Extreme Inequality

This century has seen an explosion in wealth and income inequality around the world, with India being practically a poster child. The World Inequality Report 2026 for India says that the top 1% hold 40% of all wealth, while the bottom 50% make do with 6.5%. Other than Brazil and South Africa, no major economy has a greater wealth and income concentration among the top 1%. Some of my friends think this is a good thing. During our conversations, many of their thoughts seem concerned with the motivations and incentives that are available to, and desirable for, those who earn a large amount of money.

This is not unreasonable. There is great motivating, and hence, innovating power in performance incentives and in having a social structure that rewards risk and innovation, and prices talent according to need. Some inequality is not only good, it is inevitable, and it is information. Complete equality is a mirage that cannot exist.

But that, it seems to me, is only half the story. It is incomplete without also looking at what the impacts of that inequality are on the rest of society: how it changes the way people engage with each other. This is obviously because all of us have a stake in a functioning society. Even those who can afford to live in a world of walled-off enclaves still need to engage with suppliers, consumers, supporters, and conversation partners.

Extreme inequality erodes democratic institutions, leads to regulatory capture by ultra-wealthy individuals and corporations, and inevitably causes a loss of public trust as everyday citizens realize that policy outcomes always favour the donor class over the working class. Communities begin to feel colonized all over again, and the entire establishment begins to be seen as illegitimate.

Worse yet, sociologists and epidemiologists have consistently found that large gaps between the rich and the poor severely damage the population's overall well-being, regardless of absolute poverty levels. People begin to view society as a zero-sum game, rationally reducing community cooperation and civic engagement. They experience chronic stress from status anxiety and a lack of financial security, leading to health declines across lower income brackets. Stalled community infrastructure and a lack of upward social mobility correlate heavily with increased and violent crime.

It is not as if, even from a purely economic point of view, extreme inequality is a good idea. A Rupee at the bottom is consumed because it buys sustenance. The same Rupee at the top is parked – in third homes, art, complex derivatives, speculative investments. And instead of funding productive, job-creating businesses, it inflates asset bubbles, dampens wage growth and starves demand. There is dramatic underinvestment in human capital; talent never got educated because people simply couldn’t afford it. That is a dead loss for everyone, including the wealthy.

Extreme inequality creates a self-reinforcing loop: wealth buys political power, which secures policies that generate even more wealth, leaving the rest of society to bear the economic and social fallout. But that then leads to revolutions which bring the costs right back to the wealthy class. That is a stupid way to organise a society.