Phil Magness tipped me off to this with his innocent Facebook query, wherein he politely asked: Can anyone find an actual paper that explains how Saez-Zucman (2014) gets their results, which–we are assured by Piketty and by Krugman, plus a host of lesser fans–demonstrate quite definitively that Piketty gets the basic story right in his composite trend lines? Because all Phil could find was a PowerPoint presentation.

Well, I assumed Phil had to be mistaken, but I couldn’t find a paper either. Then Phil pointed me to this Twitter exchange:

(Winship is an expert in this area, who has been quoted by Piketty’s fans to argue that Piketty didn’t do anything dishonest. So if he’s here saying that Saez-Zucman (2014) isn’t actually a paper yet, he probably knows what he’s talking about.)

So to repeat: One of the allegedly most devastating responses to Chris Giles’ FT critique, is to say that Saez-Zucman (2014) show that the very wealthiest Americans have surging wealth concentrations, not seen since the Gilded Age. Therefore, even if one thinks Piketty botched some Excel formulas, his basic story is right.

And what’s funny about this, is that “Saez-Zucman (2014)” isn’t a published paper, and it’s not even a working paper where you can see how they came up with their results. No, everybody is linking to a PowerPoint presentation. (It’s this one, right here.)

Anyway, here’s one of the bombshell charts from that PowerPoint show:

Yikes! Looks like Piketty was right to sound the alarm. Let’s tax the heck out of those rich people before it’s too late!

But wait a second. Before we enact a global tax on capital, on the basis of two guys’ PowerPoint slide, maybe we should compare their chart with the peer-reviewed literature. For example, when the same guy–Emmanuel Saez–and a different co-author wrote a paper in 2004 (which was eventually published in the National Tax Journal), here’s what they found, using estate tax data:

Interesting, huh? Compare Saez’s 2014 results with his 2004 results. From 1916 through the mid-1980s, they’re about the same, within a few percentage points of each other. It looks like they are both decent measurements of the same thing.

Yet with the estate tax data, nothing happens from the 1980s onward. In particular, from the mid-1970s through the year 2000, the share held by the 0.1% goes from about 7% to about 9%, maybe an increase of 30% or so, tops (I’m just eyeballing the bottom chart–you can look at the exact figures in the NBER link if you want).

In contrast, looking at the middle chart above, we see that from the low point in the mid-1970s through the year 2000, the wealth held by the 0.1% richest Americans went from about 7% to about 15%–i.e. it more than doubled. And of course, after that it continued to take off like a rocket. (Here of course I have to just eyeball the chart–because we’re relying on two guys’ PowerPoint show.)

Now it’s true, Saez and Zucman in their PowerPoint do discuss Saez and co-author’s (2004) results using estate tax data, and why they think their current approach is superior. Yet the arguments they give (on a PowerPoint bullet list, keep in mind) don’t really explain why the estate tax approach worked beautifully up through the mid-1980s, after which it horribly began understating wealth.

Finally, you might say, “OK Murphy, do you have any explanation for why Saez and Zucman (2014) might be screwing things up?”

Actually, I have a guess. They are relying on a capitalization method, where they take reported capital income and then divide by the return on capital in order to compute an estimated value of the asset. Because interest rates, especially short-term rates, have dropped so much since the 1980s, it wouldn’t surprise me at all if something screwy is happening whereby Saez and Zucman are generating an inflated asset value based on short-rates that people in the market don’t think will last for the next several decades.

But to repeat, this is just a guess. I can’t really say what may have gone wrong with the Saez-Zucman (2014) results, because WE ARE TALKING ABOUT A )(#*%(#$ POWERPOINT SHOW.