Lots of talk about economic inequality around U.S. blogs recently, on the occasion of the translation of Piketty's book. Here are two points that I think are often overlooked. Each of the points could hold if the other does not.
1. Let us say we know with certainty that low-status people suffer because most others are higher up the ladder. This suffering may come in the form of envy or of more distal outcomes such as poor health. This phenomenon, considered well-established by many, is often presented as an argument for reducing inequality. But does it follow that high-inequality societies are worse off, all other things equal? Of course not! Presumably, if low-status people suffer because they occupy a low rung, high-status people benefit because they occupy a high rung. The benefit experienced by high-status people might outweigh the suffering experienced by low-status people. Put differently, it is conceivable that, net of the influence of other factors, the avarage utility per person is as high or higher in a high-inequality society as it is in a low-inequality society. You might say that similarity of utility is desirable in and of itself, but then you'd be introducing an additional moral principle that not everybody might share. I'm saying "additional" because, as soon as you're arguing on the basis of people's suffering, you're already arguing on a utilitarian basis, whether or not you're aware of it.
2. Again, let us say people experience psychological costs because others do better than they do. But, clearly, there are positive externalities, too. In any society which uses taxation to pay for free or subsidized goods, poorer people benefit from having rich people around. That's because rich people pay disproportionate shares of the cost of amenities such as public libraries, clean drinking water, and a functioning criminal justice system. Low-income earners pay less than their share, even in flat tax regimes. Put differently, they get more than what they pay for. Would they really be better off if they switched to a regime in which they were less envious, but got Zimbabwe-level sewage and criminal justice systems? Probably not.