Should funding agencies spread the money around?

Yes.

The whole process of applying for [and mostly not getting] funding can be very frustrating. Generally, I am empathetic to colleagues who share their disappointments with me. However, there are two situations I am not particularly sympathetic too.

Professor A is well funded and applies for an extra grant and does not get it.

Professor B's grant application is successful but does not receive the full requested amount.

I am even less sympathetic when A or B's spouse complains to me about this.

These decisions need to be considered in a broader context. Funding agencies do have limited budgets and they need to consider what is going to be for institutions and a country in the long term.

Consider the following vignettes of different faculty.

John Smith is 45 and holds multiple grants. He has 3 postdocs and 11 Ph.D students. He publishes in luxury journals.

Sue Jones has been an assistant professor for 3 years and has one Ph.D student, funded with start up funds. She is yet to get an external grant.

Jane Doe is 60 and a member of the National Academy of Sciences. She does not have enough money to hire a postdoc. She often publishes PRLs based on international collaborations.

Joe Blogs is 50, but has not had an external grant for one year. Next year he won't be able to even pay for liquid helium for his lab or travel to conferences.

Steve Sun has tenure, one grant, and two Ph.D students. Occasionally he gets postdocs on external fellowships.

If I honestly look at the quality of the science these faculty are doing it is comparable, particularly if I factor out the hype, luxury journals, and factor in output relative to resources and opportunity. Saying one is better, or more strategic, or promising, is really subjective.

So, who should I fund if I have enough money for only 2 or 3 grants?
It is a hard call.
Consider what would be best for the country and field as a whole.
John will probably just do more of the same, and will power on regardless of whether he gets another grant. It may actually better for everyone if he got more focussed, both on topics and people.
Sue not getting a grant may mean she does not get tenure, which could mean a big waste of her and her universities time and resources. If she limps through, her career may never really take off and she will be a burden.
Given Jane's career experience and wisdom, an investment in a postdoc for her could be a strategic one.
If Joe does not get a grant, his research program may shut down and he will spend the last 15-20 years of his career, not doing any research, but still costing the university a lot of money.
Although an extra grant for Steve would be nice it is not essential to his survival.
If I was making the final call I would probably not give two grants but three smaller grants to Sue, Jane, and Joe.
What would you do?

I hope this illustrates the complexity of distributing funding. On the one hand you want to reward excellence and dot want to promote equity. You want to allow people to expand in to new areas. But you also need to consider things from a broad perspective.

Different countries handle this quite differently. 
In the USA there is a significantly different success rate for "renewals" and new applications. In Australia, there is no such distinction. Traditionally, Canada has given out a lot of small grants, so the success rate is high and most faculty have one grant so they can survive. Most faculty cannot afford to hire postdocs. Yet Canada is moving towards a more "elite" system. In contrast, in Australia, just a few faculty have grants and they are substantial compared to North America. But, funding is becoming even more concentrated among those associated with "Centres of Excellence". In Europe many faculty have a guaranteed level of funding that is associated with their position, until they retire.

My main point is that I think the money should be spread around more than it is most countries. However, to what extent and how I am not sure.

I welcome discussion.