Prices for different basic necessities will rise, but not enough to counteract the value of the UBI itself. The exact amount depends on the particular price elasticities of the good in question. Everyday food is likely to be relatively minimally impacted, while low-income housing would be much moreso. In broad strokes, you'd see prices rise (to different extents) on goods low-income people disproportionately purchase, but not enough to consume the majority of the UBI grant. This isn't a particularly difficult thing to predict.
> How will the ~$3T yearly UBI bill be paid for?
This is the much more significant issue. I'm not sure why you discount shuffling the current budget around: because of e.g. Social Security, you already have a funding stream for most seniors' UBI. Beyond that, you'd need an broad array of steep taxes (compared to today) to pay for it. 24% of current US GDP goes toward taxation. Bump it by ~15% which brings us to the level of hellholes like Germany, Belgium, and Denmark and you get >2 trillion dollars.
The exact basket of taxes used matters, but would undoubtedly be the result of a complicated political negotiation. It's fair to reserve judgment until you get the actual set of revenue streams, but obviously whatever I tell you here is meaningless until you get to the sausage making of real-life federal legislation.
> if you give everyone a fixed amount of money, won't the cost of things just rise accordingly?
I hear this argument a lot but I don't think it necessarily follows:
- The supply of low end goods (the sort which you can afford with your UBI) is highly automated and will increase rapidly for any small price increase, making their pricing fairly inelastic.
- The demand for these goods won't rise greatly (except for low end luxury / status items, for which UBI makes the difference between people buying and not) since anyone living above a subsistence level is already buying roughly as much as they need (they're just feeling more financial stress now by doing so).
So overall I'd expect we might see a small price rise but nowhere near enough to cancel out the UBI.
As discussed above, funding for UBI can be mostly reassigned from existing welfare & pension budgets.
Demand for basic food and shelter is more or less a constant (unless you can argue otherwise), regardless of people's income, so as I see, prices for non-luxurious items could stay about the same under UBI.
It's a simplistic overview and there are tons of important factors e.g. farming subsidies or migrations, but in general UBI makes a lot of sense.
> This assumes that the prices for all of the inputs for food production remain static in the face of either increasing taxes or as we both seem to agree upon, an increased monetary base. Land and energy will go up in price as more money is available to chase the same scarce resources.
You're conflating different kinds of thing here. I don't believe there would be any increased monetary base, because I expect UBI would be implemented in a budget-neutral way (covered by tax). But if you do think there would be monetary inflation, just ignore the cash numbers and denominate everything in 2020 (fixed-value) dollars. There are no more fixed-value dollars chasing resources (just the same number of fixed-value dollars distributed differently), so there's no increased demand at first order. At second order maybe those same fixed-value dollars circulate more quickly, so there's more demand and more consumption, a more active economy generally and higher GDP (in fixed-value dollars). That would generally be seen as a good thing.
> More spending won't increase deficits because they're going to spend anyways? I'm not sure I follow your logic here.
The political reality of passing UBI would be finding some way to balance (or retain the same unbalance in) the budget, either by cutting other expenditures or raising additional revenue.
> And they will still be poor relative to everyone else.
They will be less poor relatively, that's the whole point. If A has 100 dollars and B has 10 dollars, and you give 10 dollars to B, it's almost irrelevant whether those are dollars you taxed from A or printed afresh; either way you leave B proportionately much better off.
> Fast forward 10 years and the same problems will remain.
I don’t have a strong opinion on UBI, but I want to challenge you on this.
If everyone gets $20k per year, let’s say the median earner goes from $40k to $60k. An increase of 50%. And let’s assume that we don’t increase taxes, even though it would definitely play a role.
Pretty soon, inflation kicks in and everything goes up 50% in price.
But a low income earner of $16k per year is now making $36k per year. More than double! So the 50% increase of prices means that the UBI helps the lower income person’s purchasing power to be on a more level field with the middle earners, even though the middle earners obviously still are better off with their larger income. Just less so.
And the person making $200k is now making $220k. But the 50% inflation means that they have to lower their consumption a bit, to be more in-line with the median earner.
So introducing UBI like this causes an automatic rebalancing between different levels of income, somewhat, even if the median earner is unaffected. Obviously this is greatly simplified though.
> I've been sort of in favor of UBI, but these discussions have made me realize it can never work.
I don't think you understand UBI, how it is intended to work, or the economics around it.
> Let's say we give everyone $50K.
$50K is ludicrously high for an early UBI implementation. The ambitious advocates target a per-person level that would hit at or near the federal poverty line (the more cautious advocates see getting up even to that level as a longer-term goal.)
> Why not $50 billion? I'm being serious - the same effect ends up happening -- prices increase proportionately
No, they don't. First, because all actual UBI proposals are redistributive (whether the money comes from existing social benefit programs including the government employees/contractors managing them being cut, or whether it comes from new taxes, or from some combination. So it doesn't change the supply of money, just where it is.)
Its true that goods disproportionately demanded by the portion of the population receiving a net benefit from the implementation of the UBI can be expected to increase, but under any reasonable expectations these increases will generally be less, proportionally, than the increase in income. So, there will be a net increase in utility for the net income gainers, though somewhat less than would be expected if you considered pre-UBI price levels.
But also because one purpose of UBI is to reduced the disincentive to work created by means-tested social benefit programs, where some portion of the income provided by work is lost in benefits. (In some proposals, UBI would also reduce the barrier to mutually-beneficial employment at low wages provided by minimum wage laws.)
>The political reality of passing UBI would be finding some way to balance (or retain the same unbalance in) the budget, either by cutting other expenditures or raising additional revenue.
Yet somehow, the deficits keep increasing year by year. Even so, increased taxes on producers would result in increased prices for consumers. There's no free lunch.
>If A has 100 dollars and B has 10 dollars, and you give 10 dollars to B...
When B, who has a history of mismanaging his finances continues to do so, A will end up with this money. Even UBI proponents make the case that this is 'trickle up' economics. Additionally B may be buying things like gasoline with this money whereas A would have just parked it on the stock market, which wouldn't have the same impact on consumer prices.
> You are missing one part, though. If you start giving cash for everyone, it's very likely this will result in raising prices for all commodities.
Only if you aren't taking cash from someone to pay for it; UBI doesn't conjure money from nowhere, it redistributes it. The things disproportionately demanded by those who are better off with UBI will have some rise in prices (but not enough that they fail to be more affordable to those purchasing them in normal cases) and the things disproportionately demanded by those who are worse off will have some decline in prices.
> And there you go for a another downward spiral, where you have to readjust the basic income every couple of years to make up for the inflated prices.
What you probably want to with BI isn't target a particular standard of living, but target just below the inflation tipping point set by production technology and market factors, where BI is just below the level where it would lead to runaway inflation because of people leaving the workforce reducing supply (the real inflation danger, rather than redistribution of income spiking demand). This is sort of a fiscal version of what central banks do for monetary policy in managing interest rates. (BI is essentially self-limiting to this point in the long-run, in that if you don't tail-chase by increasing nominal amount inflation will drive the value of BI down to the sustainable level. But there's lots of disruption in that adjustment, so if you are going to have BI, you want to actively manage it to avoid overshooting by too much and to correct more quickly than inflation would correct it.)
The resulting standard of living that is sustainable with BI probably won't be what most BI advocates would like to see anytime soon, because production won't support it; but it should rise with advances in technology.
> If everyone in my town gets 100€/month on top of their regular income, how will that not drive all rents/mortgages 100€/month up?
it depends on how UBI is implemented. If it's done via printing money out of thin-air, then yes, it will drive up inflation on goods that cannot be substituted (like rent).
If UBI is paid for by taxing the rich, then it won't drive inflation, because the demand for some goods/services from the rich would drop correspondingly, and so it's inflation neutral.
> $50K is ludicrously high for an early UBI implementation.
Sure, I was just picking a number. Let's say it's $5K per person? $25K? (Not sure how it works with families with kids).
> actual UBI proposals are redistributive
Honest question: is there actually that much in the system without requiring massively raising taxes? A quick look at http://www.heritage.org/research/reports/2014/12/federal-spe... seems to show the Federal Budget is maybe 75% social programs in a broad sense, so I assume that's the money that would ultimately get retargeted. Is that enough to give everyone in the US a living income? And I don't mean in the early implementation but 20 years in when it's humming along as envisioned.
> these increases will generally be less, proportionally, than the increase in income.
How can that be when everyone would be making more money because UBI is added to their income as well. All labor costs would rise for everything. Everyone can't suddenly have more money and all want to go on a cruise without cruise prices increasing to the point that the same number of people that can afford it now will afford it then.
I just don't see anyway this works at scale. It only works temporarily but once things hit equilibrium, we're back when we started.
> The US has 300M+ people, even $1000 a month to each person is utterly unrealistic in terms of our GDP.
Except that this isn't how UBI should be implemented. An easy way to do it is to change Federal income taxes. Make $0/year? your tax bill is -$12000. Make $10000? perhaps it's now -$10000. And at some point - probably $40000 or $50000, it's 0, and then after that you pay gradually increasing taxes, the way it currently works.
so in other words, you don't have to give this cash to all 300M people. T(Though you do need to account for the fact that having this option available will change people's life choices, if we're going to estimate the funding needed)
Probably we'd also need to raise taxes somewhere to fund it - increasing marginal tax rates for higher tax brackets, possibly coupled with some new tax brackets at the upper end, seems like a possible answer.
> If you add an UBI but don't fundamentally change the way the system works it won't make a difference, companies will just adjust the prices accordingly because more money will be in consumer's pockets (the market is always right! right?).
If you assume prices work according to supply and demand, incorrect. The reason for this is that people also earn money from sources other than UBI.
To give an example, let's say I give every single person in the US, including children, $5. Will companies raise their prices accordingly? Maybe, but the difference in GDP is tiny. The difference in the purchasing power of the average 10 year old with no pocket money though, is vast, since they previously had $0 and now they have $5.
Similarly, UBI will probably result in price increases, but those will be less than the increase in purchasing power of those most in need of UBI.
Folks that use supply and demand principles to argue against UBI don't seem to understand themselves.
If everyone is given $1,000/mo, it does not necessarily follow that living costs will also increase by $1000/mo. For that to happen, the additional $1000/mo would need to actually increase everyone's demand for services, which is generally not the case. Having more money generally does not make you want something more, it just makes it easier to afford it. If more people can afford something and start purchasing it in greater numbers, then yes, the price will increase, but they are also getting something the thing of value in return.
Put another way, giving everyone $1000 will likely increase prices, but the increased prices will be less than $1000.
> Rather than alleviating poverty, UBI will most likely exacerbate it. The core reasoning is quite simple: the prices that people pay for housing and other necessities are derived from how much they can afford to pay in the first place.
Obviously, higher demand means higher prices - but people's need for "necessities" (basic food, shelter) is constant! In that case, it shouldn't rise under UBI. My intuition is that prices would only rise for more limited, optional, luxurious goods, and that's a very good thing.
> soon as you give people 1000 dollars, their rent, transport, and other associated costs will go up by exactly $1000
I don't think this is actually true, though I'd love to see an economic model that would convince me otherwise.
Sure, if the only income anyone had was UBI income, then increasing UBI by $1000 would (to a first order approximation) increase everyone's purchasing power equally, and the price of goods would increase by the same amount. (Though note that even in this simplified situation, due to effects like price/wage inelasticities, you wouldn't expect every price to move at the same time).
In the current UBI proposal, however, many people would still earn most of their dollars from other sources, and so the changes of purchasing power wouldn't be evenly distributed.
My intuitive model for this is that if the average person gets 1% of their income from UBI, and then UBI doubles to 2% of income, then prices should inflate by 1%, because everyone has 1% more to bid on the goods they want. But for those who are getting 100% of their income from UBI, then that 1% inflation on goods doesn't affect them the same way; it just means their purchasing power decreased by 1%, after doubling, so they still got a 99% increase.
1% is a placeholder, you'd need to model this with real data of course, true median salary and the proposed UBI.
Obviously the reality is way more complex since you have different mixes of goods and services purchased by the different segments of the population (e.g. perhaps more people in the bottom quartile of income rent than the top quartile), but we don't need to go into that much detail to disprove the argument above (at least with the level of detail that was afforded in the parent post).
> Like a super basic one being what is to stop commodity prices inflating proportionately to the new lowest possible income set by UBI. Say UBI is 20k for every human on Earth. Great, but what's to stop the rise in prices of commodities to essentially UBI adjusted income + original price of commodity? Im genuinely curious what you think.
So this is always the argument people make against a UBI because it sounds plausible and the answer is complicated.
The first thing to notice is that the same concern is present for any method of reducing poverty/inequality whatsoever. If the poor have more money then they'll want to buy more stuff and by supply and demand the higher demand raises the price of certain products. It's a thing that happens.
But the only way it eats 100% of the money is if everything has zero price elasticity of supply. Which it doesn't. For example, if people want more land, well, sorry, the supply is pretty much fixed. But if people want more housing, that we know how to construct, so if more people could afford it then we could just build more. (If we have asinine laws against building more housing, well, that is an independent problem with an independent solution.)
And most of the things people want are not practically limited in supply. If more people could afford a sailboat then businesses would make more sailboats. If more people could afford new clothes then businesses would make more clothes. It's not as if there is an insufficient supply of wood or cotton -- for many products the dominant cost is the R&D or some other fixed cost and having more buyers could make the unit price come down.
> Providing a UBI would seem to end up increasing inflation of basic goods and services.
I don't understand where this argument comes from. A basic income doesn't create money. For the average (literally average) taxpayer, the tax required to pay for the basic income will exactly match the amount of the basic income and it cancels. Higher-than-average income people would pay more in taxes which money would fund the basic income for lower-than-average income people.
The only argument you can really make is that lower income people are more likely to actually spend the money. But that is true of anything that increases the income of lower income people.
Moreover, most of the goods people buy today are either not of the type you consume significantly more of when you have more money, or are not rooted in scarcity. If you give lower income people more money and they buy more iPhones, Apple is not going to run out of iPhones and have to raise prices to ration them, they're just going to make more iPhones.
The goods that actually are scarce, like housing and food, would be affected in theory, but we already artificially prop up the prices of those things. If we wanted the price to go down then there are obvious things we could do, like not impeding high density housing construction or not paying farmers to not plant crops.
> What is that gonna achieve exactly? Aren't prices gonna just inflate upwards and things become less affordable?
Inflation is generalized increases in prices.
I really dont understand why people make the argument that UBI would cause inflation due to demand: it would shift prices of many products (because increased demand in basic cheap goods) but probably marginally so and even then it would not affect inflation rates as a whole. High luxury cars are not going to have more demand.
> If you just pay everyone X amount of money every month for whatever, it just means that in order to produce something you'll need to pay someone a lot more than that X amount in order to work and produce it and also it means that that item is gonna increase massively in cost in order to pay the items production itself.
Outlandish claim! We dont know how its going to happen. Its not true that you have to pay more, actually you could argue you will have to pay less, as UBI supplements the income: i.e. someone that wants to make 1500U$S a month, and with UBI gets 500, might be satisfied with an easy 1000U$S job.
True, the jobs that nobody wants to do will probably have a higher premium: it gives higher leverage to every human being as they can choose not to work a bad job like garbage disposal, or cleaning up road kill. So some labor is subject to decreased supply,and others of increased demand. Its impossible to know what would happen without experimentation.
> You want to solve issues? Give free food/water and shelter for survival, thats all a human needs.
This is the exact opposite point of whats truly attractive about UBI. Free food and shelter is very expensive to give through the state ,and much cheaper to just hand out money!
For example, SF spent 241 million dollars in homeless programs in a year[1]. There are about 6,500 homeless people in SF[2]. Alternatively, the city could have given them 37k U$S cash and come out ahead, effectively putting them above the median income in the US[3]
In theory, the city could literally make the homeless people disappear overnight at no extra-expenditure.
> is there actually that much in the system without requiring massively raising taxes? [...] And I don't mean in the early implementation but 20 years in when it's humming along as envisioned.
A UBI moving from a low level to a mature, robust level able to provide a living wage -- as a matter of basic economic necessity -- requires advances in productivity. There's not productivity in the economy now to support a robust UBI.
> > these increases [in the prices of goods and services] will generally be less, proportionally, than the increase in income.
> How can that be when everyone would be making more money because UBI is added to their income as well.
To start with, everyone will not be making more (after tax and public benefits) money. The money for a UBI (under most actual proposals) will come from reducing existing means- and behavior-tested public benefits (and associated administration) and/or increased taxes on some people. Either of these will reduce the effective income of some portion of the population -- and necessarily decrease at least some people's income by an amount greater than the UBI. Before considering the effects the redistribution has on promoting or inhibiting economic growth (e.g., by increasing domestic velocity because of where money is distributed and how and what the people receiving spend it on vs. those losing it), the average net impact on incomes should be approximately $0.
> All labor costs would rise for everything.
No, they won't, and those that do rise won't rise equally. And, in any case, labor costs aren't the only costs of production, so even if labor costs in the domestic market rose as a result of UBI, prices of completed goods and services would rise by less (proportionally) than the increase in labor costs. (In the long term, for goods provided in a competitive markets, where prices are driven by competition down to the cost of production.)
> There is no argument here -- why would everything cost $1000 extra?
Because you can't print food, houses, energy etc. Give everyone $1000 and you won't magically create any more food or any more houses or any more energy out of thin air. So the market will adjust the price to account for the increased demand. It's basic supply and demand.
> If everyone gets $1000 as UBI, then those 500 lollipops will cost ... $1001 each and $501000 in total?
> Isn't that absurd?
Yes it is, but you misunderstand. It's not that every individual item would cost $1000 extra, it's that the total cost of living would be $1000 extra.
Prices for different basic necessities will rise, but not enough to counteract the value of the UBI itself. The exact amount depends on the particular price elasticities of the good in question. Everyday food is likely to be relatively minimally impacted, while low-income housing would be much moreso. In broad strokes, you'd see prices rise (to different extents) on goods low-income people disproportionately purchase, but not enough to consume the majority of the UBI grant. This isn't a particularly difficult thing to predict.
> How will the ~$3T yearly UBI bill be paid for?
This is the much more significant issue. I'm not sure why you discount shuffling the current budget around: because of e.g. Social Security, you already have a funding stream for most seniors' UBI. Beyond that, you'd need an broad array of steep taxes (compared to today) to pay for it. 24% of current US GDP goes toward taxation. Bump it by ~15% which brings us to the level of hellholes like Germany, Belgium, and Denmark and you get >2 trillion dollars.
The exact basket of taxes used matters, but would undoubtedly be the result of a complicated political negotiation. It's fair to reserve judgment until you get the actual set of revenue streams, but obviously whatever I tell you here is meaningless until you get to the sausage making of real-life federal legislation.
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