Debate over Piketty’s inequality data is missing the point

This notion was on full display this weekend, after Financial Times economics editor Chris Giles published a blog post calling into question data used by economist Thomas Piketty in his best-selling work Capital in the Twenty-First Century. Giles’ analysis found several mistakes in Piketty’s data, mistakes which put to doubt whether there has been an observable increase in wealth inequality in Europe and the United States over the past 30 years.

Piketty’s book asserts that the concentration of wealth in capitalist societies naturally grows more extreme, especially in times of low population and economic growth, so the possibility that wealth concentration hasn’t really increased in the past 30 years does throw some cold water on the economist’s overarching theory.

Many of Piketty and Giles’ disagreements come down to interpretation of incomplete data. One of the parts of the book that impressed economists so much was Piketty’s painstaking assemblage and exploitation of years of wealth data across countries and time periods. It is not surprising, given the fact that wealth data is much less plentiful and uniform than other statistics, that there would be disagreements over what exactly these data say.

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But when you take a step back and look at all the evidence, from much more reliable data on income inequality, to stagnant median wage growth, to a lack of economic mobility in America, to evidence of huge discrepancies in the quality of education offered to the rich and poor, it’s quite clear that modern capitalism is failing to offer a level playing field and that there are cultural and public policy changes we could work toward to make the economy better at providing for everyone.

After all, Americans have not been particularly swayed by arguments concerning inequality. If anything is clear from reading Piketty’s book, it’s that capitalist economies tend to be deeply unequal societies, even following World War II, when income inequality was at its lowest levels. But only in recent years, after it became clear that the average family hasn’t gotten richer over the past generation (and that the housing bubble hit hardest those families leaning on rising home prices to compensate for this fact) that Americans started to grow dissatisfied with the distribution of wealth and income.

The above Gallup poll shows a clear trend of growing pessimism among Americans about the economy.

Debates over whether or not capitalism leads to increasing inequality, as Piketty asserts in his book, or leads to decreasing inequality, as economists had once thought, are worthwhile. But most Americans are simply concerned with whether they can feel themselves getting richer and if they have a fair shot at prosperity and security. The data clearly show that economic growth right now is being captured by the very rich, while the rest of the country is struggling to figure out how to pay for education, healthcare, and retirement.

It’s against this backdrop that policy makers need to decide how to make entitlement programs sustainable going forward, that the wealthy must decide how much of their money to give to charity, and that business leaders must decide how much to pay their workers. It’s difficult to see how small disagreements over trends in wealth concentration could affect these decisions.