With regards to Economist conditions: the first is hard to define - if the top 1% wealth makes up 80% of society’s wealth as is in Latin American (and increasingly in US) would that make it a better society? One has to look at middle income group wealth growth. The second is hard to achieve without significant rent seeking (ie corruption) issues - India is prime example with tons of poverty elevation programs but none of them work for whatever reason. The third is the only real way to achieve reduction in income gap but it has to come with free open competitive market place for talent and skills (it is another matter that India is currently trying to perpetuate discrimination legally).

As America, and most Americans, started to become wealthier after WWII, this society spawned numerous institutions, groups and government policies designed to force some “trickling down” of wealth. In other words, it was not left to Mother Nature or Ronald Reagan, the “trickle down president,” to bring the bounties of growth to the poor, the underprivileged, the handicapped, the old and infirm. This society understood that while unbridled capitalism was a great tool to produce wealth, it was not always a reliable tool to create a civilized society. No, America did not necessarily give Galbraith and the Kennedy’s a carte blanche to plan this country out of all inequities. America just tempered its fierce capitalism with some of the kinder, gentler stuff that is the hallmark of a civilized society.

Some of the examples of this benevolent human intervention in the US were: unions that demanded middle-class wages and got it without striking or resorting to violence as in the pre WWII era, minimum wage laws that were actually followed, social security and medicare for the retired, food stamps and welfare for the poor and unemployable people, free government-managed school education directly funded by tax dollars and in most areas of the country actually equal or superior to private education, and so on. America also saw a tremendous growth of what in India are called NGO’s. These massive organizations focused on specific missions such as cancer research, eradication of polio and muscular dystrophy, and channeled billions into solving these social ills.

My point is: India’s economic growth must be accompanied by similar social and governmental reforms that ensure some trickling down of the nation’s newfound wealth. This is not a reversal to planned economy, which we all know was India’s undoing. This is merely an admission of the fact that free market principles should not obscure social principles, and neither can they be expected to completely run a society.

Now I am going to turn negative. It may not be possible for countries such as India to recreate America’s social practices of the past fifty years. We no longer live in the same world. America most certainly does not. Again, if America is a precursor of things to come everywhere else, there is a paradigm shift in America from institutions to individuals - no to company pensions, yes to personal savings; no to long-term employment, yes to skills that ensure continuous employability; to name a few. The new trends are highly skewed towards free market principles and sometimes at the expense of social welfare.

Which path would India take? The old America or the new America? I hope it would be the old. I bet it would be the new.

P.S. I apologize for sounding a little “socialistic.” Actually, based on what I do, I could pass for a poster boy for American capitalism.

Going by your logic, the grasshopper (in the Ant and the Grasshopper fable) should be aggrieved about the ant. That may very well be. But I dont see why society has a responsibility to assuage the grasshopper when his/her relative status is entirely the result of differential effort? To judge whether “inequality aversion” itself is “fair” or just one can take the simple device of Rawl’s of veil of ignorance and do a thought experiment on that. It seems to me that “inequality aversion” is pure case of envy, something that should hardly be encouraged let alone be the basis for public policy.

In real life, things are a bit more complicated of course. All reward is not entirely due to effort and all effort is rewarded (see Somerset Maugham reversing Aesop’s conclusion in his short story of the same name). Nonetheless, as long as there is a link between effort cum ability and reward, to try and assuage “inequality aversion” is a poor basis for public policy, one with disastarous consequences for society.

However, “inequality aversion” is something that can be potently exploited by demagogues. In the U.S., such demagogery has generally failed mainly because, despite enormous inequality, the “perception” is that one can make it on ones own blood and sweat. This perception is especially strong among immigrants, who are typically fleeing opressive and stangnant economic environments. On the contrary, among African Americans, there is a strong perception that the system is “unfair” and the game is rigged (I am of course indulging in gross generalization).

Perceptions are important becasue reality is messy. The function mapping rewards to efforts in a market-based economy is not a straightforward one even if there were no cases of nepotism. One may work very hard but market conditions may change leaving us with very little demand for products/services. Needless to say, it is further complicated by the existence of “soft” nepotism in the form of references, networking, legacy seats in colleges, and so on. No system in the world is going to be perfect in terms of mapping reward to work. One can always find egregious examples to demogogue against any system. Using perfection as a standard we are letting it become the enemy of the good.

Toy problem:
Person A makes $50,000 a year and his neighbour Person B makes $60,000 a year. Would Person A prefer this situation to one in which he makes $100,000 but Person B makes $350,000? If A is like most people he will prefer the current poorer situtation (unless you are B). In the new “richer” situation, the fancier car B has, the expensive decor in B’s house, the exotic vacations B takes, the upscale schools B’s kids go to - all hurt and jab A in a real sense. He doesn’t care that everybody is growing richer, about safety nets or equal opporutnity.

Ok, so the gini-like coefficient (income ratios) massively decreased from 0.83 (60K/50K) to about 0.28. No wonder A is unhappy and grumpy. If we keep increasing the gini-like coefficient we might end up with a point (Rueben’s threshold) where A is equally happy. At this point the toy game ends. However, given his evolutionary makeup, unless candiate A has been brainwashed by society it is likely that he will prefer to better the gini-coefficient all the way to 1.00. Also, based on literary analysis, what the “breaking point” gini is depends on what the current brainwashing scheme in vogue with perfect equality (gini 1) being the only steady state.

Best of brainwashing theories:
the poor are gods most loved children (pretty much all religions)
the rich did good karma in their previous lives (upper castes in india), the rich are divine (kings),
the rich are merely doing gods work (rockefeller),
the rich are the fittest as nature intended (social darwinism),
the rich are patriots who sacrifice for their country (weapons makers)
the rich trickle down their benefits to the society (reagan),
the rich lead to growth across the society (reagan)

With regards to Economist conditions: the first is hard to define - if the top 1% wealth makes up 80% of society’s wealth as is in Latin American (and increasingly in US) would that make it better society? One has to look at middle income group wealth growth. The second is hard to achieve without significant rent seeking (ie corruption) issues - India is prime example with tonne of poverty elevation safety nets but none of them work for whatever reason. The third is the only real way to achieve reduction in income gap but it has to come with free open competitive market place for talent and skills - again India is basket case with sorts of discriminatory attitudes and I am not sure these attitudes can be legislated away (it is another matter they are being currently perpetuated).

That said, I am not wedded to the idea….but am looking for the evidence. Like I said, the gini in India says something, while the one for China says something else altogether.