piketty’s research and is compiled and produced by ahem, the Federal Reserve, not by Thomas Piketty. I give it no more or less credence than much of the other research coming out of the rapidly growing ‘income inequality’ industry. I personally wouldn’t have used (Emmanuel) Saez’s and (Thomas) Piketty’s income distribution data if I hadn’t gone through data and narrative accounts from other sources to come to my own conclusions. The only reasonable explanation for Mr. Giles’ piece getting any attention is that it provides tribal talking points in the banker and economist ghettoes that never see much sunshine anyway. That so much alternative evidence is available from sources deemed ‘credible’ by the mainstream economic press makes Mr. Giles as lazy as he is of limited capacity as a journalist for his “reporting” on this.

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 Graph (1) above: The Federal Reserve’s Survey of Consumer Finances data illustrates that median household wealth for the top ten percent of households started at a much higher level than everyone else and rose much faster. This data ends in 2010. Since 2010 the financial assets mostly owned by the very rich (per SCF) have dramatically increased in value. This has resulted in a rapid increase in the wealth of the very richest against house prices having risen but still being significantly below their levels in 2006. This is relevant because house values represent the preponderance of household wealth further down the wealth spectrum. Units are in thousands of dollars.

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Graph (2) above: With apologies for being tedious here, mean (average) household wealth provides additional information. Mean household wealth for the top ten percent started from a much higher point than did median wealth and it rose much more dramatically until it declined in 2010. What this indicates is that within the top ten percent wealth is highly concentrated within the top five percent of households. (The difference between mean and median is the wealth ‘skew’). While this doesn’t prove that wealth is highly concentrated in the top one half of one percent because the data isn’t broken out in that much detail, it does illustrate that it is highly concentrated at the very top. Since 2010 the wealth of this group has been fully restored by the rise in financial asset prices. Units are in thousands of dollars.


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Graph (3) above: A central point of the wealth concentration argument is that the very richest started from a higher starting point and have seen their wealth increase fastest. Illustrated here is that the top ten percent started from much higher levels of wealth and saw much larger wealth gains than the next ten percent below them. So the Federal Reserve data confirms that the top ten percent of households started from much higher levels of wealth than did everyone below them (Graphs (1) and (2) above) and saw much more dramatic increases in wealth. And within the top ten percent the very top began from the highest levels and saw the greatest increases. Units are in thousands of dollars.

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Graph (4) above: Part of what is exasperating about the ‘income inequality’ story is the focus on the wealthy. Illustrated above is mean household wealth for the highest and lowest (poorest) deciles. The rise in household wealth of the poorest was largely reversed with the implosion of housing prices inflated by predatory sub-prime mortgages made by / for Wall Street. It is more than mere coincidence that the wealth of the very richest is tied to Wall Street while the wealth of the poorest households is tied to housing and was lost due to financial gamesmanship by Wall Street. The racist component, that blacks and browns were specifically targeted with predatory sub-prime loans, ties to over three hundred years of race-based economic exploitation. Units are in thousands of dollars.

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Graph (5): The Western economic frame is that when ‘a society’ gets wealthier then that ‘society’ benefits. With the dramatic rise in extreme poverty and long-term / permanent unemployment for a substantial proportion of the population since 2006 what is evident is that there is no ‘society’ in the West. There are the rich and the rest of us. To be clear, this isn’t class warfare being launched from below, but from above. That many receiving food assistance (SNAP Supplemental Nutrition Assistance Program) exist below the level of economic resources needed to be eligible for the program suggests that SNAP participation is an optimistic view of the level of extreme poverty in the U.S. This is against a tiny fraction of the very richest who have seen their fortunes fully restored through Federal government and Federal Reserve policies.

To those as yet undamaged by an ‘education’ in economics, there are an infinite number of challenges to any configuration of economic data. Readers are welcomed to challenge this data and the way that I’ve arranged it. But before going public, pulling a ‘Chiles,’ look at the other evidence. The U.S., and the West more broadly, is in the midst of a class war launched from above and there is little time for gullibility being passed off as ‘reason.’ I couldn’t care less about Mr. Piketty and I would prefer that he, the Federal Reserve, the Census Bureau and the entire income ‘inequality’ industry were simply wrong about present circumstance and trajectory. But they aren’t. Someone else can do the work on ‘income inequality’ if they care to. To save readers the suspense, it looks pretty much like Messrs. Saez and Picketty say it does.

Rob Urie is an artist and political economist. His book Zen Economics is forthcoming.