Liberals (in the European sense) argue that a liberal free-market economic policy regime-nationally and globally-is good for economic growth and poverty reduction and for keeping income inequality within tolerable limits. Second, they argue that substantial income inequality is desirable because of its good effects on other things, notably incentives, innovation, and panache; and conversely, they dismiss concerns about growing inequality as "the politics of envy." Third, they argue that the core liberal theory of capitalist political economy satisfactorily explains the central tendencies in the role of the state in advanced capitalist economies. This essay challenges all three arguments on both conceptual and empirical grounds. It then suggests why the arguments are nevertheless widely accepted, proposes criteria for deciding how much inequality is fair, and ends by suggesting ways for achieving higher salience for income redistribution (downwards) in political agendas.