There is a collective public policy interest in getting them right. References Alvaredo, F., Atkinson, A.B., Saez, E. and Piketty, T., “The world top incomes database”. Bank of England (2012), “The Distributional Effects of Asset Purchases”, July. Available at: http://www.bankofengland.co.uk/publications/Documents/news/2012/nr073.pdf. Bowles, S (2012), “The New Economics of Inequality and Redistribution”, Cambridge University Press. Cribb, J., Hood, A., Joyce, R. and Phillips, D. (2013), “Living standards, poverty and inequality in the UK: 2013”, IFS Report R81. Davies, R., Haldane, A., Nielsen, M. and Pezzini, S. (2014), “Measuring the costs of shorttermism”, Journal of Financial Stability, 12 (2014) 16–25. Economic Policy Institute (2012), “The State of Working America, 12th Edition”, Cornell University Press, November. Haldane, A. G. (2010), “Patience and Finance”, speech delivered at the Oxford China Business Forum, Beijing. Available at: http://www.bankofengland.co.uk/archive/Documents/historicpubs/speeches/2010/speech445.pdf. BIS central bankers’ speeches  5  Haldane, A. G. and Davies, R. (2011), “The short long”, speech to 29th Société Universitaire Européenne de Recherches Financières Colloquium: New Paradigms in Money and Finance?, May. Available at: http://www.bankofengland.co.uk/publications/Documents/speeches/2011/speech495.pdf. Haldane, A. G. (2012), “A leaf being turned”, speech to Occupy Economics, “Socially useful banking”, October. Available at: http://www.bankofengland.co.uk/publications/Documents/ speeches/2012/speech616.pdf. Haldane, A. G. (2014), “Ambidexterity”, speech delivered at the American Economic Association Annual Meeting, Philadelphia on 3 January 2014. Available at: http://www.bankofengland.co.uk/publications/Documents/speeches/2014/speech713.pdf. Honohan, P. (2005), “Banking sector crises and inequality”, World Bank Policy Research Working Paper 3659, July. Kay, J. (2012), “The Kay Review of UK Equity Markets and Long-Term Decision Making”, Department for Investment, Business and Skills, July.

If this is a fair reading of history, then inequality may have a direct bearing on the fragility of the financial system. And while of historical interest when describing the past, its greater significance may be in highlighting risks for the future. As in the 1920s and the 2000s, rising inequality could build pressure for a credit balm to sooth the symptoms. Yet temporary pain relief, through a credit boom, would risk sowing the seeds of tomorrow’s crisis. The good news is that central banks may, in future, be better placed to head-off these pressures by taking pre-emptive regulatory policy action. This is the essence of so-called macro-prudential policy. In the UK, it is the responsibility of the Bank of England’s Financial Policy Committee (FPC). The FPC aims to curb excess credit at source. A large and growing number of other countries are putting macro-prudential frameworks in place, and taking macro-prudential actions, to serve similar ends (Haldane (2014)). There is a second way in which inequality could affect central bank policy objectives. Based on a detailed cross-country study, IMF research has found that lower income inequality delivers faster and more durable growth (Ostry et al (2014)). Moreover redistributive policies, provided they are not excessive, have benign direct growth effects – and positive indirect effects by lowering inequality. Or, put differently, the IMF’s research suggests that increasing inequality shrinks the pie. BIS central bankers’ speeches  3  Unfair shares This link between growth and inequality is, at present, no more than an empirical regularity.