Makers and Takers Redux

Income inequality has been on the rise for three decades in the United States, according to the Congressional Budget Office, with the gap between the "haves" and "have-nots" currently at its widest point since 1967.

But as Democrats and Republicans wrangle over fiscal "fairness" and taxation, some experts argue that income inequality is not such a bad thing. They even go as far as saying that America's economy functions on the basis of it.

The debate on income inequality has featured heavily in U.S. politics. Prominent Republican and former runner for the GOP's presidential nomination, Rick Santorum said last February that income inequality was part of the fabric of American society, and long should it be so.

"There is income inequality in America. There always has been and hopefully, and I do say that, there always will be," Santorum said during a speech to the Detroit Economic Club. "Why? Because people rise to different levels of success based on what they contribute to society and to the marketplace, and that's as it should be," he added.

"We should celebrate like we do in the small towns all across America. You celebrate success. Why? Because in their greatness and innovation, yes - they created wealth, but they created wealth for everybody else. And that's a good thing, not something to be condemned in America," he said...

Thomas Garrett, assistant vice president at the St. Louis Federal Reserve, wrote in 2010 that income inequality in the U.S. was "not so bad."

"Although many people consider income inequality a social ill, it is important to understand that income inequality has many economic benefits and is the result of - and not a detriment to – a well-functioning economy," Garrett wrote, insisting that U.S. Census statistics "exaggerate the degree of income inequality."

One problem, in particular, he said, was that the "statistics do not include the non-cash resources received by lower-income households [such as the tens of billions of dollars in subsidies for housing, food and medical care] and the tax payments made by wealthier households to fund these transfers."

Income inequality, he adds, is "a by-product of a functioning capitalist society" and the wealthiest had more, because they were more productive, Garrett affirmed.

He is not alone. Edward Conard, a former partner at asset management firm Bain Capital argued that inequality was actually good for economic growth. In his book,"Unintended Consequences: Everything You've Been Told about the Economy is Wrong," Conard said that concentrating wealth in a skilled investor class helps fuel U.S. innovation, a tenet of the "American Dream".