Piketty Calls for Spurring Growth With Fiscal Stimulus

French economist Thomas Piketty said policy makers should jump start economic growth with fiscal stimulus and rely less on monetary accommodation.

“We cannot solve every problem with the central bank,” Piketty said today in an interview on CNBC. “We are asking too much of central banks and monetary policy. We need to ask more of fiscal policy.”

Piketty’s best-selling book, “Capital in the Twenty-First Century,” came under fire in a May 23 Financial Times article alleging suspect statistics and incorrect calculations. Two of the book’s “central findings -- that wealth inequality has begun to rise over the past 30 years and that the U.S. obviously has a more unequal distribution of wealth than Europe -- no longer seem to hold,” FT economics editor Chris Giles said in the article.

Piketty last week posted a 4,400-word defense on his personal website, saying “the FT suggests that I made mistakes and errors in my computations, which is simply wrong.” The newspaper’s allegations weren’t discussed in today’s CNBC interview.

“Capital in the Twenty-First Century” has been hailed by Nobel-prize winning economist Paul Krugman as “the most important economics book of the year -- and maybe of the decade.” Piketty has given presentations on his findings to the White House Council of Economic Advisers, the International Monetary Fund and the United Nations.

Widening Disparities

The 43-year-old professor at the Paris School of Economics examined centuries of data on countries including the U.S., Sweden, France and the U.K. to show that returns on capital in excess of economic growth lead to widening disparities in wealth.

Inequality “can become bad for growth,” Piketty said today, adding “we need more transparency about income and wealth.” At the same time, the emergence of a middle class is “good for democracy.”

Using fiscal policy to spur growth is more difficult to execute than monetary policy, while tending to promote more equitable distribution of wealth, Piketty said.

“With monetary policy, in fact those who are gaining from all this printing of money are not the people who you would like to gain,” he said.

‘Very Complicated’

“Writing the tax code is more complicated,” Piketty said. “You get the parliament to agree, you need to have a public debate. But at least if you have a progressive tax on income and wealth, you have a better sense of who’s paying, and you have a better sense of where the money is going and whether you have an equitable distribution of the burden of adjustment.”

Giles wrote that figures underpinning Piketty’s 696-page book contained unexplained statistical modifications, “cherry picking” of sources and transcription errors. He said the mistakes undermine Piketty’s conclusion that wealth inequality in Europe and the U.S. is moving back toward levels last seen before World War I.

One “serious discrepancy” Giles said he found was in Piketty’s data on the U.K. While Piketty cited a figure showing the top 10 percent of its population held 71 percent of national wealth, a survey by the country’s Office for National Statistics put the figure at 44 percent.

In his web posting, Piketty disputes that the book contains transcription errors and disagrees with the adjustments to the data proposed by Giles, most of which he calls “relatively minor.”

“The FT corrections that are somewhat more important are based upon methodological choices that are quite debatable,” Piketty said.