Well, he only says that about TOTAL equality.
Which, you must admit, is not much of an incentive. If you reach the same situation whatever you do, why would you try very hard?

"I would say, if some decent standard of equality is a problem for an economic system, to hell with the economic system."

Now, this is something else entirely. Of course, there is a problem with the wording -can we call it rather a cap on inequality to some decent standard? I think you will find that Krugman advocates far, far less inequality than what we see in the developed world these days. And it has been demonstrated to work well for the economic system too, as seen in the expansion until the mid-70s, or the fact that even today, societies with a lower gini coefficient tend to do better (per head at least) than similar societies (ie let's not compare Australia and Bangladesh, please) with a higher one.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi