But interest-rate adjustments are far too blunt a tool for conventional monetary policy to play any kind of leading role in mitigating inequality. Fiscal policy—including taxes, transfers and targeted government spending—is far more effective and robust.
One popular solution to the problem of wealth inequality, notably advocated by economists Emmanuel Saez and Gabriel Zucman of the University of California, Berkeley, is a wealth tax. But although far from a crazy idea, it is difficult to implement fairly and does not have a great track record across advanced economies. Arguably, there are simpler approaches, such as reforming the estate tax and raising capital-gains taxes, that could achieve the same end.
Another idea would be to shift to a system of progressive consumption taxes, a more sophisticated version of a value-added or sales tax that would hit wealth holders when they go to spend their money. And a carbon tax would raise huge revenues that could be redirected toward low- and lower-middle-income households.
Some might argue that political paralysis means none of these redistributive proposals are advancing fast enough, and that central banks need to step into the gap if inequality is to be tamed. This view seems to forget that although central banks have a certain degree of operating independence, they are not empowered to take over fiscal policy decision-making from legislatures.
As extreme poverty has declined in many countries in recent decades, inequality has become the leading societal challenge. But the view that a central bank’s interest-rate policy can and should be the main driving force behind greater income equality is stupefyingly naive, no matter how often it is stated. Central banks can do more to address the inequality problem, particularly through regulatory policy, but they cannot do everything. And please, let’s stop ignoring the other two-thirds of humanity in this crucial debate.
Kenneth Rogoff, professor of economics and public policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. The co-author of "This Time is Different: Eight Centuries of Financial Folly," his new book, "The Curse of Cash," was released in August 2016.