Never reason from an increase in inequality. What the effects of increased inequality are, and whether it's good or bad, will depend on what caused that increased inequality. Inequality is an endogenous variable.
So let's think of a government policy that would cause increased inequality, and talk about that.
Suppose the government gave every Canadian a "free" lottery ticket. It isn't really free, of course. Those "free" lottery tickets are financed by increasing taxes. Maybe by increasing GST (VAT). If each ticket has an expected value of $1, and you get one ticket per day, and there is one winner every day, the prize would be around $35 million, and your chances of winning the lottery during your lifetime would be around one in one thousand, or 0.1%. You too could become a 0.1 percenter!
1. Would that government policy be an unpopular policy?
Probably yes, otherwise governments would probably already being doing that policy. But the answer isn't obvious to me. A lot of people buy lottery tickets, and gamble, at much worse than actuarily fair odds. They would presumably like the policy.
2. Would those people who care most about inequality be those who would be most opposed to that government policy? And would those people who are least concerned about inequality be those who would be least opposed to that policy?
The answer to that one is not obvious to me. (Personally, I would be very strongly opposed to that policy, yet I am perhaps less concerned about inequality than most.)
3. Does that government policy increase or reduce inequality?
Every individual gets a lump-sum transfer payment worth $1 per day, financed by a tax that is (very roughly) proportional to consumption, so the rich pay more. If lottery tickets could be sold, or if there were actuarily fair insurance against losing that lottery, it would be the same as giving each individual a (rather small) Guaranteed Annual Income (Negative Income Tax) of $365 per year financed by a (roughly proportional) consumption tax. Which reduces inequality. But if the lottery tickets are non-transferable and non-insurable, you can't avoid playing. It's a compulsory lottery. The compulsory lottery will cause increased observed inequality of wealth and disposable income.
4. Did the 0.1% who won the compulsory lottery do anything to deserve their wealth?
Well, they were Canadians who paid GST. But so were all the other Canadians who paid GST who didn't win the compulsory lottery. So no.
5. Is this imaginary compulsory lottery any more fair than the other real-life compulsory lottery in which some people get rich by being lucky: by being born to the right parents or born with the right abilities or just being at the right place at the right time?
I would say no. But it's a strangely metaphysical question, about determinism and identity. Some people are born with a winning lottery ticket number.
6. Would you resent the 0.1% who win this compulsory lottery as much as you resent the 0.1% who win the other compulsory lottery?
I bet you wouldn't.
Why? Because you know they are no better than you, and you know they know it too, and you know that everyone knows they are no better than you. Everyone knows they just got lucky.
"I'm richer than you because I'm better than you."
"I'm richer than you because I'm luckier than you."
7. Which one makes you resent me more?
8. Or is it because you might still win the first imaginary compulsory lottery, but already know whether you have won or lost the second real-life compulsory lottery?
But is this a moral question, or just about you? Wouldn't it be an even better compulsory lottery if you got the prize earlier in life so you could enjoy spending it while you are young enough to enjoy it?
9. Or is it about procedural fairness, and nothing to do with inequality of outcomes?
But is my first imaginary compulsory lottery any more procedurally fair than the second real-life compulsory lottery? We are forced to pay taxes to pay one lucky person $35 million in the first compulsory lottery. Where's the procedural fairness in that? I could at least avoid paying for the second compulsory lottery by only buying goods from people who are not part of the 0.1%.
(All the other econobloggers seem to be doing posts on inequality, and since I resent their success I decided I would re-cycle/re-use my old post to try to keep up with the Joneses.)