On some level, income inequality is intrinsically problematic even if you don't care about social issues at all, or don't think it's a zero sum game.
Rich people have higher savings ratios than poor people. As a larger amount of income goes to those who have more than enough money than enough already, the average savings ratio increases. This is a drag on aggregate demand that hurts the economy.
Supply side economists will tell you that savings are not a problem because investment will go up. But then why would somebody invest when the people who would be interested in your product don't have the money to buy it because they're poor? This is pretty much the situation we're in right now, where there is no shortage of capital, but rather a shortage of possibilities for profitable investments because consumers have become more careful with their spending.
(I realize that it may look different from where you are standing - I am not an insider in the tech startup scene - but that is the picture in the larger economy.)
Another question that I am less certain about is how inequality affects economies of scale. Basically, as society becomes more equal, the larger size of the potential customer base makes investments in efficient production techniques more viable. Of course, there is the other side of the coin, which is that rich people finance advanced technology out of boredom, e.g. space travel.
This is pretty much the situation we're in right now, where there is no shortage of capital, but rather a shortage of possibilities for profitable investments because consumers have become more careful with their spending.
This is simply not true - personal consumption is at an all time high. It is even higher now than it was before our recently ended recession.
As is so often the case, it comes down to how you interpret it and put it into relation to other things going on in the economy.
So real consumption is slightly above the previous peak. Now if productivity has increased in the three years that consumption had this "U" shape, it means the same amount of consumption goods and services can now be produced using less labour. This means that even though GDP may have returned to its previous peak level, this level of GDP is now accompanied by higher unemployment - unless new jobs have been created by something else.
A typical candidate for such job creation would be investment. However, given that consumption has only barely increased over the previous peak, there is currently little need for companies to make investments to satisfy consumption demand.
So I admit to not looking up the latest numbers before making my post, then I would have rephrased my statement. What's clear is that consumption hasn't returned to the previous trend (and probably won't), and that's a problem for the recovery (especially compared to the recovery from the 2000 recession, for example, where consumption did not deviate from the trend as the graph you linked to shows).
After seeing your comment, I was reminded once again of the futility of discussing economics and politics on internet forums, and deleted my comment elsewhere on the thread.
Your parent comment claims that "consumers are spending less", then you provide data that refutes that (and I remember you've done that several times on other threads too). Does that further the discussion? No, nobody changes their mind. They just cherry pick other data that confirm their views, and question the neutrality of any data that doesn't.
I think most time people change their views on politics, it's by reading books, having life experience and thinking. Rarely by being convinced by someone on a forum.
Compare to discussions on other topics: in every HN thread about Javascript or systems security or nutrition or music theory, there's bound to be quite a few readers who actually learn something or even change their minds about some preconceived idea they had.
(now I'll stop rambling cause there's an earthquake here)
There's no loss in aggregate demand from savings and investment...investment is still spent, just on factories and equipment and research instead of consumer goods.
It seems to me that you are implicitly assuming that savings always equal investments. This is not true. Savings minus investments is the private sector balance, which has varied wildly, see e.g. the graph here: http://pragcap.com/sectoral-balances-and-the-united-states
Rich people have higher savings ratios than poor people. As a larger amount of income goes to those who have more than enough money than enough already, the average savings ratio increases. This is a drag on aggregate demand that hurts the economy.
Supply side economists will tell you that savings are not a problem because investment will go up. But then why would somebody invest when the people who would be interested in your product don't have the money to buy it because they're poor? This is pretty much the situation we're in right now, where there is no shortage of capital, but rather a shortage of possibilities for profitable investments because consumers have become more careful with their spending.
(I realize that it may look different from where you are standing - I am not an insider in the tech startup scene - but that is the picture in the larger economy.)
Another question that I am less certain about is how inequality affects economies of scale. Basically, as society becomes more equal, the larger size of the potential customer base makes investments in efficient production techniques more viable. Of course, there is the other side of the coin, which is that rich people finance advanced technology out of boredom, e.g. space travel.