Jonathan Rauch has an interesting piece in National Journal on inequality. He argues that a longstanding consensus among economists may be dissolving -- the idea that inequality is not really a problem in its own right, rather a symptom of other ills that are better confronted directly, like poverty, stagnant middle-class incomes, and excessive rewards for people working in finance. Rauch says that economists are coming round to the idea that inequality itself is a problem, not just in moral terms, but also because it directly leads to lower growth and greater macro instability. The channels he mentions are suppression of aggregate demand (because the rich save more than the poor), the credit cycle (because governments use easy loans as a palliative for middle-class anxieties about falling behind), and financial engineering (to feed the appetite of the rich for new financial products.

This changing view of inequality could be politically transformative, says Rauch:

The era when Washington economists and politicians could dismiss inequality as a second- or third-tier issue may be ending. And progressives, potentially, have a case against inequality that might put accusations of "class warfare" and "politics of envy" behind them.

I'm a bit puzzled by the demand-shortfall argument, because lack of demand (under ordinary circumstances) is something monetary policy can deal with. The link via inequality between a destabilizing credit cycle (driven by pressure from below) and the pathological enlargement of the finance industry (driven by pressure from above) is more persuasive. I'm still skeptical, though, that solving either of those problems is made easier by melding them together. Doing that points you to a one-dimensional solution (much higher taxes on the rich) rather than something more effective but more complicated (better training and education; cuts in implicit subsidies to the finance industry; and somewhat higher taxes on the rich).