The Wrong Tree

"Inequal distribution of wealth is the problem", so goes the popular wisdom nowadays.
Not surprisingly like all popular theories this is also misleading and mostly useless.

To realize how absurd the proposition is consider a sample of entry level software professionals, now the income here will be for most part evenly distributed. Now add few CEO's (Bill Gates, Premji etc. etc.) in the sample, the inequality will increase, ofcourse. Does this mean that government should intervene, No way !

I concede that the example I gave was not very realistic, but the intention behind the exercise was not to perform analogical acrobatics, but to illustrate a simple point.

If (and this is a big If) state intervenes in the economic sphere to achieve some social objective, then that objective should only be poverty elimination.
Further more often than not policies framed towards inequal distribution of wealth will be at best ineffective and create more problems than solve.

The reason for this is to do with the level of intervention.
To simplify, people are poor when
1) There are not enough opportunities.
2) People do not have required skills to leverage the available oppotunities.

Assuming there is a potential for free market ,1) in general arises, when there are hurdles either in forms of exsessive restriction imposed by government and in some social customs.
The solutions to this is reform, of government and of society.
The 2) may require government intervention in crucial social sectors like education. The intervention may range from incentives to poor to admit their kids in school, incentives to educational institutions and if required even direct investment.

I favour this level of intervention because it helps in wealth creation.

On the other hand one can be reasonably sure that framework arising out of "Inequal distribution" meme will result in regressive policies like reservations or taxation, aiming to redistribute available wealth which not only will not contribute anything towards wealth creation but also disincentivize creation of wealth.

This is not to say that study of inequality is useless. But only if taken as secondary attribute (primary being poverty).

An index of inequality (for example Gini) can be a useful indicator taken in context with other data. For example a equitable distribution of wealth in a poor country may indicate 1) case (refer above), whereas inequitable distribution of wealth in a poor country may indicate 2) case.
Ofcourse the equitable and inequitable are relative terms and best left to economists.

The ideal that a society should espouse is freedom and encouragement to its members to pursue enterprise.

Related :Indian Economy.