> You seem to be suggesting that it's perfectly fine to have tremendous inequality (compare Dharavi to Baltimore) as long as it enables long term business investments.

Having some amount of inequality is the only way it's possible to have long term business investments -- or any investments at all. Because we need doctors, engineers and businessmen but also miners, truck drivers and janitors. These professions will never have equal status, and it will always take more resources to train an engineer than a janitor, but it isn't "fair" that one person gets to be the engineer while another has to be the janitor. Yet that unfairness is inherently necessary if we want to have engineers.

> In particular, what about inequality caused by within country trade barriers?

The goal is to have a moderate amount of competition. Too much and everyone is making subsistence wages and no one can afford to go to college (and your government has no tax revenue to subsidize it). Too little and the inequality becomes unnecessarily excessive (which is, among other things, inefficient).

Notice that there are two different kinds of competition here. Between employees we have quite enough already, because employees largely aren't organized. But competition between business entities is currently on the low side. Compare e.g. the market share of Facebook in the market for social media with the market share of an individual Facebook employee in the market for software developers.

So the questions have different answers. The sweet spot for employees seems to be no restrictions within the US/EU but restrictions between countries. For business entities even the trade barriers between countries seem to restrict competition too much. (Or at least, a lack of trade barriers doesn't inherently lead to ruinous competition there, because there are other factors inhibiting competition between businesses.)

But the EU has a population about twice that of the US. So why shouldn't we impose trade barriers within the EU to bring this awful competition down to American levels? Similarly, India should perhaps split herself into US-sized chunks, and Biharis shouldn't be allowed to migrate to Bombay? (Shiv Sena would love this.)

Similarly, as the US grows, shouldn't we start imposing internal trade barriers to keep our size down to the optimum?

This idea that there is some optimal size that just magically happens to correspond to national boundaries is belied by the fact that countries have hugely different sizes.

But India does have a problem with excessive competition keeping wages low. The rest of the EU might actually be better off with fewer countries in it (e.g. without Greece). Measures to keep the US population stable rather than growing could be beneficial.

And there are obviously political considerations. Nobody is going to let you carve up national borders over this, so we're stuck with the existing borders even if that isn't 100% perfectly optimal. Estimating the optimal size is going to be at the "orders of magnitude" level anyway.