This is a very interesting question. I think the short answer is that you don't worry about relative differences in wealth. But, let me explain. If the absolute standard of living is increasing for both the bottom as well as the top, then you can have a situation in which the relative difference in incomes increases even though incomes of both the bottom and the top are increasing.

 

Also, there are serious problems in measuring the difference. Let me use the US as and example, since I am more familiar with these statistics. People often point out that the relative difference between the bottom 20% or income earners and top 20% of income earners has increased since 1980. This statement is absolutely true. However, it misrepresents the reality, because there are a lot of people in those statistics just like me. In 1980, I was in the bottom 20%. Today, I am in the top 20%. Few people stay in the bottom 20% throughout their lives. The members of these groups are constantly churning.

 

The economy is a network. If you look at patterns in an economy it is full of connections that are not all that different from a network like the Internet. At this point in time, Google is the largest hub on the Internet. It gets more hits everyday than any other website on the Internet. Assuming that they keep delivering the best search function on the Internet, it would not surprise any of us to see growth in the overall size of the Internet to result in continued rapid growth for Google. Now contrast Google with my humble little website. Overall growth in the use of the Internet also benefits my little website. I have more online students. Occasionally, someone may even find my website by searching Google. Growth of the Internet makes both my little website and Google better off, but it also causes the relative difference in hits to my website and Google to widen.

 

The effect of growth in the world economy on free economic systems is much the same. The increasing size of the overall base will cause those people and companies that act as hubs in the economy to grow and become much wealthier. For example, a movie star who can reach a worldwide audience will become much wealthier than a movie star, who is limited to a much smaller local market or a star of the stage, who is only seen by live audiences. In other words, a growing economic base will benefit all participants, but the big hubs of the economy will tend to see more growth than those at the bottom.

 

However, in a free market, the big hubs do not tend to remain the big hubs forever. "Creative destruction" is always at work. Of the top 100 companies in the United States in 1917, only General Electric is still among the top 100 companies. Free economies are full of turmoil. New ideas overthrow old paradigms. Nothing is static. So, the concern about the relative difference between rich and poor is misplaced in a free market.

 

It is also important to realize that concentrations of wealth are necessary for investment. Those people and companies that have created a lot of wealth and accumulated that wealth are the source of capital that can be invested in new businesses and create new sources of wealth. A system without accumulations of wealth will have a very difficult time with investment and future growth.

 

Does this mean that we do not need to be concerned about the poor? Of course not. Notice that my underlying assumption is that we are dealing with a free economic system where people, ideas and capital can move freely, and where all the infrastructure for such a system are in place. This infrastructure includes legal systems, education systems, communication systems, transportation systems, power grids, etc. This does not describe much of the world.

 

Millions of people around the world find themselves in a "poverty trap." Since the creation of wealth requires investment (i.e., all income is not currently consumed), people who are so poor that they must eat all of their seed grain face an impossible task. People whose lives are devastated by Malaria or HIV find themselves in holes that are impossible to climb out of without help from others. People without access to education and people who live with corrupt governments that inhibit the free functioning of markets also find themselves in deep holes. People who are prevented by law or custom from climbing the economic ladder because of their race, gender, religion or social class find themselves unable to make progress no matter how hard they try.

 

So, I think that there is a lot that we can do to help the poor better their lives and begin to climb up the economic ladder. However, what has been tried and tried but never works is to mistakenly assume that in a free market system one person's poverty is created by another person's wealth, and try to remedy the problem by redistributing wealth. That approach simply “kills the goose that laid the golden egg.