... some measure of inequality is good for an economy. It sharpens incentives to work hard and take risks; it rewards the talented innovators who drive economic progress. Free-traders have always accepted that the more global a market, the greater the rewards will be for the winners.
But then it argues that inequality has reached a stage where it can be inefficient and bad for growth:
That is most obvious in the emerging world. In China credit is siphoned to state-owned enterprises and well-connected insiders; the elite also gain from a string of monopolies. In Russia the oligarchs’ wealth has even less to do with entrepreneurialism. In India, too often, the same is true.
In the rich world the cronyism is better-hidden. One reason why Wall Street accounts for a disproportionate share of the wealthy is the implicit subsidy given to too-big-to-fail banks. From doctors to lawyers, many high-paying professions are full of unnecessary restrictive practices. And then there is the most unfair transfer of all—misdirected welfare spending. Social spending is often less about helping the poor than giving goodies to the relatively wealthy. In America the housing subsidy to the richest fifth (through mortgage-interest relief) is four times the amount spent on public housing for the poorest fifth.
These examples are strategies employed by firms and individuals to manipulate government policy to their own advantage, which readers of this blog will recognize as examples of "make the rules or your rivals will."
If this is the problem, I am not sure why the Economist proposes income re-distribution to address it. Why not attack the problem directly by eliminating too-big-to-fail subsidies, regulatory barriers to entry, and misdirected welfare spending.