Second, lifetime spending doesn’t necessarily capture what people care about. If I grow up poor and hungry, even the certainty that I will one day be rich and well-fed does little to quiet my rumbling belly. Snapshots of inequality are important because of the diminishing marginal utility of consumption -- if my consumption goes up and down, that’s worse than if I can smooth it out.
Third, Auerbach and Kotlikoff’s measure doesn’t take into account the comfort and security that wealth brings. Having the certainty of future wealth is nice, but wealth today makes a big difference because it gives me options if an emergency hits. If I don’t have money in the bank, I might be able to borrow, but I’ll probably have to pay a pretty high interest rate.
Finally, Auerbach and Kotlikoff don't fix a number of other issues in standard measurements of inequality, such as differences in local cost of living.
Although their method of measuring inequality has many limitations -- the standard yardsticks are not really wrong -- their numbers are an important addition to the debate. Looking at income after taxes and transfers is especially useful, and should be done much more often.