On Inequality - an Economic Perspective

I read Greg Mankiw's blog on a regular basis; as the author of my AP Economics textbook, Principle of Economics, he is the foundation of everything I know about that science. As the Institute for Social Justice, aiming to narrow the extant disparities in our century, the matter of wealth distribution lies at its core. I found a short commentary by Mankiw, which I think would be beneficial in analyzing the inequalities, not only as a personal, humanitarian, or religious matter, but as a function of modern financial system. Here is the link : http://gregmankiw.blogspot.com/2006/06/on-inequality.html

I find his points 4 and 5 to be the most fascinating - 4. the benefits of re-distribution through progressive taxation on consumption and 5. other policies should focus on economic efficiency, for they are poor instruments for such cause.

I thought it would be an interesting read for the Institute interns, and an equally interesting exercise to try and find exceptions to or qualifications for point #5.

Addressing the fair trade interns specifically -

Fair trade is a regulation of the laissez-faire capitalist system - does the supply-demand curve imply decreased efficiency and therefore an ineffective method of enrichment, as Mankiw suggests? Or, does it not affect the ideal equilibrium because it shortens the supply chain, addresses a specific consumer group, and/or reflects the true market value of the producers' work, etc? I personally decided on the latter, also because the simple supply-demand curve does not reflect the increase in efficiency due to the building of communal infrastructures, empowerment, and education.

So, that's my example of a qualification for Mankiw's point #5. Are there others? What are some of the article's implications about the free market and our current economic system?