(Though having mentioned medical care as an example of a high-inflation “rich people” good, I should mention that most research shows that medical prices are increasing because of new, expensive procedures, while prices for any given procedure have generally fallen.)

Still, on the whole, this is very positive news.

Sure, but that may simply mean that’s why the poor tend to purchase those goods. Consider beans vs. steak: the poor may perhaps buy more beans than steak precisely because bean prices may be growing less rapidly than those of steak. This does not mean that their well being is decreasing more slowly — because beans are not a perfect substitute for steak.

For example, there has been phenomenal inflation in the cost of health care and college education, two services that are consumed much more by the rich than the poor. Does this mean that the relative well being of the poor has increased because only the rich can afford to consume services whose price has been rising fast?

Well, you don’t understand the “free market” sophistry here: sure the poor have that choice. It is is free market after all: nobody is holding a gun to their head saying “you buy caviar instead of beans, I pull the trigger”. As Mike says:

“Such inflation will shrink my CPF, but I had decided I want zero of that good already,”

poor people simply *decide* what they don’t want (e.g. health care, college education, holidays in Aspen).

Nobody is coercing those poor people to decide one way or another — every choice they make must be of advantage to them over those they have not made, because there is no coercion.

In that case then any money that is not spent on actual consumption does not contribute in any way to the well being, and any money not spent in consumption by high earners can be taxed way, as it contributed nothing to the well being of the high earner.

What matters is how smooth the wealth distribution becomes as trade increases, and whether it is more symmetrical than before.

If one wants to define well-being as actual consumption, as Will Wilkinson does in his post, then either of your first two options might be right. A broader definition of well-being would include capability, as in your third option.

Lane

On this one, I think you’re spot on. It is remarkable how often poverty and inequality become confused. It is in my view absurd to imply that the rich and the poor’s consumption bundles are primarily different because of their preferences. There is an inherent asymmetry here – the rich may *choose* caviar over baked beans, but the poor do not have that choice available to them.

Incidentally – though he wasn’t asking me – I would vote for the third of Mike’s ‘translations’. Whether we buy the capabilities approach wholesale or not, I think it would be odd to argue that decreasing my range of possible consumption bundles does not affect my well-being.

Such inflation will shrink my CPF, but I had decided I want zero of that good already, so my basket of goods does not change.

My question is whether Lane feels this is a reduction in my well-being. And is that what’s driving Lane’s objection to the study?

Seems a rather glaring omission to me.

Unless he’s arguing that he borrowed (more) heavily to maintain the same standard (basket), in which case the answer presents itself.

I disagree. I think the goodness of the purchased basket of goods, minus the badness of the money I paid, equals my utility (putting aside everything non-economic )