> 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.
> 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).
> 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.
> 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.)
> No, UBI only works if you institute price controls, or if there is a mass migration to rural areas, Otherwise, it just sparks an inflationary spiral.
There is good reason to think that a tax-supported UBI at any level would, in fact, lead to price inflation for goods disproportionately in demand at the low end of the income scale, such that the net benefit of a UBI to the lowest-income recipients would be less than would be expected by consideration of the nominal benefit and pre-policy price levels, sure.
The idea that it would just spark an inflationary spiral, OTOH, something that needs some support.
>If you are earning $2000 a month, and the company knows that you were earning $1000 a month from the government, and they cut your pay to $1000 a month, you’re still only getting $2000 a month. Your overall financial health, and way of life has not changed one bit. you have simply replaced one source of income with another. You’re still making $2000 a month, the only difference is, the corporation doesn’t have to pay you. We have simply replaced one source of income with another. You’re still making $2000 a month, the only difference is, the corporation doesn’t have to pay you. If a Toyota Camry cost $10,000, and all customers are getting $1000 a month free from the government, then raise the price of the Camry to $11,000
I often argue that the markets do not optimize for the right outcomes, thus not so great, but even I do not think they are that stupid nor inefficient.
If your standard of living has not improved (by your previous argument), why would the markets raise the price for the Toyota Camry? So they get less sales? Why would the workers agree to do the same work for less even if they are gettin extra money?
An UBI will definitely shift the markets and maybe not in a good way, but that analysis seems so absurd that I consider even calling it an oversimplification to be too generous.
> A universal basic income, that is an income which is _universal_ and _fixed_ in its amount, will only create inflation: everyone gets equal additional money, everyone gets additional purchasing power, everyone creates more demand, prices go up.
Not really, it will also redistribute wealth.
Let's say I have $1000 and you have $100. If we get additional $100 each, your purchasing power would now be 2/11 of mine instead of 1/10, even with prices adjusted for inflation.
I'm not advocating for UBI though – stronger economy is the more sustainable solution here.
> Prices rise due to increased consumer spending capability, to the point where you have to work again to get above the poverty line.
By far this is the easiest to predict, but least likely to be addressed (by the proponents) concern I have with UBI.
A social safety net shouldn’t be a hammock, as it is said. I’m concerned with AI and what happens when it’s pointless to hire people because a $100k robot can do the same work as 3 of them and do so 20 hours a day. By then UBI may be our answer. But it doesn’t seem so now.
> The big question for me is how would the introduction of UBI ultimately affect that ratio, given that you would be less disincentivized to stay with the underproducing group?
The “given” is backwards. Compared to existing means-tested welfare systems, UBI funded by additional high-end taxes provides less disincentive to move out of the underproducing group.
If the minimum support level provided by UBI is used (in whole or in part) to offset and reduce minimum wage, it also reduces the barriers to people moving immediately to a less-inderprodicing level, and eventually up and out of the underproducing group.
>It could very well be dependent on the place you live.
Then it would have to be funded with local taxes. Why should people with a median salary pay taxes so that someone can get a UBI that is higher than the median salary?
>Assuming that not everyone can be successful in life (in spite of having boatloads of IQ + work ethic) UBI might be one of the few ways left to reduce generational in-equality.
Or you could just get rid of money hoarding and land hoarding. Just think about it. The time people spend unemployed or underemployed is gone but the money isn't. Thus the value of the claim to labor (money) is greater than what the economy can support. The inevitable result is inequality just from a pure logical perspective. The conventional solution had been to just let the economy grow endlessly so that the economy becomes strong enough to support all the freeloaders. Alternatively you let inflation act as a soft default on that unsustainable claim to labor.
> 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.
> If you add the UBI to their income they'll be hugely better off and they might even be able to choose
Maybe, maybe not.
For clarity, I am a fan of UBI. But I'd like to run through a hypothesis about an adverse effect.
If you add the UBI and costs go up accordingly, the real, marginal benefit they can obtain by working for $3.25 an hour will actually decrease.
This means someone who is in circumstances where they can currently earn a meagre income to tip the balance to being able to make ends meet in that circumstance, will find their ability to work the same amount in a UBI world will not tip the balance to being able to make ends meet.
In other words they will be pushed to change circumstance, towards more work and/or lower cost. E.g. move somewhere cheaper, work more hours.
This does not sound like a net benefit for the already impoverished. It sounds like a trap, because low-wage working will provide less marginal benefit to change what people can afford when they are stuck.
>If UBI could be implemented in around the same cost as the welfare programs it replaces, it would have a net zero effect on inflation
It cannot, unless you're ok with screwing those already on such programs. Do the math, and you'll find it is not even close. Welfare programs (unless you include SS) are given to a tiny amount of people - spreading that across a large group of people simply screws those who need it most.
If you include SS, now again you're screwing old people who many times need the money to give it to people capable of work.
>The downside of nearly all current forms of welfare (in the U.S.) is that they largely enforce the poverty gap. You get to a point where a small increase in pay causes a large decrease in benefits, and you become trapped unless you can get a large enough pay increase to jump the gap.
This common claim is not true. There are ample people moving out of such program regularly, and many of them have limited lifetime benefits.
>would UBI be the same cost as current welfare programs,
No. I've been down this set of math lots of times. Do it - all welfare budgets are public, population is public, it's easy to estimate.
>No one here is arguing that a basic income should be paid for through inflation.
Actually, I kind of am!
I suggest that we absurdly just give $1MM to everyone and ask what would happen to prices. They'd skyrocket of course. But what else would happen?
Consider an economy with just 2 people. One with a net worth of $7500 and the other with $10MM. Give them each $1MM. What happens to their wealth relative to each other? The less the first guy has, the more it does for him. (Even if its done simply by "printing money".)
"Give everyone a million bucks" doesn't seem so outrageous to me after all. Sounds like swinging a giant scythe at inequality if you ask me.
Its like a fine work of un-dodge-able flat tax and a social safety net all in one. This is why I like UBI.
> What is that gonna achieve exactly? Aren't prices gonna just inflate upwards and things become less affordable?
Inflation is generalized increases in prices.
I really dont understand why people make the argument that UBI would cause inflation due to demand: it would shift prices of many products (because increased demand in basic cheap goods) but probably marginally so and even then it would not affect inflation rates as a whole. High luxury cars are not going to have more demand.
> If you just pay everyone X amount of money every month for whatever, it just means that in order to produce something you'll need to pay someone a lot more than that X amount in order to work and produce it and also it means that that item is gonna increase massively in cost in order to pay the items production itself.
Outlandish claim! We dont know how its going to happen. Its not true that you have to pay more, actually you could argue you will have to pay less, as UBI supplements the income: i.e. someone that wants to make 1500U$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.
> Any economic policy that changes prices can be seen as inflationary if you pick the right index. The CPI is not what matters. What matters (to workers) is the ratio of the CPI to wages.
Since UBI isn’t likely to drive wages up (and, if as often proposed it replaces or offsets minimum wage, it may drive them down at the low end), I don’t see any real difference there, even if it was correct (I agree that what matters to workers qua workers is real [that is, CPI-adjusted] wages, and to consumers qua consumers real income; but that doesn’t alter the definition of inflation, just notes the inflation per se is not the concern for those groups in those roles.)
UBI is likely to lead to inflation, is unlikely to lead to general real wage increases (though that’s complicated), but will lead to real income increases in the low end of the distribution unless cranked too high high too fast (and there are negative feedback controls that should avoid that problem unless deliberately subverted, say by indexing UBI to inflation.)
> There is a tremendous amount of overhead involved in current welfare programs
Take the salaries of the people involved, and divide that over the entire country. Will that suffice? I don't think so, because it isn't as if 25% of the population is involved in distributing welfare.
> If UBI could be implemented in around the same cost as the welfare programs it replaces, it would have a net zero effect on inflation.
Not necessarily. If the government gave everybody a minimum wage extra, landlords could raise their prices further, shops, restaurants, construction firms, etc. would have to increase salaries to maintain lowly paid staff and raise prices, etc. There's a distinct risk of inflation involved in handing out money.
> I think the bigger issue is that there is a common, albeit misguided notion that UBI would create inflationary pressure.
Well, because it is perfectly intuitive to think it will cause inflation: The Fed printing money to fund Government deficit spending absolutely increases inflation. UBI is additional Government spending. Additionally, reducing the supply of labor increases the cost of labor, which causes inflation.
I think the onus is the proponents of UBI to somehow prove that if this is done at scale it will NOT cause inflation.
> On the plus side, the advancement of AI, and the threat of widespread job loss creates a positive talking point that can possibly help counteract that.
Academics have been making these doomsday "automation will cause labor surplus" predictions since forever. When exactly can we expect them to materialize? I'd love some cheaper labor so I can build an affordable home.
> Wouldn't nationwide UBI just make everything more expensive?
Not “just” and not “everything”, but yes.
> Most people who work will continue to work, most people who don't, won't.
If UBI replaces or offsets, in whole or part, minimum wage, it probably increases employment immediately. The reduction in labor market friction and perverse incentives of means-tested welfare probably increases it in the long term. So, I wouldn't be confident in that description.
But even in the usual “funded by high end taxes” formulation, it increases velocity of money in the domestic economy and consumption spending, so it should produce some upward price pressure. The basic upshot of this is that the downward redistribution will compress outcomes, but raise the bottom so that less that would be assumed if you took the benefit level and compared it to pre-policy price levels.
> If you care about poor people, why not just try to fix welfare with e.g. Negative Income Tax proposed by Milton Friedman
NIT and UBI funded by progressive income taxes are identical policies.
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.
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