A debate has been raging among Oxblog's David Adesnik, Kevin "Calpundit" Drum, Kieran Healy and Matthew Yglesias about economic inequality. Nobody's really enthusiastic about it, of course, but they differ on the seriousness of the problem. Adesnik is relatively unconcerned, while Drum and Healy suspect that something like societal-level foul play is involved.

I would argue that anyone who supports a progressive income tax should also be quite comfortable with rising economic inequality. The moral basis for progressivity in the tax system is that money, like everything else, has a decreasing marginal utility curve: your millionth dollar, when you have $999,999, is just not as valuable as your first dollar when you're flat broke. (In other words, buying a dollar's worth of food when you're starving is a bigger deal than buying a dollar's worth of anything when you're rich.) Indeed, the claim is even stronger: your tenth dollar, when you have only $10, is worth more to you than your last $100,000, when you have $1,000,000. Hence, taxing the wealthy at a given rate (in this case 10%) hurts them less than taxing the poor at the same rate. (Conversely, there exists some progressive tax scheme--in theory, at least--which causes everyone's sacrifice to be equal.)

Now consider what happens as society's overall wealth increases. If we expect everyone to benefit equally from the additional prosperity, then the rich will have to increase their wealth and income much more, in absolute terms, than the less wealthy, since each new dollar brings them much less benefit. And considered as a pure income or wealth statistic, this result will show up as increased economic inequality.

Of course, I have no idea if the rate at which inequality is rising comes anywhere near matching this ideal trend. In particular, if real wealth or income were falling among the poor while rising among the wealthy, then income inequality would indeed be unquestionably increasing in a meaningful sense. But I would argue that even huge economic gains at the top of the scale are quite harmless as long as they are accompanied by a steady, perceptible overall rise--however small--in wealth and income across the scale. (And conversely, falling incomes across the scale are terrible, even if the wealthy are losing much more than everyone else.)