Your argument may have merit, but the system you describe is not unlike our current society, which has not particularly failed but continues to thrive, despite its tendency to tend toward income inequality.

I suppose if people don't like the way steem works, they will avoid it or perhaps build something else?

Time will tell, and until then, I am excited to see what choices people make about it. I think it has value and its growth suggests that other people agree. :)