I have an uneasy feeling that the people who are arguing over whether inequality is increasing are asking the wrong question. I think that the economic issue is where are rates of return increasing and where are they decreasing.
For example, is the rate of return to rent-seeking increasing? Is that rate of return to corporate politics and back-stabbing increasing? Or is the rate of return to executive experience and sound judgment increasing?
Is the rate of return to risk-taking increasing? For that matter, has risk-taking increased, with a result that there are more winners and more losers?
Has the return to education increased, or has the return to ability increased?
How much does inequality reflect lifestyle choice? People in rural areas tend to have lower incomes, but they have less expensive lifestyles. Is that a choice or are they victims?
I have argued that a lot of people who might be, say investment bankers, choose other occupations. Is that another case of lifestyle choice?
Further down the road lie questions about what sorts of policy issues are raised by these as-yet-unanswered empirical issues.
UPDATE: An anonymous blogger at The Economist, with a post that I am reliably told took six hours to write, concludes,
What I do care about, once basic needs are taken care of, is how easy it is to change one’s position on the ladder. Or rather, since earning money is never exactly easy, whether place in the income distribution is conferred by who one’s parents were, or by one’s own efforts. The evidence in America is that where you start out has a lot to do with where you end up. This bothers me a great deal. But there’s less evidence that the problem of income immobility is growing.
…Unfortunately, altering the socio-political structures that reinforce accident of birth is so difficult that almost everyone prefers to focus on the (comparatively) trivially easy task of moving cash from one person to another.