When the rich have too big a share of the pie they don't really use it to the benefit of the country as a whole. They use it to chase assets around the globe (bubbles), avoid the US tax system, and to increase their political power.
When the rich have too large a share, the lower and middle classes don't have enough so they have to work longer hours and use more credit to "live the American Dream". This leads to a host of other problems. Workers lead generally more stressful lives as they must put in more and more work hours. Children suffer as parents have less family time. The masses are more easily agitated against perceived enemies like immigrants, foreign nations, the government, etc. It generally makes for a more ugly place to live.
On the other hand, it seems like too much equality can lead to problems too. The US in the late 60's and early 70's had a much more even distribution of wealth and income but also had economic problems, recession and inflation, or stagflation. Could it be that when the masses have too much they use it to chase consumer goods which drives up prices but distorts the markets to the point that businesses just crank out the goods without trying to make better investment choices. Eventually all you have is rising prices. Economic vitality has been lost.
Too much in the hands of the wealthy leads to an over excited economy that ends in financial crisis?
Too much in the hands of the masses leads to a economy built on mass consumerism which induces inflation that eventually leads to stagflation?
As in most things it is a balancing act, the extremes don't work as well as some point in the middle, but I think we favor the wealthy too much right now.
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Anyway back to Robert Reich. The link below is pretty good. Here's a portion but you should read the whole thing.
The Real Lesson of Labor Day
1. The Origin of the Crisis
This crisis began decades ago when a new wave of technology — things like satellite communications, container ships, computers and eventually the Internet — made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.
But for years American families kept spending as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did).
Second, everyone put in more hours. What families didn’t receive in wage increases they made up for in work increases. By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more.
When American families couldn’t squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless — as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.
Eventually, of course, the debt bubble burst — and with it, the last coping mechanism. Now we’re left to deal with the underlying problem that we’ve avoided for decades. Even if nearly everyone was employed, the vast middle class still wouldn’t have enough money to buy what the economy is capable of producing.
Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation’s total income; by 2007, the top 1 percent took in 23.5 percent of total income.
It’s no coincidence that the last time income was this concentrated was in 1928. I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines. The connection is more subtle.
The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.
What’s more, the rich don’t necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they’ll summon the highest returns — sometimes that’s here, but often it’s the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.
Meanwhile, as the economy grows, the vast majority in the middle naturally want to live better. Their consequent spending fuels continued growth and creates enough jobs for almost everyone, at least for a time. But because this situation can’t be sustained, at some point — 1929 and 2008 offer ready examples — the bill comes due.
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