Thomas Piketty’s Motte and Bailey

Don’t expect new research to convince the egalitarians’ leading idol

By Vincent Geloso. 

"To understand the contemporary debate about income inequality, it helps to be familiar with the deceptive rhetorical technique known as the motte-and-bailey. The motte-and-bailey involves a party making a tenuous, radical claim, then redirecting the argument toward a more agreed-upon, defensible claim when challenged on the radical one, only later to return to the tenuous claim. The technique is named for a style of medieval defensive settlements, in which a defensible stone keep (the motte) is situated on a raised earthwork. A courtyard and ditch (the bailey) surround the motte. The motte is the stronger position, while the bailey is the weaker. Defenders retreat to the motte when attacked, then, once the threat has subsided, return to the bailey.

Economist Thomas Piketty and his collaborators Emmanuel Saez and Gabriel Zucman are skilled motte-and-bailey technicians, extending indefensible claims about rising inequality, retreating to agreed-upon facts of social and economic change, and then reclaiming their radical baileys once attacks fade.

Piketty and his collaborators present a compelling narrative: in the early twentieth century, income and wealth disparities in Western nations were substantial, but these disparities significantly narrowed due to higher taxes on the wealthy and the establishment of a generous welfare system, leading to what they describe as a golden age of equality during the mid-twentieth century. This era, they claim, came to an end in the 1980s with tax cuts and retrenchments of the welfare state. Since that time, inequality has been increasing, and now exceeds even the levels seen at the start of the twentieth century.

Piketty and Saez broke into the mainstream in the early 2000s with these claims. In 2018, Piketty, Saez, and Zucman alleged that 20 percent of national income was going to the top 1 percent of earners. They maintain that this situation requires an expansion of the welfare state and higher taxes (as high as 90 percent) on wealth.

This radical bailey position is made untenable in three ways. First, my work with Phil Magness, John Moore, and Phil Schlosser (published in Economic Journal and Economic Inquiry) suggests that Piketty was careless in his usage of historical source materials and made numerous important errors in estimating inequality pre-1960. One involved his application of a rough estimation of income, though original sources contained data that could have enabled a more precise calculation. My coauthors and I tried to refine these pre-1960 estimates. Further, Piketty’s work contained significant historical inaccuracies (such as overlooking the exemption of state and local government employees from federal taxes before 1938) and misrepresented several steps in his methodology. We addressed these errors, too. Overall, we discovered that Piketty overstated inequality levels before the 1960s by about 20 percent.

Second, our work in Economic Inquiry showed that most of the levelling in the 1930s occurred as a result of the wiping out of capital gains. Roughly four-fifths of the “golden age” of equality (between 1950 and 1980) owed to the Great Depression, not tax policy. This finding is hard to celebrate because it means that greater equality was achieved while everyone was getting poorer. It also eliminates most of the purported influence of higher tax rates in generating the “golden age” of equality.

Third, the work of Gerald Auten and David Splinter shows that the golden age was not so golden. Once they corrected for how tax policy often encouraged changes in how taxpayers organized their income sources according to corporate or personal identities, they found that inequality started from a higher floor in the 1960s than Piketty and his colleagues presume. They also find a milder increase in inequality since the 1980s.

In Piketty’s research, the top 1 percent’s incomes represented 12 percent of all pretax income in 1980 and rose to 20.2 percent in the most recent data years. Auten and Splinter put these figures at 9.4 percent and 13.8 percent for the same years, suggesting that we are not experiencing a period of sharply rising inequality. The increase in inequality is, at most, modest. At best, it can be seen as a significant rise between 1980 and 2000 that has since plateaued.

Most damagingly for Piketty’s narrative, Austen and Splinter produced estimates of inequality after tax and redistribution—revealing that no change in material inequality has occurred since 1960. Why is this finding so damaging? Because the size of the state actually contracted modestly, and tax rates are now lower than in the 1960s. So much for Piketty’s argument for high tax rates and an expansive welfare state.

The work cited here represents only a small sample of the existing literature. More than three dozen articles in highly ranked journals show multiple errors and inconsistencies with Piketty’s estimates. All make his bailey indefensible.

Whenever Piketty and his collaborators are confronted with these criticisms, they retreat to a motte position, arguing that there is such a thing as too much inequality and that inequality is higher now than in the 1970s. Both statements are defensible; they are also uncontroversial.

Classical liberals argue that inequality can be too high if it results from governments conferring privileges on the politically connected. “Bleeding-heart libertarians,” who favor some forms of universal basic income, argue that some inequalities can be destructive. Conservatives agree, arguing that the social fabric requires that a certain level of inequality not be exceeded. And centrists argue that we can have too much or too little inequality.

As for inequality being higher now than in the 1970s: this is true only for pre-redistribution income, and only in the sense that the 1980s and early 1990s saw a big increase in inequality that has since leveled off. No one denies that increase, and many explanations have been offered for it, including rising returns to education, the impact of globalization, and so on. None automatically justifies the policy proposals of Piketty and his acolytes.

When things settle down after Auten and Splinter’s latest volley, expect Piketty to return to the bailey of expanding welfare and hiking taxes, as he has done consistently. We should take his words with a hefty dose of salt."