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IMF economist: Piketty's inequality claims have 'no formal empirical testing'

Thomas Piketty at the New York Stock Exchange.
Source: Thomas Piketty
Thomas Piketty at the New York Stock Exchange.

Thomas Piketty, please call your office.

A study released this week by the International Monetary Fund (IMF) suggests that the French economist's widely heralded tome on inequality "provides no formal empirical testing" for the claims it makes about how capital accumulation influences income.

"Capital in the Twenty-First Century," Piketty's magum opus on the widening gap between the wealthy and the poor, was the subject of widespread acclaim when it was released about two years ago.

However, a 27-page working paper authored by IMF economist Carlos Góes undermined Piketty's central thesis about how income is distributed in societies. Góes dismissed much of Piketty's work on the relationship between wealth accumulation and poverty as "conjectures" with little empirical basis.

The IMF's Goes described the publication as "rich in data" and "interesting," yet ultimately flawed, taking aim at Piketty's assumptions about the relationship between capital and national income.

The book "while rich in data…provides no formal empirical testing for these conjectures," Goes wrote, citing his own econometric models that sought to verify Piketty's claims. "In fact, there is little more than some apparent correlations the reader can eyeball in charts containing very aggregated multi-decennial averages."

The IMF economist's data tested one of Piketty's central arguments—that inequality would increase in the future—and found it wanting. Goes added that he found "no empirical evidence that the dynamics move in the way Piketty suggests."

The economist's critique of "Capital in the Twenty First Century" renewed an attack on Piketty's work when it was first published. A broadly circulated analysis by The Financial Times found several mistakes and accused Piketty of cherry-picking data, while an economist at the conservative think-tank American Enterprise Institute told CNBC in 2014 that the work was "a big mess."

Still, as a source of economic modeling and forecasting, the IMF is hardly infallible itself. Recently, the fund chastised its own work in Greece, where a festering debt crisis and wrenching recession has kept the Hellenic Republic clinging by a thread to its euro zone membership. In the decades since its creation, critics have long blasted the agency for its role in rescuing other troubled economies.

Long accepted as a truism, however, the idea of a relentless widening of inequality has become the subject of increasingly rigorous scrutiny.

In a separate study last month, Gary Burtless, a senior fellow at the centrist Brookings Institute, found that despite negligible wage gains, inequality had in fact narrowed since 2007—even during the ravages of the Great Recession.

"It is popular to say slow income gains in the middle and at the bottom of the distribution are due to outsize income gains among families at the top. While this story is at least partly true for the three decades ending in 2007, it does not fit the facts for the years since 2007," Burtless wrote.

Citing data from the non-partisan Congressional Budget Office, Burtless found that "inequality was almost 5 percent lower in 2013 than it was in 2007. The Great Recession hurt the incomes of Americans up and down the income distribution, but the biggest proportional income losses were at the very top."