The Leftist understanding of economics basically boils down to three principles:
1) Wealth is based on a limited supply of scarce resources.
2) The rich get richer while the poor get poorer.
3) It is the moral duty of government to ensure the fair distribution of wealth by taking it from the rich and giving it to the poor.
Earlier this year, a French economist named Thomas Piketty published a lengthy tome entitled “Capital In The Twenty First Century” that was literally a dream come true for redistributionists. From his research, Piketty noted that the disruptive nature of the twentieth century produced the most equitable distribution of wealth between the oligarchy and working class in modern history. However, he concluded that the world was now headed backward into a situation where economic growth was stalling and wealth was once again becoming concentrated in the hands of only a privileged few.
Piketty believes that only two things can stop this trend: another massive economic expansion similar to the technology boom of the 1990’s, or a deliberate, proactive approach by government to begin taxing accumulated wealth and redistributing it to the poor and working class. As I said, this book was a dream come true for liberals.
And it appeared to be legit. Paul Krugman boasted on his blog, “If you think you’ve found an obvious hole, empirical or logical, in Piketty, you’re very probably wrong. He’s done his homework!” Piketty’s book featured an extensive amount of research using historical data, as well as an online technical annex and spreadsheets containing the sources. Therein, unfortunately, lies the problem.
Two writers from the Financial Times, Chris Giles and Ferdinando Giugliano, just finished an exhaustive review of Piketty’s numbers, and the results are troubling. (Financial Times links require registration.)
An investigation by the Financial Times … has revealed many unexplained data entries and errors in the figures underlying some of the book’s key charts.
These are sufficiently serious to undermine Prof Piketty’s claim that the share of wealth owned by the richest in society has been rising and “the reason why wealth today is not as unequally distributed as in the past is simply that not enough time has passed since 1945”.
After referring back to the original data sources, the investigation found numerous mistakes in Prof Piketty’s work: simple fat-finger errors of transcription; suboptimal averaging techniques; multiple unexplained adjustments to the numbers; data entries with no sourcing, unexplained use of different time periods and inconsistent uses of source data.
Together, the flawed data produce long historical trends on wealth inequality that appear more comprehensive than the source data allows, providing spurious support to Prof Piketty’s conclusion that the “central contradiction of capitalism” is the inexorable concentration of wealth among the richest individuals.
Once the data are cleaned and simplified the European results do not show any tendency towards rising wealth inequality after 1970.
These are serious errors, repeated in multiple steps, and finally integrated into the data he uses to support his theoretical assumptions. Blogger Pejman Yousefzadeh concludes:
The charges are devastating, and there is plenty to back them up. And again, let’s be abundantly clear: The Financial Times is accusing Thomas Piketty of dishonesty, of making up his arguments, of actively trying to mislead readers and actively trying to mischaracterize inequality trends. This mischaracterization leads to policy prescriptions on Piketty’s part that are both entirely unrealistic in their design and implementation, and, more importantly, are wholly unsupported by the actual data on inequality. The main thrust of Thomas Piketty’s book is entirely undermined, and his arguments and conclusions are annihilated. It is hard to imagine a more comprehensive refutation. (emphasis in original)
Is anyone else seeing a pattern here? The Left is desperate for a “people’s revolution” and world-wide income redistribution. So they continually invent crises of epic proportions, whose only “obvious” solutions are based on the concentration of political power in the hands of elites and the large-scale redistribution of wealth from the First World to the Third World (or some such equivalent.) But under scrutiny, the data supporting these claims generally seems to be full of holes (e.g. the global warming “hockey stick,” and now the work of Piketty) or else the dire predictions made by the crisis drum-bangers prove to be embarrassingly wrong (e.g. The Population Bomb and Limits To Growth).
In other words, you may safely hold your breath while waiting for another world-wide crisis. The next one will be along any time now.