I see no reason why inequality would trickle down on any time-scale.

I think you mean equality trickling down? I didn't say it would, if by "equality" you mean equality of wealth in relative terms. But absolute wealth certainly does trickle down, as in my airplane example. An ordinary person today can buy things that the richest person in the world could not buy in 1900. The richest person in the world can also buy them, of course, plus things that an ordinary person cannot buy; but that doesn't change the fact that the ordinary person is a lot wealthier in many ways, in absolute terms, than the richest person in the world was in 1900.

IMHO concentration of wealth at the top is not conducive to innovation at all

Where did I argue that concentration of wealth drives innovation? All I was saying is that in the long run, thinking of the economy as purely demand-driven doesn't work, because new sources of supply come into existence and create new kinds of demand. I didn't say or assume anything that requires the new sources of supply to come into existence because wealth is concentrated at the top.

the wealthy and powerful would largely prefer to lock things down and keep the status quo than encourage disruptive innovations

To a large extent I agree with this. Most innovations are not driven by people who are already wealthy; they are driven by people who want to become wealthy. pg has said that he started Viaweb because he wanted to make enough money to not have to worry about money; he certainly was not in that state when he started it.

You talk a lot about teh powers of innovation without any reference to any real world data or being specific about how to encourage it

I have not talked about innovation being driven by the wealthy; that is something you are reading into what I said, not something that's really there in what I said. And I did give one real world example, the airplane. Do you dispute my general summary of how the airplane evolved, or how it created a new source of supply that didn't exist before, and therefore created new demand that didn't (and couldn't) exist before?

As for how to encourage innovation, I don't think anyone knows how to do it in the general case. But in general I think (and you appear to agree) that openness and transparency are better for innovation than secrecy, and that the government should not play favorites.

I also think that, even though relative inequality of wealth is an effect of innovation, not a cause of it, we should be careful about how we try to equalize relative inequality of wealth, because, as I noted above, innovators innovate because they want to become wealthy. If you take away the potential reward, you take away the motivation (pg makes this point in several of his essays, I believe).

However, one thing we could do to reduce relative inequality of wealth, which would not, I think, hurt innovation, would be to completely overhaul our financial system. The financial system is billed as providing capital for innovation, but only a very small fraction of transactions actually do that. Most transactions are zero-sum trades, and most people who have gotten rich through working the financial system (which means, today, a large fraction of wealthy people) have done it not by creating new wealth, but by transferring existing wealth from other people's pockets into their own, using asymmetric information to induce people to take the wrong end of zero-sum trades. I'm not saying that's easy to fix, but I think if it could be fixed, it would significantly reduce the concentration of wealth without hurting innovation.