But how does knowledge and technology get created? As I wrote in "In the Knowledge Lies the Wealth":
...[knowledge] comes from two sources: people with a need for the knowledge create it out of thin air (necessity is the mother of invention) and from people sitting around thinking with interest in some topic but with no particular need. The first type of knowledge creation I call "pull knowledge" because I think it's similar to "pull content" on the Internet. Pull content is content that someone goes searching for on the web and they "pull" information from the sites that contain the knowledge that is interesting to them. As that person is searching, they encounter advertisements and other "push content" that's "pushed" on them. The person who sits around and thinks new thoughts needs to then push the new knowledge out into the world for it to have any effect. As a result I call that sort of knowledge creation "push knowledge." Product development requires pull knowledge creation. Basic research is push knowledge creation.Product development is driven, in turn, by (expected) demand. That is, some entrepreneur or business entity predicted that they could develop a product that would have sufficient demand to support a high enough price across adequate volume to produce profits.
Not all demand is equal and not all product development produces the same quantity of new technology and knowledge. Some new products are just the repackaging or remarketing of existing technology or incremental improvements that make a product a little cheaper but do little relatively little to push the state-of-the-art. On average, it's the demand for truly new products that create the largest increase in the formation of knowledge and technology.
That demand comes primarily from the wealthy.
Almost every new, modern product class you can think of was first sold to the relatively rich (and/or a business entity). The electric light, personal computers, gigantic flat screen HDTVs, stereos, microwaves, washing machines, cruise-control, electric windows, air bags, anti-lock brakes, cell phones, pianos, noise cancelling head-phones, digital watches, indoor plumbing, central heating, air conditioning, powered lawn mowers, vacuum cleaners, and on, and on, and on.
Income inequality concentrates wealth. The concentrated wealth provides significant disposable income in a portion of the populace that creates demand for high end products. The technology for many of those high end products does not yet exist and is very expensive when first developed. This demand then "pulls" the technology into existence by incentivizing people to invent it.
Once a product has reached saturation (everybody owns one) for a significant period of time, there's little room left for innovation. Those with limited disposable income (at the low end of the economic spectrum) buy only these products and have limited remaining disposable income for new products.
Once the wealthy provide the initial market for a product, the natural evolutionary product cycle makes it cheaper and cheaper, each stage providing incremental new technology, until far more people can afford the product (or a competing one).
The wealthy and income inequality thus serve all of us well over a long period of time.