Anyone interested in the issue of economic inequality should read this paper by Cato's Will Wilkinson, one of the most intellectually honest thinkers and elegant writers you'll find in the policy world. Jim Manzi summarizes Mr. Wilkinson's argument as follows:
(1) we should care about lifetime consumption, and even beyond this welfare, rather than point-in-time cash income, (2) what matters most about some income distribution is not how relatively equal or unequal it is, but whether it was produced justly or unjustly, and (3) there is not much analytical evidence for the proposition that economic inequality will lead to political dysfunction.
Mr. Manzi also asks a chilling question:
I think that inequality, as it interacts with other facts about contemporary American society, is a problem. But, I think that, even more fundamentally, it is an indicator of a much more severe problem. As globalization continues inexorably (in practical terms, this has very little to do with McDonald’s in France, and almost everything to do with the economic rise of Asia), U.S. income inequality is a demonstration that many probably most Americans don’t have the capabilities required to maintain anything like their current standard of living in competition with a global labor force. Does Will think this is accurate, and if so, is it a problem?
UPDATE: Mr. Wilkinson answers here.