There are a few problems with this
argument.
1: It assumes that utility is directly related to financial wellbeing. Having an equal standard of living can give the (former) poor more leisure time in which to be happy -- but it can also give them more liesure time in which to be depressed. Conversely, if I give you a present, my net resources are less, but presumably my utility is higher, because I've given you a present. There's no logical reason to posit a causal relation between "Having standard of living X" and "Being happy."
Furthermore, to say that utility is based on the disparity in the levels of wealth is to base an economic system on jealousy and schadenfreude. That doesn't sound like good policy to me.
2: It assumes that everyone can and will make the most of their allocated capital. This is a magical world free from junkies and alcoholics, free from stupidity and full of amazing economic and tactical geniuses. In real life, we have to address the fact that some people are money sink-holes, and everyone wastes something, but always in varying degrees. The absolute worst way to minimise the effects of a money sink-hole on the rest of society at large is to take money away from other people and start throwing it at the sink-hole in question. Qlippothic wastefulness best dealt with by economic isolation, letting them only destroy what they can get their hands on. In other words, waste not, want not.
3: It assumes that the utility of individual X has priority over the freedom of individual Y. Let's say "X" is poor and "Y" is rich. Now, let's also assume (falsely, I think) that improving X's standard of living will also improve his persona utility ("happiness"). In order to allocate Y's money to X, we are de facto imposing restrictions on Y to which X is not subject.
On a related tangent, I hardly think that stripping Y of his freedom in order to give X some material satisfaction is going to maximise net utility in society. The same silly argument could be made in favour of slavery.
4: It assumes there's only a limited amount of wealth to go around, and that the main social problem lies in the rich-poor gap. It characterises "right-wing" policies as having the intention to "distribute wealth from the poor to the rich." That's odd, I've never heard of a policy that proposed the distribution of wealth from the poor at all.
I've said it before and I'll say it again: The rich-poor gap is not the problem. There is nothing wrong with the rich getting richer. Good for them. And it's impossible for the poor to get any poorer, because, being poor, they have nothing left to lose. The problem is when an increasing segment of the lower or middle class get pushed further down the economic scale toward poverty.
Anyone can create wealth at no one else's expense, maintaining a baseline and increasing the net wealth of society. Consider this: If I make a robot that can do the work of 100 workers, I've effectively increased my productive power by 9,900%. If I apply this productive power, I've increased my wealth exponentially. Where did this wealth come from? Merely from my own work. Now let's say that I had an investor, a patron who gave me money to live while I was building this robot. But that was under the sole condition that I give him 20% of the wealth I create. Now, my investor was already rich; that's why he can afford to take this risk by throwing money at me for this crazy project. That doesn't matter. I'm still going to be rich, and my investor is going to have even more money to invest in future projects that effectively create wealth out of nothing. Who loses? Nobody. Who wins? Both parties involved. This is the idea of capitalism.
But in case you doubt that wealth can be created out of nothing, let's take a look at a different example. Instead of a robot, let's say I create a sculpture. It does no "work" per se, except insofar as it does what all art does. Now let's say that I invested 160 hours (roughly full-time work for a month) on a budget of $500, the materials cost $300. That's $800. Now let's say I sell the sculpture for $8,000. Where did the extra $7,200 come from? Superficially, it seems that I bilked it out of the sucker who bought my sculpture. But the dollar sign exists only in the trade; the work of art itself is potential value that is, in this case, realised to a value of $7,200. The person who spent this money didn't lose that much wealth, however, because he still has the sculpture, which he could later sell, possibly even for more, and from which, in any event, he presumably derives some satisfaction. The wealth itself was created out of nothing, on the basis of inspiration -- "made out" of the inspiration in a strictly figurative sense.
And in case you want to argue that the workers replaced by the robot are harmed, you're assuming that I'm taking something away from them that they're somehow entitled to. Not so. There's nothing standing in their way of doing the same thing I did. Give the workers some startup capital to pursue education and become robot builders and maintainers themselves. There is always a demand for labour of some sort; the workers who have been laid off in favour of robot-work must get new training and find a new trade, and while this is a hassle, it is not a harm.
The implementation of new technology does not reduce the funds of the workers. It eliminates their income; there is a huge difference. The workers own all the funds they have at any given time; but do they own future, counterfactual funds that are currently under the ostensive control of the investor? I think that's silly. Until the investor pays them, the money is not theirs.
Nobody has a "right" not to be made obsolete. They have freedom not to become obsolete. Education! And before you challenge that education costs money and time, remember that labour is always in demand, and it's often in an employer's interests (or potential employer's interests) for his employee to acquire new skills, and therefore many employers will fund some education for their employees. But this is very different from having it be the investor's obligation to keep throwing money down the proverbial drain because the workers won't get an education.
5: It involves an absurd degree of enforcement. Let's say X and Y are friends in this "wonderful" economic system. Now, let's say X gives Y a present. But uh-oh! X isn't allowed to do that; or more to the point, the state must then take away Y's present and give it back to X. X has attempted to change the balance of equal distribution by reducing his wealth and augmenting Y's. To maintain a strictly equal distribution, gifts would have to be outlawed!
Arguments of the type presented above are not revolutionary; they've been around for hundreds of years. The Levellers, for example, were an English sect that sought to apply this model and "level" all social classes. But except on the small, communal scale, which is a private enterprise, equal distribution becomes impossible and quite undesirable, actually hindering the advancement of the standard of living. If you and a group of like-minded individuals want to implement this model, capitalism permits that; but capitalism and its benefits would be quite impossible to start up in a state-enforced equal distribution paradigm.
You can't create a system in which no one will be oppressed. This is because systems do not run themselves; they are run by people, each with his own agenda, and people will always figure out ways to bend systems to oppress people. The debate is whether or not this kind of power should be concentrated in the state (as an equal distribution paradigm would demand), or decentralised and diffused throughout the populace (as capitalism suggests). I think democracy and freedom are better served by a free market, even if taxes are skimmed off the top.
Noder's Note (April 2, 2003): Coming back to this now, I realized I left out one important point, relating to the law of the market and to Mises's Socialist calculation problem.
6: Trying to make everyone equally wealthy ends up making everyone equally wretched in poverty. If economic inequality was part of a process by which the worst poverty was alleviated or even eliminated, wouldn't inequality be preferable to equality? If the very nature of the act of trying to control the economy destroyed it, but the very nature of the processes of market exchanges tended to improve the material standard of living of everyone participating, wouldn't the inequality be worth it? Of course, these might seem like contentious claims; but economics is a strange science. If you want explanations of the law of the market and of the socialist calculation problem, follow those links.