A lot has happened in the five years since we published our book, The Spirit Level. New Labour were still perhaps too relaxed about people becoming "filthy rich". And there was an assumption that inequality mattered only if it increased poverty, and that for most people "real" poverty was a thing of the past.

But so much has changed. In the aftermath of the financial crash and the emergence of Occupy, there has been a resurgence of interest in inequality. Around 80% of Britons now think the income gap is too large, and the message has been taken up by world leaders.

According to Barack Obama, income inequality is the "defining challenge of our times", while Pope Francis states that "inequality is the roots of social ills".

The unexpected success of The Spirit Level owes more to luck than judgment. Although serious non-fiction books rarely sell well, for a week or so we even outsold Jeremy Clarkson. We now feel a bit like the dog being wagged by its tail: in the past five years, we've given over 700 seminars and conference lectures. We've talked to academics, religious groups, thinktanks of both right and left, and to international agencies such as the UN, WHO, OECD, EU and ILO.

The truth is that human beings have deep-seated psychological responses to inequality and social hierarchy. The tendency to equate outward wealth with inner worth means that inequality colours our social perceptions. It invokes feelings of superiority and inferiority, dominance and subordination – which affect the way we relate to and treat each other.

As we looked at the data, it became clear that, as well as health and violence, almost all the problems that are more common at the bottom of the social ladder are more common in more unequal societies – including mental illness, drug addiction, obesity, loss of community life, imprisonment, unequal opportunities and poorer wellbeing for children. The effects of inequality are not confined to the poor. A growing body of research shows that inequality damages the social fabric of the whole society. When he found how far up the income scale the health effects of inequality went, Harvard professor Ichiro Kawachi, one of the foremost researchers in this field, described inequality as a social pollutant. The health and social problems we looked at are between twice and 10 times as common in more unequal societies. The differences are so large because inequality affects such a large proportion of the population.

To the political defenders of inequality, the idea that too much inequality was an obstacle to a better society was a monstrous suggestion. They accused us of conjuring up the evidence with smoke and mirrors.

But since our book, research confirming both the basic pattern and the social mechanisms has mushroomed. It's not just rich countries or US states where greater equality is beneficial, it is also important in poorer countries. Even the more equal provinces of China do better than the less equal ones.

Most important has been the rapid accumulation of evidence confirming the psychosocial processes through which inequality gets under the skin. When we were writing, evidence of causality often relied on psychological experiments that showed how extraordinarily sensitive people are to being looked down on and regarded as inferior.

They demonstrated that social relationships, insecurities about social status and how others see us have powerful effects on stress, cognitive performance and the emotions. Almost absent were studies explicitly linking income inequality to these psychological states in whole societies. But new studies have now filled that gap. That inequality damages family life is shown by higher rates of child abuse, and increased status competition is likely to explain the higher rates of bullying confirmed in schools in more unequal countries.

We showed that mental illnesses are more prevalent in more unequal societies: this has now been confirmed by more specific studies of depression and schizophrenia, as well as by evidence that your income ranking is a better predictor of developing illness than your absolute income.

Strengthening community life is hampered by the difficulty of breaking the ice between people, but greater inequality amplifies the impression that some people are worth so much more than others, making us all more anxious about how we are seen and judged. Some are so overcome by lack of confidence that social contact becomes an ordeal. Others try instead to enhance self-presentation and how they appear to others. US data also show that narcissism increased in line with inequality. The economic effects of inequality have also gained more attention. Research has shown that greater inequality leads to shorter spells of economic expansion and more frequent and severe boom-and-bust cycles that make economies more vulnerable to crisis. The International Monetary Fund suggests that reducing inequality and bolstering longer-term economic growth may be "two sides of the same coin". And development experts point out how inequality compromises poverty reduction.

Lastly, inequality is being taken up as an important environmental issue; because it drives status competition, it intensifies consumerism and adds to personal debt.

In Britain, one of the few signs of real progress are the fairness commissions set up by local government in many cities to recommend ways of reducing inequalities. Partly as a result, many local authorities and companies now pay the living wage. But the coalition government has failed to reverse the continuing tendency for the richest 1% to get richer faster than the rest of society. The Equality Trust calculates that the richest 100 people in Britain now have as much wealth as the poorest 30% of households. The top-to-bottom pay ratios of around 300:1 in the FTSE 100 companies is not diminishing.

It is hard to think of a more powerful way of telling people at the bottom that they are almost worthless than to pay them one-third of one percent of what the CEO in the same company gets. Politicians must recognise that reducing inequality is about improving the psychosocial wellbeing of the whole society.