IMF Studies Piketty’s Work On Income Inequality, Finds There Is "No Empirical Evidence” To Support Claims

Tyler Durden's picture

When Thomas Piketty’s "Capital in the 21st Century" came out in 2013, it quickly became a favorite of the political left and neo-Keynesian economists as his findings fit the narrative of increasing income inequality. Paul Krugman said “ Mr. Piketty’s contribution is serious, discourse-changing scholarship in a way most best sellers aren’t. And conservatives were terrified.” Larry Summers hailed it as a “Nobel Prize-worthy contribution.”


There may be just one problem with Piketty’s earth-shattering revelation: it appears to be wrong.

First is was Acemoglu and Robinson, who by using a simple regression analysis, concluded “the main economic force emphasized in Piketty's book, the gap between the interest rate and the growth rate, does not appear to explain historical patterns of inequality (especially, the share of income accruing to the upper tail of the distribution).”

The most recent example comes from none other than the IMF’s Carlos Goes, where Piketty’s work is described as “ rich in data, [but] the book provides no formal empirical testing for its theoretical causal chain.

The author continues “I find no empirical evidence that the dynamics move in the way Piketty suggests. In fact, for at least 75% of the countries examined, inequality responds negatively to r − g shocks, which is in line with previous single-equation estimates by Acemoglu and Robinson (2015).

The results also suggest that changes in the savings rate, which Piketty takes as relatively stable over time, are likely to offset most of the impact of r − g shocks on the capital share of the national income. Thus, it provides empirical evidence to the model developed by Krusell and A. Smith (2015), who say Piketty relies on a flawed theory of savings.

The conclusions are robust to alternative estimates of r − g and to the exclusion or inclusion of tax rates in the calculation of the real return on capital. Knowing if Piketty’s hypothesis is correct is of crucial importance. Such is the case because the policy solutions designed to counter increasing income inequality trends in advanced economies will need to tackle the underlying causes of inequality.

The results presented here show that observed increases in income inequality in advanced economies are largely uncorrelated with changes in r −g, which suggests that one needs to look for the causes of inequality (and potential solutions) elsewhere.

Perhaps before overthrowing the status quo, Piketty should focus on avoiding the cardinal sin of statistical analysis, and differentiate between correlation and causation. Then again, since the critique does come from the IMF, the agency which has been wrong about virtually everything in this decade; this time may not be any different. Of course, since the non-falsifiable art of economics is as far from science as an EBT recipients is from caring about the S&P all time highs, we may never know who is right in this particular debate.

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Looney's picture


Christine Lagarde should be made into her successor’s purse.  ;-)


LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Looney Aug 8, 2016 8:28 AM

Income inequality solution: GET A JOB.

Oh, yeah, it's becoming impossible as Central Planning is making sure that jobs are shipped to foreign countries by strangling U.S. companies with ever increasing, oppressive, burdens and regulations.

Government IS the problem. (Just try starting a business some day...)

greenskeeper carl's picture

I don't need a study to tell me that the conclusions in this book are wrong. Paul krugman praised it. He is always wrong, therefore this book is wrong. Simple.

VD's picture

if it were so obvious re: interest rates and econ growth being factors of inequality, then it would have been, well, obvious... instead, you get the libtard socialist compiling hundreds of pages of utter bullshit econ data to make a flawed unscientific opinion piece in an econ tome.... the endogenous gov and crony-capitalism is what Pickety clearly missed; he knowingly avoided the real causes since he is part of that very system that is causing structural econ malaise.


so simple, yet so obfuscated..


(how many smug wannabe-intellectuals cracked this book open already convinced that it was unassailable in its conclusions and just merely turned the pages so that they could claim to have read this nonsense?)

ShrNfr's picture

Only if her successor wants an ugly purse.

snakehead's picture


GunnerySgtHartman's picture

Yep, someone in the MSM will (try to) sell it as 'Obama has solved the income inequality issue!'

847328_3527's picture



So what's the BLM fuss all about?

spanish inquisition's picture

Don't let facts get in the way of a of a good narrative. Give this man a Nobel Prize.

Bob's picture

Revolutionary Truth: The Rich Don't Get Richer While the Poor Get Poorer! IT IS A LIE!!!

Stop the Presses and get the word out: It's all socialist propaganda to make us feel bad about our wealth and to soften us up for taking more of it from us!

Elimination of welfare and the minimum wage is our only hope for a livable future!

. . . am I getting the right narrative yet . . . ?

E.F. Mutton's picture

"Settled Science",  and no more questions allowed in 3...2...1...

Empirical data untainted by ideology is soooooo last century.

Catullus's picture

This was the search for the Holy Grail for the Keynesians. They want nothing more than to reference something for the next 40 years linking interest rate policy and inequality. The moral high ground! The imparative to never question them! The Keynesian path to sainthood.

Mustafa Kemal's picture

I trust whatever the IMF says.

E.F. Mutton's picture

Me too.  Now that Miss Cleo and Psychic Friends Network are gone they're the best alternative.

de3de8's picture

Well, that settles it.

highwaytoserfdom's picture


economics is not a science but a tool for force resource  extraction.


I would look at the depression of 1920 and hedge accordingly.  Government planning  is assured bad investment.  This is the propagation of pseudo science that passes as education.     Of course my comments are Basel III vetted and passed the stress test  of trust and paper printing... 


PT's picture

Economics is called "Science" but it is really propaganda.  The thieves make a decision as to what and how they will steal.  The "Economists" invent a convoluted explanation for the thieves' actions.  Economics was supposed to be a Science but is actually practiced as a religious cult.

brushhog's picture

The whole idea that there should be "income equality" is, in and of itself, an embrace of hard-core communism. What makes anyone believe that they should have the same income as anyone else? The premise is absurd.

LetThemEatRand's picture

I'm no fan of Piketty, but the premise is not that there should be income equality.  The focus of most of us here who complain about the current system is why a tiny percentage of the population owns most of the world's wealth.  Unless you're a fan of feudalism which is an inevitable consequence of the world's wealth concentrating in a few hundred families, this should be a concern to everyone (except the few hundred families).  

brushhog's picture

Those few hundred families will not be touched by whatever solutions they are proposing, believe me. "Wealth inequality" will be used to strip more from the 25%, and it'll end up in the hands of the 1%. So what you'll have is 99% equally poor, and a 1% of people who are practically gods.

moneybots's picture

"Unless you're a fan of feudalism which is an inevitable consequence of the world's wealth concentrating in a few hundred families, this should be a concern to everyone (except the few hundred families)."

Everything moves in cycles. There was great income disparity in the late 1920's, then came the 1929 stock market crash.

How much wealth would Bill Gates lose if Microsoft stock fell 50%? 60%?

Hollande is a socialist and spends $12,000 a month on haircuts. I doubt the average French person makes anything close to that in a month, let alone be able to spend that much on haircuts. What is the average French person paying in taxes, so that Hollande can spend $12,000 a month on haircuts?

Bob's picture

The richest 62 people on Earth own more than the bottom half of humanity.

So what's the problem?  You think they didn't earn it?  Hey, maybe some people are just worth a billion times more than others.  Or even infinitely more, literally, considering that most have zero while our rich have many billions . . .

What next--you don't think they should use that hard-earned wealth to control the world's governments?

Imagine if those inspiring men and women went Galt on us . . . where would we be then, Mister!

That's right--you think about it. 

Canadien françcais's picture

Thomas "Pique-tout" Picketty made a new case for the marxist supersition. Karl Marx published Das Kapital in 1857. 7 years earlier, Frédéric Bastiat had published Les hamonies économiques (Éconimic harmonies), in which he proved the exact opposite by pure logic.

Bastiat's proof is as valid as ever: Picketty's thesis is a superstition (=irrational prejudice).

Furthermore, real economic science (French, then Austrian school) has proven that the very concept of empirical evidence in economics is superstitious. Economics study human action, which results from thought, not laws of physics. This confusion is rightly seen as primitive is the case of animism: It is not less so in the case of keynesianism.

Picketty is a brilliant charlatan.

Itinerant's picture

Proved the opposite of what? Marx traces the history of economic development and social stages on the way, culminating in Capitalism which he regarded as the most superior form of economic organization to date, although he did not believe developments would stop there. In fact, Marx was the first to study economic development in terms of actual history (empirical) instead of discussing it dogmatically in terms of fixed principles. The term "capitalism" itself is owed to Marx.

nmewn's picture

I can say with metaphysical economic certitude that, in a nation where everyone is on government assistance, store shelves stay empty.

Thats the lesson learned in the last chapter (now redacted to the benefit & clarity of the Ignorati studying socio-economics & neo-Keynesianism "at work") of Krugman's masterpiece...

Where Unicorns Dare To Tread: A Crony-Socialist Perspective of Economy.

spastic_colon's picture

you sir are no john nash.

ConnectingTheDots's picture

Of course the IMF will not like Pikkety's findings. It has been the tool of choice by the elites since its conception.

ElectroGravitic's picture

Re: "policy solutions designed to counter increasing income inequality trends in advanced economies will need to tackle the underlying causes of inequality."

When the cause of income inequality is theft, the stolen wealth must be returned. 

CatsPaw's picture

Since when is the IMF looking for "empirical evidence"?

Lady Jessica's picture

[deep breath, this ain't gonna win me any ZH friends]

Before criticizing the book, read it.  I'm sure a majority of commenters here would agree with its central tenet; wealth inequality is an inevitable consequence of the growth of capital exceeding the growth of the economy as a whole.

It's thorough research which, importantly, passes the sniff test (it puts paid to what we would instinctively think to be true).

Sure, it ain't perfect.  This guy doesn't know how banking works and seems ill-informed about the financial crisis.

Krugman and Summers (the latter especially) surely gave the praise they did through very clenched teeth, being vile egomaniacs peddling the worst sort of fiction dressed up as academic dogma.  

Stick in the Mud's picture

Lately the growth of capital has been due to asset inflation, as a result of near-zero interest rates. r - g has probably been negative for the last few years, yet the net worth of the top 0.1% has probably grown the fastest of all other income groups.

slowimplosion's picture

I really look to the IMF for solutions to problems they had a principal hand in creating.

Peter Pan's picture

For income inequality you need an income in the first place.....and a lot of people have no income.

DrBrown's picture

Piketty is just another phony intellect. Academia is loaded with them. Check out his background. It's kind of a joke by US standards.

Deus Irate's picture

Statistics can be tortured and made to confess to any crime you wish. It's just a matter of finding a statistician willing to trade his or her integrity for cash, and if you haven't noticed there are a lot of rich statisticians around lately. Climate "science" is just statistical trickery wearing trendy clothes. 8 out of 10 bed-wetters agree.

DrBrown's picture

You see in Europe you're awarded a Phd for writing a paper. That's it. Nothing else. So the guy goes to prep school where he's awarded a bachelor degree (without ever going to college). Then enters college studies some math and economics, writes a paper and walks out with a Phd. Not exactly the way it works in the US.

Itinerant's picture

What a bunch of uninformed jingoistic clap trap. How many people with a PhD in the US can't even spell properly? Who in his right mind judges a person or their work by the quality of their "Doctor of Philosophy" certificate? Generalizing this to the idea that there are no real institutions of higher learning in Europe is bizarre in view of the amount of cooperation and exchange between scientists and scholars from different continents.

DrBrown's picture

Oh, and by the way he was only 22 when the gave him his phony Phd.

falak pema's picture

Well the IMF is very good at affirming one thing and its contrary; its independent internal body has said just the contrary.

Carlos Goes is there to confuse the internal struggle between two clans of IMF; as proves this earlier 2011 paper :

An opinion repeated here by the IMF  in 2014 when criticized by "right wing critics" (haha ZH!) :

Tylers do your homework please!

DanBEE's picture

IMF may study my A??, it is bunch of cronies serving masters of the slavery system. And those crooks are telling us what is RIGHT, Right?

ElixirMixer's picture

Regulatory capture, globalization, tax abuse, and fraud.

moneybots's picture
IMF Studies Piketty’s Work On Income Inequality, Finds There Is "No Empirical Evidence” To Support Claims


I knew that when the book came out. Didn't even have to read it.

Piketti supported an 80% top income tax rate. Hollande raised it from 70 to 75% and had to recind it, when it didn't produce the projected tax income- as a number of French businessmen, along with actor Gerard Depardieu, left the country.

Piketti doesn't care what is the causing higher income inequality, he only cares about his prescription, higher taxes and income redistribution.

Milton Keynes's picture

income equality is a problem

besnook's picture

the cause of income inequality is simply compound interest. over ten years one dollar at 7% interest will double to 2 dollars. over the same time period 1 million dollars doubles to 2 million dollar so a gap of 999,999 dollars becomes a gap of 1,999,998 dollars. math is fun.

Mat Cauthon's picture

I learned more about economics from history than I ever have from empirical modeling.

1.  Create fiat currencies or debase your money... financial collapse assured.

2.  Financial collapse assured, political collapse assured.

3.  Political collapse assured, societal collapse assured.

4.  Societal collapse assured, strong man (Dictator) takes over.

And I dont even need an r - g equation to recognize this.

Give the Nobel Prize postumously to David Ricardo rather than to Piketty or Krugman.

MEFOBILLS's picture


Hudson argues that even though Piketty’s findings about wealth accumulation over the centuries are useful, he nevertheless has done a great disservice by treating “wealth” as an undifferentiated lump. By contrast, classical economists differential between rentier behavior (such earning income from economically unproductive activities such as land ownership), financialization, and leveraged speculation on asset prices. Hudson argues that Piketty’s failure to probe the types of wealth and the impact of income-generation strategies for various types of wealth, as well as his failure to incorporate legal and political arrangements means his book tacitly supports the status quo. Inequality for him is a state of nature, not a function of how our economy is organized.