The IMF’s research does not tell us the channels through which inequality may have dented growth. And without an appreciation of those channels, it is difficult to know where public policy could make inroads into the problem. Nonetheless, it is useful to piece together evidence on possible channels of causation. Growth is rooted in investment, specifically the accumulation of human capital by individuals (education, skills, experience) and physical capital by firms (research and development). Both boost productivity, the elixir of economic life. And both require inter-temporal sacrifice – patience, a willingness to defer gratification. This is a topic I have researched in recent years (Haldane (2010), Davies et al (2014)). Individuals’ patience, and hence human capital accumulation, is a complex process. But it is affected importantly by their financial environment. An important new book by psychologists Mullainathan and Shafir (MS) illustrates the impact of financial circumstances on decisionmaking (Mullainathan and Shafir (2013)). Solving everyday problems of scarcity – of time, money, friendship – absorbs huge amounts of the mind’s energy. It taxes cognitive bandwidth. And this can have dramatic effects on behaviour. In one experiment, two groups – one wealthy, one poor – are IQ-tested, asked to contemplate suffering a significant monetary loss and then re-tested. The remarkable finding is that merely contemplating monetary loss is sufficient to reduce significantly the measured IQs of the poor, lowering scores from “average” to “seriously deficient”. This is a dramatic, environmentally-induced, loss of cognitive power, the direct result of minds being impoverished by financial insecurity concerns.

And if Piketty is right, inequality trends are self-perpetuating as wealth begets wealth. Economic and financial stability That naturally begs the question of whether anything should be done. On the face of it, this is not the business of a central banker. There is considerable truth in that. The tools at the disposal of a central bank – interest rates, the money supply, regulation – have an impact on inequality which is, at best, indirect, inadvertent and transient. Central banks can do nothing, durably, to reshape long-term structural trends in the economy, much less in broader society. Yet inequality has appeared on central banks’ radar during the course of the crisis, sometimes flashing red. That is because, at least over the shorter-term, central bank policies can and probably have reshaped patterns of inequality. Some have gone further, arguing that central bank policies of extra-ordinary monetary accommodation have, by boosting asset prices and wealth, exacerbated inequalities (Saiki and Frost (2014)). In effect, central banks stand accused of having provided an extra spin to the Piketty cycle. It is worth viewing this claim in context. In response to the Great Recession, monetary policy globally went into overdrive. Interest rates fell to the floor and central bank money supply rose to the ceiling – so-called quantitative easing or QE. Interest rates have never been so low, nor central bank money supply so high (relative to money spending), in the Bank of England’s 320-year history. Extraordinary times heralded truly extraordinary measures.