http://paulgraham.com/gap.html
1. Graham correctly notes that producing useful things can be a source of wealth, and also incorrectly takes it to be be the only source of wealth. Large sums of money can be acquired by inheritance, unproductive activities like playing stock markets, and luck. (It is ironic that he uses Bill Gates as an example. According to legend, Gates got his big break because Gary Kildare went hanggliding)
2. Everyone is familiar with the idea that there is a relationship between productivity and deserved income, because everyone has been told that if they want a rise, they must work harder. And that’s a large part of the reason people object to 100x income gaps: no amount of sweat could justify it. Markets don’t respond to productivity in the sense of effort: top actors don’t make 100x the films of struggling actors. I don’t think people are stupidly adopting the wrong theory, I think the effort theory is being constantly promoted by people who think it doesn’t apply to them.
3. There is some evidence that equality is beneficial. The point was argued in a book called the Spirit Level, which has generated considerable debate. I am not sure what the right answer is, but Graham is too sure it that inequality is harmless.
4. Some of the people who object to inequality and want to tax the rich want to close the gap, but many more want to see something socially useful done with the money.
Pre industrial societies were very unequal, but but not very innovative. The kind of inequality Graham likes, the meritocratic kind, is not possible without a supply of educated people. Taxing the wealthy and spending the money on education is a feedback loop that keeps the whole thing going.
Pierre Philosophique on Politics 