The most important point that Ezra Klein makes in this good piece on income equality is his distinction between income inequality and median income stagnation. The very rich are getting very, very rich and the poor are not getting much richer, at all. But it's not clear that the first fact has much to do with the second, more important, phenomenon.
The enormous wealth of the enormously wealthy might be a source of vague jealousy for us mere mortals, but it does not strike me as a problem easily solved by government choices, if it can be solved, at all. As Tyler Cowen explained in his great article "The Inequality That Matters," we can see the accumulation of massive wealth at the top of the pyramid across many industries, and there's a decent explanation: Global markets. Famous authors are richer today than in Victorian England because their books sell in scores of countries around the world rather than the dusty shelves of Victorian England, alone. He puts it nicely:
When it comes to professional athletes and celebrities, there isn't much of a mystery as to what has happened. Tiger Woods earns much more, even adjusting for inflation, than Arnold Palmer ever did. J.K. Rowling, the first billionaire author, earns much more than did Charles Dickens. These high incomes come, on balance, from the greater reach of modern communications and marketing. Kids all over the world read about Harry Potter. There is more purchasing power to spend on children's books and, indeed, on culture and celebrities more generally. For high-earning celebrities, hardly anyone finds these earnings so morally objectionable as to suggest that they be politically actionable.
Quite right. But a handful of international celebrities don't explain national income inequality. So where are the other thousands of uber-rich making their money? In finance, Cowen writes, where we witnessing something truly perverse*:
"Going short on volatility" strategy increases income inequality. In normal years the financial sector is flush with cash and high earnings. In implosion years a lot of the losses are borne by other sectors of society. In other words, financial crisis begets income inequality.
This analysis may well be spot on. But it doesn't explain why in the 30 years between the recessions of the 1980s and the Great Recession of 2008, the middle class hit a wall. I've seen no good evidence that income inequality feeds financial crises or that financial crises are responsible for the 30-year drought of the median income worker. And that is the real crisis here: Not that the pyramid is getting taller, but that it is becoming hollow.