If people can borrow and lend to perfectly smooth out their lifetime living standards, then

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If people can borrow and lend to perfectly smooth out their lifetime living standards, then transitory income fluctuations do not affect their overall well-being. Therefore, permanent income - the average income someone can expect to earn over their lifetime - is a better measure of their true living standards than current or yearly income. This is because permanent income takes into account not only current income but also expected future income and past income. As a result, it reflects a more accurate picture of someone's lifetime economic resources.

If People Can Borrow and Lend to Perfectly Smooth Out