2. Inequality

“You need some inequality to grow... but extreme inequality is not only useless but can be harmful to growth because it reduces mobility and can lead to political capture of our democratic institutions.” – Thomas Piketty.

The above quote points towards the perils of rising inequality which as per various reports is on an upward trajectory worldwide. There is widespread concern that economic growth has not been fairly shared, and that the economic crisis has only widened the gap between rich and poor. Similar concerns were voiced by former US President Barack Obama in 2013 when he termed inequality as ‘the defining challenge of our time’.

2.1. What is inequality?

The Cambridge dictionary describes inequality as “the unfair situation in society when some people have more opportunities, etc. than other people”. The United Nations describes it as “the state of not being equal, especially in status, rights and opportunities”. While the term itself is quite vast and has various interpretations, here, we are concerned with “economic inequality” and its relationship with poverty. Economic inequality generally refers to the disparity of wealth or income between different groups or within a society. Often characterized by the aphorism “the rich get richer while the poor get poorer,” the phrase often refers more specifically to the gap in income or assets between the poorest and richest segments of an individual nation.

Income inequality is the inequality in and disparity in the incomes commanded by the top percentile of the population in comparison to the bottom percentiles, while wealth inequality measures look to do the same but by calculating disparities in wealth instead of income.

Economic inequality is used to measure relative poverty with the help of Lorenz curve.

2.2. Significance of Economic Inequality

Even though the basic concept of inequality has entered the public consciousness, the effects of highly concentrated wealth are hotly debated and poorly understood by observers. Research attributes advantages and disadvantages to pronounced levels of economic inequality. Global trends have led to an increasing concentration of wealth in an increasingly small number of hands. Some economists conclude inequality is beneficial overall for stimulating growth, improves the quality of life for all members of a society, or is merely a necessary part of social progress. Other economists claim wealth concentrations create perpetually oppressed minorities, exploit disadvantaged populations, hinder economic growth, and lead to numerous social problems.

2.3. Measuring Economic Inequality

 Indices