Last May 19, there was an interesting debate around inequality and economic growth between Tony Atkinson and Paul Krugman at the Graduate Center of NYC.
I pick up two issues from that discussion. The first one is that inequality is somewhat linked to tax avoidance. If taxes are increased substantially for the rich, then they will move out the country and choose an artificial residence in a more tax friendly country. Where is the global governance? The EU has powers to control much better tax avoidance and impose sanctions but there is no will to go for common tax rules.
The second issue is that too much inequality hampers growth because middle classes do not have enough for consumption. But this is just one aspect of the problem. We need to focus on inequality of opportunity, basically social mobility across generations, which is much lower in more unequal countries like the United kingdom or the US.
There are also new challenges linked with the crisis such as rising child poverty. Sacrificing the social welfare model would be an enormous mistake just like free marketers want.