“Americans are egalitarian. This trait has long frustrated plutocrats who, more than a century ago, invented Social Darwinism to teach that the rich prospered because they were smart and productive. Few people believed this, not then and not now.

“A new Census Bureau report released last week showed that since 2009 economic gains have accrued only to the top 5 percent of households; the rest have gained almost nothing; poverty remains high and inequality has worsened. Yet libertarians still ask: Does inequality matter? Is our fondness for equality good economics or does it stand in the way of creativity, hard work and just rewards?

“Economists have argued about this for more than 200 years. Adam Smith, that apostle of markets, saw the political danger of inequality, and expressed it most compactly: ‘Wealth is power, as Mr. Hobbes says.’ John Maynard Keynes wrote of the Victorian era: ‘It was precisely the inequality of the distribution of wealth which made possible those vast accumulations of fixed wealth and of capital improvements which distinguished that age from all others.’ On the other hand, the Austrian economist Joseph Schumpeter argued that inequality is the force behind technical advance. According to Schumpeter, progress is a lottery. And if the prizes are really big, more people will try to win them. There will be many failures — but much invention.”

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Read James Galbraith’s full Bloomberg View piece here