"On Inequality Denial" by Paul Krugman at the NY Times

On Inequality Denial

by Paul Krugman at the NY Times

http://www.nytimes.com/2014/06/02/opinion/krugman-on-inequality-denial.html?partner=rssnyt&emc=rss

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Which brings me to the latest intellectual scuffle, set off by an article by Chris Giles, the economics editor of The Financial Times, attacking the credibility of Thomas Piketty’s best-selling “Capital in the Twenty-First Century.” Mr. Giles claimed that Mr. Piketty’s work made “a series of errors that skew his findings,” and that there is in fact no clear evidence of rising concentration of wealth. And like just about everyone who has followed such controversies over the years, I thought, “Here we go again.”

Sure enough, the subsequent discussion has not gone well for Mr. Giles. The alleged errors were actually the kinds of data adjustments that are normal in any research that relies on a variety of sources. And the crucial assertion that there is no clear trend toward increased concentration of wealth rested on a known fallacy, an apples-to-oranges comparison that experts have long warned about — and that I identified in that 1992 article.

At the risk of giving too much information, here’s the issue. We have two sources of evidence on both income and wealth: surveys, in which people are asked about their finances, and tax data. Survey data, while useful for tracking the poor and the middle class, notoriously understate top incomes and wealth — loosely speaking, because it’s hard to interview enough billionaires. So studies of the 1 percent, the 0.1 percent, and so on rely mainly on tax data. The Financial Times critique, however, compared older estimates of wealth concentration based on tax data with more recent estimates based on surveys; this produced an automatic bias against finding an upward trend.


In short, this latest attempt to debunk the notion that we’ve become a vastly more unequal society has itself been debunked. And you should have expected that. There are so many independent indicators pointing to sharply rising inequality, from the soaring prices of high-end real estate to the booming markets for luxury goods, that any claim that inequality isn’t rising almost has to be based on faulty data analysis.



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