Trend

Despite the pessimism, income inequality is declining--differences in earnings are more than ever reward to merit, as explained by Arnold Kling at TCS:

In a stereotypical aristocracy, one's social opportunities and income prospects are determined by the accident of birth. In a stereotypical meritocracy, anyone can grow up to be rich and successful.

An aristocracy was more likely to exist in earlier centuries, when economic change was slow and much of society's wealth was embedded in land or physical objects. Today, knowledge is a major source of wealth. In addition, the faster pace of economic growth means that inherited wealth has declined relative to recently-produced wealth. Both of these latter factors make inherited tangible wealth less important than in the past.

Today, the most valuable inheritance is likely to be genetic. Children with strong natural cognitive abilities are likely to have high earnings potential.

The distribution of rewards in America today is still relatively merit-based. However, the extent of economic and social mobility is difficult to assess. One optimistic indicator of mobility is that wealth differences across siblings remain fairly high. Another optimistic indicator is that educational attainment continues to rise with each generation, particularly among immigrants. On the pessimistic side, the trend toward smaller families tends to reduce sibling variation, and my guess is that it reduces the deviation of children's social standing relative to their parents.