Leaving aside the moral issues, does inequality have any economic benefits? In the 1970s it was argued that high taxes had reduced incentives and thus economic growth. Entrepreneurs had to be motivated to build businesses and create jobs. But extensive study by economists has found little correlation, in either direction, between inequality and economic growth rates across countries.I am an admirer of Rawls' version of social justice and his implications for policies. (My "some for free, pay for more" motto is NOT means-tested.)
One argument advanced in America is that wide income disparities might encourage more people to want to go to college, thus creating a better-educated workforce. But Lawrence Mishel of the Economic Policy Institute points out that several societies that are more egalitarian than America have higher college enrolment rates.
There might also be an argument in favour of wealth disparities if social mobility was high and the sons and daughters of office cleaners could fairly easily rise to become chief executives. But America and Britain, which follow the Anglo-Saxon model, have the highest intergenerational correlations between the social status of fathers and sons; the lowest are found in egalitarian Norway and Denmark. Things are even worse for ethnic minorities; a black American born in the bottom quintile of the population (by income) has a 42% chance of staying there as an adult, compared with 17% for a white person.
As a result, talent is being neglected. Of American children with the highest test scores in eighth grade, only 29% of those from low-income families ended up going to college, compared with 74% of those from high-income families. Since the better-off can afford to keep their children in higher education and the poor cannot, breaking out of the cycle is hard.
Perhaps Americans put up with this system because they have unrealistic expectations of their chances of success. One study found that 2% of Americans described themselves as currently rich but 31% thought that they would become rich at some stage. In fact only 2-3% of those in the bottom half of the income distribution have a chance of becoming very well off (defined as having an annual income of more than $340,000). Just over half of those earning $75,000 a year think they will become very well off, but experience suggests that only 12-17% will make it.
Health outcomes too are decidedly unequal; the gap between the life expectancy of the top and bottom 10% respectively rose from 2.8 years to 4.5 between 1980 and 2000. That does not meet the definition of a fair society by John Rawls, a 20th-century philosopher, who described it as one in which a new entrant would be happy to be born even though he did not know his social position ahead of time.
We all "know" that the US has greater income disparities than the Europeans. What we have assumed is that such inequality is a price to pay for greater wealth generation (rewards to entrepreneurs, etc.) and that everyone has "their chance" to make it. Although we have well-known examples of rags to riches (Brittany Spears, Michael Jordan, et al.), the data indicate that these stories are more anecdotal than representative.
Where am I going with this? I guess that I am a supported of "spreading it around" through higher-quality education, access to health care, etc. Equal opportunity in those two areas would be a good place to start.
(The case with water policy is similar -- we need less of the policies that deliver cheap water to billionaires in Vegas and more of the policies that guarantee a certain flow to every HUMAN, avoid rationing, and "soak the rich" -- if the rich indeed soak their lawns...)
My first two reforms on education and health care, btw, are to instill competition (via vouchers) in education and make healthcare portable (move employer-provided insurance to the individual).
Bottom Line: A society shall be judged by the status of its least-prosperous.