Lane Kenworthy kindly responds:
We should care about inequality of income not simply because it contributes to inequality of well-being, but also because it contributes to inequality of capability.
Even if consumption inequality has increased only a little, the rise in income inequality has produced a noteworthy increase in inequality of capability. The rich aren’t forced to purchase goods and services whose prices have increased more rapidly; they could switch to the same consumption bundle as the poor if they wished.
I feel like maybe we’re speaking a different language or something here. I’m not sure what Kenworthy means by “inequality of capability.” It sounds to me like he is using a currently popular term to repeat the not-contested because self-evident fact that people with a bigger budget have a bigger budget. And I’m not clear on the source of Kenworthy’s preference for thinking about what people can do with their money (capability) over what they do do with it (consumption), since it seems to me to come to pretty much the same thing, unless you think people really do systematically tend to act against their interests. No one disputes the fact that wealthier people have more options. That’s basically what it means to be wealthier. But isn’t the issue at hand the size of the difference in real quality of life once the wealthy and the poor have taken their best options? Anyway, that’s what I think the question is. If the best a poor person’s budget can buy improves faster than the best a rich person’s budget can buy, then that means the poor person’s quality of life has become more like the rich person’s even if the rich person’s budget expanded at a faster rate than the poor person’s. The analysis applies mutatis mutandis to capabilities. Isn’t this absolutely central to the question of economic inequality? Isn’t this in fact the central question of economic inequality — the gap in the quality of the lived experience of the rich and poor?
Kenworthy goes on:
In my view the Broda and Romalis analysis is important for our understanding of (absolute) poverty, rather than inequality. They find that the prices of goods poor Americans tend to purchase have risen less rapidly than the overall inflation rate. I can’t assess whether they’ve accurately analyzed the data and how much measurement error the data contain. But if the finding is correct, it suggests that the trend in living standards for America’s poor was more favorable (or less unfavorable) between 1994 and 2005 than income data imply.
I don’t get it. If living standards for the poor are better than we had thought, doesn’t that mean that the difference in living standards between the poor and the rich is smaller than we thought?