Is economic inequality bad for growth?

How many times have you heard that meme?  It turns out that political inequality is possibly at fault.  Acemoglu et. al. report:

Is inequality harmful for economic growth?  Is the underdevelopment of Latin America related to its unequal distribution of wealth?  A recently emerging consensus claims not only that economic inequality has detrimental effects on economic growth in general, but also that differences in economic inequality across the American continent during the 19th century are responsible for the radically different economic performances of the north and south of the continent.  In this paper we investigate this hypothesis using unique 19th century micro data on land ownership and political office holding in the state of Cundinamarca, Colombia.  Our results shed considerable doubt on this consensus.  Even though Cundinamarca is indeed more unequal than the Northern United States at the time, within Cundinamarca municipalities that were more unequal in the 19th century (as measured by the land gini) are more developed today.  Instead, we argue that political rather than economic inequality might be more important in understanding long-run development paths and document that municipalities with greater political inequality, as measured by political concentration, are less developed today.  We also show that during this critical period the politically powerful were able to amass greater wealth, which is consistent with one of the channels through which political inequality might affect economic allocations.  Overall our findings shed doubt on the conventional wisdom and suggest that research on long-run comparative development should investigate the implications of political inequality as well as those of economic inequality.

In other words, at least from that data set, the real problem seems to be rent-seeking behavior through the political process.  Here is the link.  Here is a non-gated version of the paper.