As a naive economist, I subscribe to the belief that wealth is just a mean to an end. Ultimately, what drives "utility" is consumption. While there is certainly a linkage between wealth (income) and consumption, that relationship is really not as strong as we think it is. Indeed, if you would allow me to be controversial for the sake of stimulating a lively debate, let me assert: "As long as the distribution of real consumption is fairly sensible, people should not be so upset about income inequality."
Capitalism and its free market mechanism have come under significant attack in the recent years. However, if we are willing to take a step back and not focus so narrowly on the imperfection of this system for determining production and consumption, we will find that Capitalism has accomplished what a socialistic central planning system intended to but never could.
On the production side, Capitalism has largely been successful at ensuring that productive resources are controlled/managed by the most productive individuals. Whether you like them or not, highly intelligent, driven, educated and ambitious people tend to be in charge of producing goods and services for the rest of us to enjoy. Rather than thinking of these people as the feared bosses, they are really servants to our whims. The minute they fail to anticipate our tastes and needs, they are replaced by the next guy who can (e.g. the firing of Disney Film Chief Rich Ross after the disastrous John Carter movie release).
On the consumption side, we really don’t have vastly inequitable "real" consumption in this country. One really cannot say that a millionaire drinking a $200 bottle of wine with his filet Mignon at Ruth Chris has 50 times the quality of living (dining) than an average Joe having a coke with his In-and-Out burger. For that matter, driving a 250K Bentley isn’t 10 times better quality of life than driving a 25K Camry; a 50 million dollar Beverly Hills home isn't 100 times better quality of living than a 500K house in Irvine; Seinfeld isn't any funnier on a 80in 3-D enabled LED than a 35in plasma. You get the point. I do not believe that large income inequality leads to large standard of living inequality (or "real" consumption inequality), which is what matters at the end of the day. (*For this article, I punt on the issue of poverty as it is outside of the scope. The pertinent class conflict I am concerned with here is the middle class vs. the 1%.)
The invisible hand has very cleverly devised a two tiered pricing system, where the goods and services that the high earners consume are priced at sufficiently high levels such that these earners do not consume all of the goods and services that they produce. Instead of hording goods for personal enjoyment thus creating scarcity in consumption for the rest of us, these top producers horde claims to factories, stores and financial institutions (which are not at all tasty to eat or fun to play with) and, instead, consume rather modest quantities of meats, vegetables, mortars, bricks, water, metals, electricity, petrol, etc. etc. relative to the average Joe. Oddly enough, they seem enormously concerned about the rest of us not growing our consumption and not feeling optimistic enough about life to spend money! (Frankly, on the things that really matter, I am not sure that they have less rebellious teenagers,spouses who hate them less, cuter grandchildren or a more comfortable death...)
People simply fail to understand just how clever the invisible hand is---when left relatively free to function properly, it will adjust prices such that the proper productions occur and the proper consumptions occur. Look all around us, the free market system has ensured that those, who wish to be slaves to the shifting tastes of the masses, get to do so in exchange for the false hope of a significantly higher quality of life to sooth their injured souls. The very same free market, which hands them that million dollar bonus check also prey on their insecurity and sell them a Gucci bag for $3000 and still make sure that they feel sufficiently "not enough" versus their peers to work more and do more. The invisible hand understands all too well that this is the only way to make sure that these extremely productive workers produce plentifully for us and consume modestly relative to their production. Tax these slaves for their fascination with paper money, shame them as greedy bastards---I suspect that we might get better outcome by erecting bronze busts in their honor while selling them naming right to libraries for $20 million and Picasso's for 5 times that.
I wish people would focus on the "objective" of an economic system---to ensure that the most productive members of our society produce goods and services that society desires and to consume only a modest fraction of what they produce.
I wish people could see how much "real" consumption equality has been achieved by capitalism, when compared with other economic systems.
I wish people would understand how necessary and wonderful is this market system, which encourages income inequality to induce proper innovation, labor supply and production only to take it largely back in the most underhanded fashion to produce "real" consumption equality.
Instead of discouraging the high earners from producing more and therefore earning more, we should really focus on discouraging any message, where we make it obvious that they can't take it with them when they die.
by jason c. hsu
 I fully acknowledge that not all high earners are high producers. People are sensible to question why investment managers are so well paid when they hardly produce any investment performance. However, I think that's the anomaly rather than the norm. Most top earners are doctors, executives of significant corporations, technology innovators and entrepreneurs.