Ask HN: Would a universal basic income lead to inflation?
I’ve seen quite a bit of discussion on inflation, as a result of an increased supply of money in the system. Some have suggested that the stimulus checks increased the supply of money which may have, in part, led to inflation. I’m curious, if the government instituted a universal basic income, would this lead to inflation?
109 comments
PhD in econometrics speaking, here's my handy guide to macro-economics:
- The main variables of interest are (aggregate) real production / income (GDP/GDI), unemployment and inflation (arguably in that order)
- Nobody knows much wrt the causes, effects and future trajectories of any of these. Not professional Ivy League economists who publish in journals like AER, QJE, JPE or Econometrica, nor traders getting paid millions at hedge funds or prop trading desks, nor fringe bloggers, gold/crypto-bugs or neophytes from different fields (traditionally from physics, but probably increasingly from CS/AI/ML). Especially beware when they sound very sure of themselves, often using correct wonky economic jargon or details like the plumbing of money flows. Top academic economist are at least (usually) somewhat honest that they know very very little.
- Even if someone did know anything, 3rd parties like you or I can't distinguish the Real Truth from quackery.
- The root cause of this knowledge deficiency is the inability to run proper controlled experiments. Pretty much no theory about macro-economics is convincingly testable/falsifiable, except banal trivialities like we can't make everybody rich by sending everyone a $10M check. This will not change in our lifetime, if ever.
- All the writing on macro-economics is story-telling and catering to their specific audiences. Academics write foremost for other academics to gain a position at a prestigious faculty (and incidentally to influence politics). Crypto-bugs write to sell you crypto-coins. Fringe bloggers like Shadowstats write to get newsletter signups and ad-dollars. Most of them employ the effective mechanism that the reader is initiated to advanced/semi-hidden knowledge, which makes the reader feel better about themselves.
Given this, the answer to your question is: maybe, maybe not, who knows?
- The main variables of interest are (aggregate) real production / income (GDP/GDI), unemployment and inflation (arguably in that order)
- Nobody knows much wrt the causes, effects and future trajectories of any of these. Not professional Ivy League economists who publish in journals like AER, QJE, JPE or Econometrica, nor traders getting paid millions at hedge funds or prop trading desks, nor fringe bloggers, gold/crypto-bugs or neophytes from different fields (traditionally from physics, but probably increasingly from CS/AI/ML). Especially beware when they sound very sure of themselves, often using correct wonky economic jargon or details like the plumbing of money flows. Top academic economist are at least (usually) somewhat honest that they know very very little.
- Even if someone did know anything, 3rd parties like you or I can't distinguish the Real Truth from quackery.
- The root cause of this knowledge deficiency is the inability to run proper controlled experiments. Pretty much no theory about macro-economics is convincingly testable/falsifiable, except banal trivialities like we can't make everybody rich by sending everyone a $10M check. This will not change in our lifetime, if ever.
- All the writing on macro-economics is story-telling and catering to their specific audiences. Academics write foremost for other academics to gain a position at a prestigious faculty (and incidentally to influence politics). Crypto-bugs write to sell you crypto-coins. Fringe bloggers like Shadowstats write to get newsletter signups and ad-dollars. Most of them employ the effective mechanism that the reader is initiated to advanced/semi-hidden knowledge, which makes the reader feel better about themselves.
Given this, the answer to your question is: maybe, maybe not, who knows?
From my perspective, the truism of
> we can't make everybody rich by sending everyone a $10M check
isn't so self-evident. A lot of policy and draft legislation is just a watered-down version of this with more steps.
What if we...
- just send unemployed $23.4K check (CARES act $600/wk unemployment kicker)
- just send most people a $3.2K check (stimulus)
- just send everyone an average of $42K check (overall covid relief)
- just send those with unpaid student loans a $20K - $400K check (college debt cancellation idea)
- just send those with distressed mortgages an average of a $150K check (2008 mortgage crisis)
There are many more of these that seems to have no strategic value or incentivize the opposite behavior that we need at the time.
It's also probably a safe assumption that the money generally finds its way to the wrong people considering the $5T in billionaire wealth growth during the pandemic, or record executive bonuses during the mortgage crisis.
> we can't make everybody rich by sending everyone a $10M check
isn't so self-evident. A lot of policy and draft legislation is just a watered-down version of this with more steps.
What if we...
- just send unemployed $23.4K check (CARES act $600/wk unemployment kicker)
- just send most people a $3.2K check (stimulus)
- just send everyone an average of $42K check (overall covid relief)
- just send those with unpaid student loans a $20K - $400K check (college debt cancellation idea)
- just send those with distressed mortgages an average of a $150K check (2008 mortgage crisis)
There are many more of these that seems to have no strategic value or incentivize the opposite behavior that we need at the time.
It's also probably a safe assumption that the money generally finds its way to the wrong people considering the $5T in billionaire wealth growth during the pandemic, or record executive bonuses during the mortgage crisis.
> - The root cause of this knowledge deficiency is the inability to run proper controlled experiments.
There have been a number of experiments over the last few years. For example, tax cuts don't pay for themselves (or, in the most positive interpretation: we're on the left-hand side of the Laffer curve):
* https://en.wikipedia.org/wiki/Kansas_experiment
* https://www.npr.org/2019/12/20/789540931/2-years-later-trump...
Expansionary austerity was also tried and found not to work (as predicted by Keynesians):
* https://en.wikipedia.org/wiki/Expansionary_fiscal_contractio...
* https://www.theguardian.com/business/ng-interactive/2015/apr...
Then there's the whole anti-QE thing:
> We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.
* https://economics21.org/html/open-letter-ben-bernanke-287.ht...
Most economic ideas put forward by the political right seems to have been found not to work over the last decade.
There have been a number of experiments over the last few years. For example, tax cuts don't pay for themselves (or, in the most positive interpretation: we're on the left-hand side of the Laffer curve):
* https://en.wikipedia.org/wiki/Kansas_experiment
* https://www.npr.org/2019/12/20/789540931/2-years-later-trump...
Expansionary austerity was also tried and found not to work (as predicted by Keynesians):
* https://en.wikipedia.org/wiki/Expansionary_fiscal_contractio...
* https://www.theguardian.com/business/ng-interactive/2015/apr...
Then there's the whole anti-QE thing:
> We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.
* https://economics21.org/html/open-letter-ben-bernanke-287.ht...
Most economic ideas put forward by the political right seems to have been found not to work over the last decade.
> There have been a number of experiments over the last few years.
Neither laboratory experiments nor even ones with decent statistical controls for confounding factors, and rarely, on any large-scale policy, ones with more than single digit N (and quite often, that's true even in binary, much less decimal, notation.)
Neither laboratory experiments nor even ones with decent statistical controls for confounding factors, and rarely, on any large-scale policy, ones with more than single digit N (and quite often, that's true even in binary, much less decimal, notation.)
I've had a similar feeling about economists and their writings--that there's absolutely no way to glean "truth" or "fact" from them.
They always seem to have reasons upon reasons why their predictions didn't pan out, and it's never their fault. And yet they still seem to have authority?
But I always think I must be missing something because they're so often cited and discussed and employed and and and. I am a computer person, and did not study econ beyond intro-level micro.
In your mind, do macro-economists provide any actual value? If so, what is it?
They always seem to have reasons upon reasons why their predictions didn't pan out, and it's never their fault. And yet they still seem to have authority?
But I always think I must be missing something because they're so often cited and discussed and employed and and and. I am a computer person, and did not study econ beyond intro-level micro.
In your mind, do macro-economists provide any actual value? If so, what is it?
"Why Did Almost Nobody See Inflation Coming?" [https://tinyurl.com/marfwtsm]
> "Forecasting inflation is a staple of macroeconomic modeling, yet virtually all economists’ predictions for the United States in 2021 were way off the mark."
I recall reading this headline and laughing, because virtually everyone in the circles I associate with was warning very vocally about what would happen when it was announced in early 2020 that governments and central banks would be greatly increasing the money supply to pay for people to stay at home (and pay for "other" things), with no obvious sign of how productivity would be increasing. All signs were that productivity would also decrease (and it did), due to draconian lockdowns which prevented people from producing.
So why was the Austrian school exactly right about the inflation, and the Keynesians wrong again?
The reason is quite simple. Those who are the beneficiaries of new money have a motive to continue gaslighting you about the causes of price inflation.
> "Forecasting inflation is a staple of macroeconomic modeling, yet virtually all economists’ predictions for the United States in 2021 were way off the mark."
I recall reading this headline and laughing, because virtually everyone in the circles I associate with was warning very vocally about what would happen when it was announced in early 2020 that governments and central banks would be greatly increasing the money supply to pay for people to stay at home (and pay for "other" things), with no obvious sign of how productivity would be increasing. All signs were that productivity would also decrease (and it did), due to draconian lockdowns which prevented people from producing.
So why was the Austrian school exactly right about the inflation, and the Keynesians wrong again?
The reason is quite simple. Those who are the beneficiaries of new money have a motive to continue gaslighting you about the causes of price inflation.
Thank you. This should be understood by more.
[deleted]
My intuition says that it would lead to rising prices, as poorer consumers would increase their demand for goods and services. However, I think the rise in prices would only partially offset the increased utility for poor consumers.
My assumption is that the wealthy do not consume in proportion to their income -- so someone who makes 10x as much money as a poorer person likely only consumes, say, twice as much. Redistributing some money to the poor would not cause the wealthy person to decrease their demand for goods as much as it would make the poor person to increase their demand.
Everything that is consumed must first be produced. If you're not producing more, a rise in demand will mean a rise in prices until demand matches supply. I think the end result would be that prices would rise, but it would still be a good thing for the poorest citizens to have the ability to buy what they really need, and to have the flexibility to leave toxic work environments without immediately suffering huge consequences in terms of losing a place to live, etc. So while price inflation should be considered, it doesn't mean we should immediately throw out the idea of basic income.
And eventually supply of certain goods would probably increase a bit to match demand better, but it wouldn't completely cancel out the rise in prices.
My assumption is that the wealthy do not consume in proportion to their income -- so someone who makes 10x as much money as a poorer person likely only consumes, say, twice as much. Redistributing some money to the poor would not cause the wealthy person to decrease their demand for goods as much as it would make the poor person to increase their demand.
Everything that is consumed must first be produced. If you're not producing more, a rise in demand will mean a rise in prices until demand matches supply. I think the end result would be that prices would rise, but it would still be a good thing for the poorest citizens to have the ability to buy what they really need, and to have the flexibility to leave toxic work environments without immediately suffering huge consequences in terms of losing a place to live, etc. So while price inflation should be considered, it doesn't mean we should immediately throw out the idea of basic income.
And eventually supply of certain goods would probably increase a bit to match demand better, but it wouldn't completely cancel out the rise in prices.
>My assumption is that the wealthy do not consume in proportion to their income -- so someone who makes 10x as much money as a poorer person likely only consumes, say, twice as much.
The ratios of the fed at least some years ago was 2x the money you give end in the economy for poor people 1x media income and 0,5x this doesn't include tricycle ratio of the 100k car of Jeffrey (ratio car Cost over income)
The ratios of the fed at least some years ago was 2x the money you give end in the economy for poor people 1x media income and 0,5x this doesn't include tricycle ratio of the 100k car of Jeffrey (ratio car Cost over income)
In Canada during covid we deployed non-universal basic income. It was basic income but not everyone got it. This was not that unlike what the democrats did in the USA.
During a pandemic I would hope the government would help people through it. Was it the right call? I have the benefit of hindsight. https://tradingeconomics.com/canada/central-bank-balance-she...
We must now deal with the consequences.
https://tradingeconomics.com/canada/money-supply-m0
Paper money was increased 400%.
https://tradingeconomics.com/canada/government-debt
The government, who had already promised to balance the budget and reduce debt, increased it by historic record breaking amounts. The current prime minister increased debt by more than all previous PM combined. After spending that much money to buy votes. He called a snap election spending even more money expecting to get a majority government and he received weakest minority government in history. Technically even lost the election by popular vote.
So where's that inflation at? 5.7% and still climbing. It rose by over 10% in march.
https://tradingeconomics.com/canada/inflation-cpi
The government is tabling a budget today. I will literally die of laughter if universal basic income is included. I don't expect it will be, but there is a live bill to make it happen.
The budget today I eagerly await the opportunity to read. What do I expect? There's no doubt going to be some crypto regulation. If the budget is as bad as I expect... people will fly to crypto with their savings. They need to hinder that.
During a pandemic I would hope the government would help people through it. Was it the right call? I have the benefit of hindsight. https://tradingeconomics.com/canada/central-bank-balance-she...
We must now deal with the consequences.
https://tradingeconomics.com/canada/money-supply-m0
Paper money was increased 400%.
https://tradingeconomics.com/canada/government-debt
The government, who had already promised to balance the budget and reduce debt, increased it by historic record breaking amounts. The current prime minister increased debt by more than all previous PM combined. After spending that much money to buy votes. He called a snap election spending even more money expecting to get a majority government and he received weakest minority government in history. Technically even lost the election by popular vote.
So where's that inflation at? 5.7% and still climbing. It rose by over 10% in march.
https://tradingeconomics.com/canada/inflation-cpi
The government is tabling a budget today. I will literally die of laughter if universal basic income is included. I don't expect it will be, but there is a live bill to make it happen.
The budget today I eagerly await the opportunity to read. What do I expect? There's no doubt going to be some crypto regulation. If the budget is as bad as I expect... people will fly to crypto with their savings. They need to hinder that.
There's inflation everywhere in the western world, so pointing at a specific Canadian policy for the inflation there is logically flawed.
>There's inflation everywhere in the western world, so pointing at a specific Canadian policy for the inflation there is logically flawed.
There is inflation everywhere there was basic income. The USA: https://www.investopedia.com/government-stimulus-efforts-to-...
Switzerland is constitutionally obligated to balance their budget.
Where 77% of voters rejected basic income: https://www.bbc.com/news/world-europe-36454060
They went into some painful deflation during covid and is only at 2.4% inflation and their interest rate is -0.75%. I wish I were able to speak one of the official languages of Switzerland.
Just look at that beautiful 2.5% unemployment rate. If you want to say, 'oh they just have lots of people who are off welfare benefits and not participating in the labour market. 84% participation rate! 3rd best in the world. Switzerland is doing great.
How about Australia? They traditionally do a great job; In 2009 they had no government debt. They seem to have their inflation under control around 3.5% with just 0.1% interest rate?
https://tradingeconomics.com/australia/central-bank-balance-...
Ouch, they did move over to the pool of printing money.
They called it the 'Pandemic Leave Disaster Payment', just looked it up.
No wonder their inflation is a bit high. Seems they didn't do as much as Canada or USA.
There is inflation everywhere there was basic income. The USA: https://www.investopedia.com/government-stimulus-efforts-to-...
Switzerland is constitutionally obligated to balance their budget.
Where 77% of voters rejected basic income: https://www.bbc.com/news/world-europe-36454060
They went into some painful deflation during covid and is only at 2.4% inflation and their interest rate is -0.75%. I wish I were able to speak one of the official languages of Switzerland.
Just look at that beautiful 2.5% unemployment rate. If you want to say, 'oh they just have lots of people who are off welfare benefits and not participating in the labour market. 84% participation rate! 3rd best in the world. Switzerland is doing great.
How about Australia? They traditionally do a great job; In 2009 they had no government debt. They seem to have their inflation under control around 3.5% with just 0.1% interest rate?
https://tradingeconomics.com/australia/central-bank-balance-...
Ouch, they did move over to the pool of printing money.
They called it the 'Pandemic Leave Disaster Payment', just looked it up.
No wonder their inflation is a bit high. Seems they didn't do as much as Canada or USA.
Cherry picking a few countries is a good way to confirm your bias, but not a good one to make a good argument with.
Many places in Europe didn't have a “basic income” equivalent as part of their pandemic response (for instance, France's response has been exclusively targeted at companies, to avoid layoffs and bankruptcy), and it didn't prevent inflation ramping up here too.
Many places in Europe didn't have a “basic income” equivalent as part of their pandemic response (for instance, France's response has been exclusively targeted at companies, to avoid layoffs and bankruptcy), and it didn't prevent inflation ramping up here too.
>Cherry picking a few countries is a good way to confirm your bias, but not a good one to make a good argument with.
True, flipside I'm not writing a doctoral thesis over here.
>Many places in Europe didn't have a “basic income” equivalent as part of their pandemic response (for instance, France's response has been exclusively targeted at companies, to avoid layoffs and bankruptcy), and it didn't prevent inflation ramping up here too.
Lets take a look. France is one that I have been specifically following more about human rights and not economics. France was very interesting, amnesty international wrote up a good article on human right violations in france that have been increasingly problematic. I couldn't even tell you how many protests have been made illegal and crushed. That was before covid even hit.
So France is at 4.5% inflation and rising and 0% interest rate.
https://tradingeconomics.com/france/unemployment-rate
Wow very high unemployment rate. 26.5 corporate tax is dropping. 45% personal. 20% sales. So tax burden went from 98% to 91%. No wonder they are dropping a bit... you work for the government most of the year.
https://tradingeconomics.com/france/government-debt-to-gdp
Doesn't the EU demand this number be much lower?
https://tradingeconomics.com/france/money-supply-m3
They didnt print money any significant money.
But they did? https://tradingeconomics.com/france/central-bank-balance-she...
Where did a trillion euros go?
https://www.nytimes.com/2020/04/01/business/france-coronavir...
I cant find where that money went. I suspect France's inflation won't be bad and while it does appear not under control at the moment, it probably will level off soon.
If I were a journalist in France I would be looking for that trillion euros.
True, flipside I'm not writing a doctoral thesis over here.
>Many places in Europe didn't have a “basic income” equivalent as part of their pandemic response (for instance, France's response has been exclusively targeted at companies, to avoid layoffs and bankruptcy), and it didn't prevent inflation ramping up here too.
Lets take a look. France is one that I have been specifically following more about human rights and not economics. France was very interesting, amnesty international wrote up a good article on human right violations in france that have been increasingly problematic. I couldn't even tell you how many protests have been made illegal and crushed. That was before covid even hit.
So France is at 4.5% inflation and rising and 0% interest rate.
https://tradingeconomics.com/france/unemployment-rate
Wow very high unemployment rate. 26.5 corporate tax is dropping. 45% personal. 20% sales. So tax burden went from 98% to 91%. No wonder they are dropping a bit... you work for the government most of the year.
https://tradingeconomics.com/france/government-debt-to-gdp
Doesn't the EU demand this number be much lower?
https://tradingeconomics.com/france/money-supply-m3
They didnt print money any significant money.
But they did? https://tradingeconomics.com/france/central-bank-balance-she...
Where did a trillion euros go?
https://www.nytimes.com/2020/04/01/business/france-coronavir...
I cant find where that money went. I suspect France's inflation won't be bad and while it does appear not under control at the moment, it probably will level off soon.
If I were a journalist in France I would be looking for that trillion euros.
> France is one that I have been specifically following more about human rights and not economics. France was very interesting, amnesty international wrote up a good article on human right violations in France that have been increasingly problematic.
Yep, and I'm a bit baffled that international media talks really little about it. Macron looks a lot more like Erdoğan than to Bidden or Trudeau, but for some reason international media don't talk about him in that terms.
> I couldn't even tell you how many protests have been made illegal and crushed.
I was part of the third Yellow-vest Saturday protest, and the police reactions was a bit surreal. It got even nastier afterwards, as the government really decided to crack the protest down by police brutality (and mass arrests: up to 2000 in one day, such a figure sounds like Putin's Russia)
> So tax burden went from 98% to 91%. No wonder they are dropping a bit... you work for the government most of the year.
You've just completely misread the figures… 45% is the total “tax burden”, but even calling it “tax” is not right since the majority of it (25 of those 45%) are in fact payments for pensions and health insurance.
> https://tradingeconomics.com/france/money-supply-m3
> They didnt print money any significant money.
> But they did? https://tradingeconomics.com/france/central-bank-balance-she...
> Where did a trillion euros go?
> https://www.nytimes.com/2020/04/01/business/france-coronavir...
> I cant find where that money went. I suspect France's inflation won't be bad and while it does appear not under control at the moment, it probably will level off soon.
We know since the subprime crisis and the subsequent quantitative easing, that this doesn't cause inflation. Some people have been very vocal for years in the 2010 - 2015 era about how “while it does appear not under control at the moment, it probably will level off soon”. then they eventually became quiet because they where tired embarrassing themselves.
Money doesn't work the way you think it does, and inflation is never a monetary phenomenon no matter what uncle Friedman repeated.
Now we have a significant supply and demand issue at global scale and things like this drive price high, unless you're Switzerland and you've got FX rates going in your favor (almost 10% this year), which drive price down.
Covid also have had an unexpected effect on inflation: price increases are usually not reflected faithfully by CPI because of this thing called “hedonic adjustment”, but if you disrupt the regular product release, then you've got nothing to “adjust” against and CPI starts reflecting real price and not adjusted ones.
Yep, and I'm a bit baffled that international media talks really little about it. Macron looks a lot more like Erdoğan than to Bidden or Trudeau, but for some reason international media don't talk about him in that terms.
> I couldn't even tell you how many protests have been made illegal and crushed.
I was part of the third Yellow-vest Saturday protest, and the police reactions was a bit surreal. It got even nastier afterwards, as the government really decided to crack the protest down by police brutality (and mass arrests: up to 2000 in one day, such a figure sounds like Putin's Russia)
> So tax burden went from 98% to 91%. No wonder they are dropping a bit... you work for the government most of the year.
You've just completely misread the figures… 45% is the total “tax burden”, but even calling it “tax” is not right since the majority of it (25 of those 45%) are in fact payments for pensions and health insurance.
> https://tradingeconomics.com/france/money-supply-m3
> They didnt print money any significant money.
> But they did? https://tradingeconomics.com/france/central-bank-balance-she...
> Where did a trillion euros go?
> https://www.nytimes.com/2020/04/01/business/france-coronavir...
> I cant find where that money went. I suspect France's inflation won't be bad and while it does appear not under control at the moment, it probably will level off soon.
We know since the subprime crisis and the subsequent quantitative easing, that this doesn't cause inflation. Some people have been very vocal for years in the 2010 - 2015 era about how “while it does appear not under control at the moment, it probably will level off soon”. then they eventually became quiet because they where tired embarrassing themselves.
Money doesn't work the way you think it does, and inflation is never a monetary phenomenon no matter what uncle Friedman repeated.
Now we have a significant supply and demand issue at global scale and things like this drive price high, unless you're Switzerland and you've got FX rates going in your favor (almost 10% this year), which drive price down.
Covid also have had an unexpected effect on inflation: price increases are usually not reflected faithfully by CPI because of this thing called “hedonic adjustment”, but if you disrupt the regular product release, then you've got nothing to “adjust” against and CPI starts reflecting real price and not adjusted ones.
Not exactly. Most western economies followed similar policies which increased inflation in their local economies. The part you're missing is that these economies are all linked through both trade and competition over resources.
We've learned that deficits are inflationary. We already knew that.
It didn't tell us anything about a UBI in a balanced budget.
It didn't tell us anything about a UBI in a balanced budget.
>So where's that inflation at? 5.7% and still climbing. It rose by over 10% in march.
No, it rose "by over 10%" year over year in march. It didn't rise 10% "in march", which suggest a 10% growth in the span of a month.
No, it rose "by over 10%" year over year in march. It didn't rise 10% "in march", which suggest a 10% growth in the span of a month.
Universal basic income will be that much worse compared to this non-universal basic income.
That's called welfare.
It depends on what you believe about how prices are set. Many opponents of UBI claim that a UBI will cause inflation and reduce the value of money because the supply increased. Proponents reject this, pointing to MMT and the concept of fiat currency. The truth is probably in between - opportunists and highly sought-after items will raise prices to offset UBI gains, while most commodities should be relatively unaffected. There will definitely be more opportunity for tiered services so that rich types can avoid UBI peasants sharing their activities.
The 'how' both can be true is by increasing the supply and fuzzing around with the economic 'utility' of goods.
Sure, today's goods and services are extremely mobile - economically viable cross country shipping is basically the norm. This enables your butcher, baker and brewer to be thousands of miles away. By increasing this supply radius, the total number of goods drastically increase, decreasing the price.
A question becomes when do we 'use up' the cost savings of technology and transportation efficiencies through inflationary practices. I'd argue we just ran the greatest real world experiment with Covid, but do not even begin to have a gauge on this metric -- which would allow one to thoughtfully apply 'fiat practices'
But lurking in the background is the 'utility' of the goods and services we use. Many times my well respected economist professor would say that Great Value Butter is as economically equal as any other in terms of sustenance -- which pains me. In a simple function, sautéing vegetables - there's a marked quality difference between GV and 'higher priced' brands, but I'm forced to reckon that, yes, there is buttery flavor in a dish with vegetables, so at base... they are equal.
This is just a long winded way to say that people who have a diverse set of preferences will find inflation to be very real - while those who can live starkly monotone in their utility will have their inflation padded by economically efficient institutions fuzzing and redefining 'unnoticed properties' of goods and services.
Sure, today's goods and services are extremely mobile - economically viable cross country shipping is basically the norm. This enables your butcher, baker and brewer to be thousands of miles away. By increasing this supply radius, the total number of goods drastically increase, decreasing the price.
A question becomes when do we 'use up' the cost savings of technology and transportation efficiencies through inflationary practices. I'd argue we just ran the greatest real world experiment with Covid, but do not even begin to have a gauge on this metric -- which would allow one to thoughtfully apply 'fiat practices'
But lurking in the background is the 'utility' of the goods and services we use. Many times my well respected economist professor would say that Great Value Butter is as economically equal as any other in terms of sustenance -- which pains me. In a simple function, sautéing vegetables - there's a marked quality difference between GV and 'higher priced' brands, but I'm forced to reckon that, yes, there is buttery flavor in a dish with vegetables, so at base... they are equal.
This is just a long winded way to say that people who have a diverse set of preferences will find inflation to be very real - while those who can live starkly monotone in their utility will have their inflation padded by economically efficient institutions fuzzing and redefining 'unnoticed properties' of goods and services.
> Many opponents of UBI claim that a UBI will cause inflation and reduce the value of money because the supply increased.
So do sane proponents, the disagreement is over whether that inflation necessary negates the gains from transfers on the lower end or not.
> Proponents reject this, pointing to MMT and the concept of fiat currency.
MMT says that government spending causes inflation (and taxes causes deflation) and, moreover, that those monetary concerns, and not fiscal concerns like a need for artificial balance between revenues + debt and spending when currency is a government creation, is the only real constraint on government taxing and spending policy.
MMT is not a basis for rejecting inflation concerns about UBI; it’s a basis for rejecting deficit-based concerns.
So do sane proponents, the disagreement is over whether that inflation necessary negates the gains from transfers on the lower end or not.
> Proponents reject this, pointing to MMT and the concept of fiat currency.
MMT says that government spending causes inflation (and taxes causes deflation) and, moreover, that those monetary concerns, and not fiscal concerns like a need for artificial balance between revenues + debt and spending when currency is a government creation, is the only real constraint on government taxing and spending policy.
MMT is not a basis for rejecting inflation concerns about UBI; it’s a basis for rejecting deficit-based concerns.
>Many opponents of UBI claim that a UBI will cause inflation and reduce the value of money because the supply increased. Proponents reject this, pointing to MMT and the concept of fiat currency.
To be clear, MMT doesn't say you can print money and hand it out without causing inflation. It only says that if the money printing is offset somehow (eg. taxes), there won't be inflation.
To be clear, MMT doesn't say you can print money and hand it out without causing inflation. It only says that if the money printing is offset somehow (eg. taxes), there won't be inflation.
Most 'serious' UBI implementations I've read about have a mechanism for clawing back some to all of UBI from higher earners via raised income tax on those people. I guess that is what is being hinted at.
Humans will always find ways to game a system and buy those that could control their lives in ways they dont want their life controlled.
Now a universal basic income is like a tax rebate without having to do any work in the first place. If one is introduced, taxes will go up, inflation will go up and society might or might not become more cohesive. It really depends on how the media decide to manipulate society.
Now a universal basic income is like a tax rebate without having to do any work in the first place. If one is introduced, taxes will go up, inflation will go up and society might or might not become more cohesive. It really depends on how the media decide to manipulate society.
It depends on how the UBI is financed. If it is financed through debt or simply printing new money and increasing the amount in circulation then yes, it absolutely will increase inflation. This applies to more than just a UBI though and the reason some point to the stimulus is because it was paid through debt.
If there were no deficit and this UBI is paid through taxes or other direct revenue then there will likely be some inflationary forces but they should stabilize as the markets adjust. What we do instead of letting the markets stabilize is constantly increase the amount of money available so that the stabilization we're chasing is a moving target based on an increasingly more available, and less valuable, dollar.
If there were no deficit and this UBI is paid through taxes or other direct revenue then there will likely be some inflationary forces but they should stabilize as the markets adjust. What we do instead of letting the markets stabilize is constantly increase the amount of money available so that the stabilization we're chasing is a moving target based on an increasingly more available, and less valuable, dollar.
If UBI is setup as more of a survival supplement than an amount of money desireable to live on entirely, then no.
It also has to offset benefits received from other programs like welfare, unemployment to help cover the cost.
IMO $700 / month is about the right number where it helps with basic needs and dry spells but isn’t so much that you’re incentivized to withdraw from the job market entirely.
At the same time, minimum wage can go away entirely if UBI is in place since the UBI doesn’t go away like unemployment the moment you have a paycheck. You work to earn more, not trade income sources.
It also has to offset benefits received from other programs like welfare, unemployment to help cover the cost.
IMO $700 / month is about the right number where it helps with basic needs and dry spells but isn’t so much that you’re incentivized to withdraw from the job market entirely.
At the same time, minimum wage can go away entirely if UBI is in place since the UBI doesn’t go away like unemployment the moment you have a paycheck. You work to earn more, not trade income sources.
None of that has anything to do with UBI and inflation. Even if you put "only" $700 more dollars in the hands of people then you increase the demand on the market by $700 per person. This will always have some inflationary force. It doesn't matter whether they buy TV's or bread.
The real question is where does the money come from. If it is permanent and comes in lieu of existing spending from money already in circulation then the inflation should be minimal. If this is new money thrown into the money supply then we'll see significant inflation from it.
The real question is where does the money come from. If it is permanent and comes in lieu of existing spending from money already in circulation then the inflation should be minimal. If this is new money thrown into the money supply then we'll see significant inflation from it.
As I understand it, basically if it is financed by taxes, or even non-FRS backed debt then probably no. This is simply redistribution of goods, so total number of goods stays unchanged.
If we issue more money, it could lead to inflation, but not necessary. This is unrelated to if we spend it on UBI or not.
If we issue more money, it could lead to inflation, but not necessary. This is unrelated to if we spend it on UBI or not.
There are two parts to this, the increase in the money supply which devalues it and the increase in demand from a significant number of people having more money to spend in the market. If we eliminate the increases in the money supply then the increase in demand will still apply an inflationary force. Without increases in the total money supply though those forces should stabilize to match the new higher demand.
The problem is that we never eliminate the increase in the money supply and finance an incredible amount of spending through debt.
The problem is that we never eliminate the increase in the money supply and finance an incredible amount of spending through debt.
There is a distinction between "price inflation" and "inflation". Even the Federal Reserve allows for this distinction.
>A historical look at the origin and uses of the word inflation, arguing that although the term has become nearly synonymous with "price increase," its original meaning—a rise in the general price level caused by an imbalance between the quantity of money and trade needs—is the definition driving many of those who advocate an anti-inflation policy for the Federal Reserve.
https://www.clevelandfed.org/en/newsroom-and-events/publicat...
That said, even if the actual supply of money (literally inflation) is not increased, if there is more money available for spending by lower income individuals, it stands to reason that price inflation would follow in the sectors of the economy which they participate.
>A historical look at the origin and uses of the word inflation, arguing that although the term has become nearly synonymous with "price increase," its original meaning—a rise in the general price level caused by an imbalance between the quantity of money and trade needs—is the definition driving many of those who advocate an anti-inflation policy for the Federal Reserve.
https://www.clevelandfed.org/en/newsroom-and-events/publicat...
That said, even if the actual supply of money (literally inflation) is not increased, if there is more money available for spending by lower income individuals, it stands to reason that price inflation would follow in the sectors of the economy which they participate.
If we print money to fund it, yes. If we fund with taxes without printing money, then no.
This answer seems to treat inflation as "the cost of everything". If, rather, we focus only on the items that are needed to survive (food, shelter, etc), I think the answer changes.
The taxes to pay for the UBI will generally come from the middle and higher income households; who are already spending the money they need to on those items. Losing some of their money to taxes won't do much to reduce the amount they spend on those.
However, the lower income segment, where UBI will have a much higher impact, will start spending a lot more on these items. Because, in theory, they were not spending as much as they would want to on them previously (bad housing, cheap food, etc.. could be improved).
As such, the demand for those "survival" items could increase a fair amount, causing the prices for them to increase. If you consider this inflation (which I would, since it's a rise in prices for things that matter), then there would likely be inflation.
The taxes to pay for the UBI will generally come from the middle and higher income households; who are already spending the money they need to on those items. Losing some of their money to taxes won't do much to reduce the amount they spend on those.
However, the lower income segment, where UBI will have a much higher impact, will start spending a lot more on these items. Because, in theory, they were not spending as much as they would want to on them previously (bad housing, cheap food, etc.. could be improved).
As such, the demand for those "survival" items could increase a fair amount, causing the prices for them to increase. If you consider this inflation (which I would, since it's a rise in prices for things that matter), then there would likely be inflation.
This is exactly why a UBI funded through a Land Value Tax is such a good idea. A land value tax taxes the land such that the market cost of the home is equal to the cost to build the housing on top of the unit.
The land tax will put the land to best use, and that will drive up the supply of housing units, which means the cost to rent will go down. All of this while the average person sees lower tax rates and the person who sits on an empty lot sees much higher tax rates. The money available to collect from NYC and SF land taxes alone could fund a nation-wide UBI.
The land tax will put the land to best use, and that will drive up the supply of housing units, which means the cost to rent will go down. All of this while the average person sees lower tax rates and the person who sits on an empty lot sees much higher tax rates. The money available to collect from NYC and SF land taxes alone could fund a nation-wide UBI.
> A land value tax taxes the land such that the market cost of the home is equal to the cost to build the housing on top of the unit.
To do that, an LVT would have to be calibrated so that it was enough to bring the market price of unimproved land to zero, plus (or minus, in certain market conditions) an additional amount needed compensate for dynamic supply and demand effects (lots of people wanting to move in plus building lag driving prices up above expected long-term equilibrium, lots of people moving out doing the opposite.)
> The land tax will put the land to best use,
Perhaps, but if so...
> and that will drive up the supply of housing units
...then not if housing units aren't the most profitable use of land in the local area it won't.
> All of this while the average person sees lower tax rates
Confiscatory (and the level of LVT you suggest is exactly that) taxes on land don't reduce tax rates for the average person in a country with a nearly 65% pre-policy homeownership rate.
> The money available to collect from NYC and SF land taxes alone could fund a nation-wide UBI.
No, even if that were true pre-policy it couldn't after you enacted it, because you are ignoring dynamic effects. Confiscatory taxation on land will catastrophically drive down land value.
To do that, an LVT would have to be calibrated so that it was enough to bring the market price of unimproved land to zero, plus (or minus, in certain market conditions) an additional amount needed compensate for dynamic supply and demand effects (lots of people wanting to move in plus building lag driving prices up above expected long-term equilibrium, lots of people moving out doing the opposite.)
> The land tax will put the land to best use,
Perhaps, but if so...
> and that will drive up the supply of housing units
...then not if housing units aren't the most profitable use of land in the local area it won't.
> All of this while the average person sees lower tax rates
Confiscatory (and the level of LVT you suggest is exactly that) taxes on land don't reduce tax rates for the average person in a country with a nearly 65% pre-policy homeownership rate.
> The money available to collect from NYC and SF land taxes alone could fund a nation-wide UBI.
No, even if that were true pre-policy it couldn't after you enacted it, because you are ignoring dynamic effects. Confiscatory taxation on land will catastrophically drive down land value.
> unimproved land to zero
Yep!
> dynamic supply and demand effects
Yep!
> ...then not if housing units aren't the most profitable use of land in the local area it won't.
Agree. But they almost always are.
> Confiscatory
Housing can either be an investment or it can be affordable long-term, it can not be both. Therefore the Land Value Tax is the only correct rate. And a UBI for at least a decent portion of it nullifies any potential regressive nature of it.
> don't reduce tax rates for the average person
It does, over time, as housing supply improves and the entire economy gets out of the mud. The wealthy own the most expensive land.
> catastrophically drive down land value
The tax is based on the rental value of the land, that is, the flow. You could see it as the neutralization of the capture of the positive externalities of your neighbors.
As in your first example where an empty lot will settle at $0 market price, that would not mean it has a $0 tax. It would still have whatever tax it would have. You determine that tax based on market rates, and it is a set cost based on that particular property - it's not some percentage of the market rates as we do today.
I agree that in the short-term, with most people having most of their networth in their home, this would be a bad thing. We can transition to this process slowly, and only increase as the incentives improve the economy and allow us to improve. The best way to start is to have a net zero change where we remove taxes on improvements and instead to tax the land.
Making better use of the city land would in fact drive the overall land flow value up hugely in value. SF has much more room to improve than NYC, NYC makes pretty good use of it's land. But so can CT and NJ, and the rise in supply of non-NYC land outside of NYC will drive more value into NYC.
Yep!
> dynamic supply and demand effects
Yep!
> ...then not if housing units aren't the most profitable use of land in the local area it won't.
Agree. But they almost always are.
> Confiscatory
Housing can either be an investment or it can be affordable long-term, it can not be both. Therefore the Land Value Tax is the only correct rate. And a UBI for at least a decent portion of it nullifies any potential regressive nature of it.
> don't reduce tax rates for the average person
It does, over time, as housing supply improves and the entire economy gets out of the mud. The wealthy own the most expensive land.
> catastrophically drive down land value
The tax is based on the rental value of the land, that is, the flow. You could see it as the neutralization of the capture of the positive externalities of your neighbors.
As in your first example where an empty lot will settle at $0 market price, that would not mean it has a $0 tax. It would still have whatever tax it would have. You determine that tax based on market rates, and it is a set cost based on that particular property - it's not some percentage of the market rates as we do today.
I agree that in the short-term, with most people having most of their networth in their home, this would be a bad thing. We can transition to this process slowly, and only increase as the incentives improve the economy and allow us to improve. The best way to start is to have a net zero change where we remove taxes on improvements and instead to tax the land.
Making better use of the city land would in fact drive the overall land flow value up hugely in value. SF has much more room to improve than NYC, NYC makes pretty good use of it's land. But so can CT and NJ, and the rise in supply of non-NYC land outside of NYC will drive more value into NYC.
> Housing can either be an investment or it can be affordable long-term, it can not be both.
While this is one of the most often cut&pasted comments on HN, I haven't seen a thorough discussion of what it actually means in practice.
Any references with substantial analysis of proposals to achieve this and what the unintended consequences could be?
You seem to advocating for an immense increase in property taxes. This line from the previous comment:
> The money available to collect from NYC and SF land taxes alone could fund a nation-wide UBI.
suggests that the increase in taxes would be quite enourmous indeed.
That would certainly make housing a bad investment. Nobody would want to own any if the recurring property taxes are that high.
But of course it doesn't make property affordable either, if the tax rates are sky high.
While this is one of the most often cut&pasted comments on HN, I haven't seen a thorough discussion of what it actually means in practice.
Any references with substantial analysis of proposals to achieve this and what the unintended consequences could be?
You seem to advocating for an immense increase in property taxes. This line from the previous comment:
> The money available to collect from NYC and SF land taxes alone could fund a nation-wide UBI.
suggests that the increase in taxes would be quite enourmous indeed.
That would certainly make housing a bad investment. Nobody would want to own any if the recurring property taxes are that high.
But of course it doesn't make property affordable either, if the tax rates are sky high.
Pennsylvania has a few cities that have implemented a partial LVT. Here's[0] a Strong Towns article on the topic. They show exactly what I mentioned earlier - overall taxes are up, most peoples taxes are down. Business is booming. It's not Silicon Valley, but they are doing better than the cities around them that do not have the LVT.
The best introductions are Lars excellent book and blog articles[1] over on Scott Alexander's blog.
> Nobody would want to own any if the recurring property taxes are that high. But of course it doesn't make property affordable either, if the tax rates are sky high.
The tax rates are set by the market, so they are by definition affordable. You are taxed on the land alone, what capital you put on top of it is entirely yours to earn.
[0]: https://www.strongtowns.org/journal/2019/3/6/non-glamorous-g...
[1]: https://astralcodexten.substack.com/p/does-georgism-work-is-...
The best introductions are Lars excellent book and blog articles[1] over on Scott Alexander's blog.
> Nobody would want to own any if the recurring property taxes are that high. But of course it doesn't make property affordable either, if the tax rates are sky high.
The tax rates are set by the market, so they are by definition affordable. You are taxed on the land alone, what capital you put on top of it is entirely yours to earn.
[0]: https://www.strongtowns.org/journal/2019/3/6/non-glamorous-g...
[1]: https://astralcodexten.substack.com/p/does-georgism-work-is-...
Was about to comment exactly this. The question makes no sense, whether or not inflation happens has nothing to do with universal basic income itself, it's a question of where the money comes from.
The question is fine and it makes sense. The issue is that it’s a mistake to ignore reality around it. For example, death penalty proponents tend to ignore the financial cost, which is being increased due to litigation from opponents of the death penalty. They can’t wish away anti-death penalty lawyers doing pro-bono work, or pretend that they don’t exist. In a similar fashion, UBI proponents will ignore the likelihood that the government will likely fund the program by printing more money. The other reality being ignored is that the supply and availability of goods doesn’t change. What happens with more demand for those goods? Prices rise.
It might not be that simple. Even if UBI is funded by taxes, UBI would be a wealth redistribution, increasing money on the lower end, generally pushing up demand for goods and services that fulfill basic needs, and lowering the money on the top-end, which is spent differently, like on luxury goods, put on the sideline as savings, or spent chasing assets. This redistribution may cause inflation too, even though the overall money supply is not increased.
It's a bizarre thought that the only way for society not to spiral into inflation requires that the poor not be able to purchase the good and service that fulfill their basic needs. Not just be handed the money through UBI as that would cause inflation, but even gain it through jobs - either way it would increase those basic need demands.
There are always two halves to this, the demand and the value of the money.
Demand steadily increases over time, a UBI would cause a spike in that demand so there would be inflation at a higher rate while the market stabilizes. Without an increase in the rate the money is devalued this inflation should stabilize. The problems come when we devalue our money at the same time we're increasing demand causing changes at a rate faster than the markets can compensate.
UBI is a shotgun approach and a political tactic rather than a real plan for helping those who need it. A negative income tax and other options that target this help where it's needed would be better options. either way though the trick is to get money where its needed without increasing debt or the money supply while doing so at a rate that doesn't shock the system.
Demand steadily increases over time, a UBI would cause a spike in that demand so there would be inflation at a higher rate while the market stabilizes. Without an increase in the rate the money is devalued this inflation should stabilize. The problems come when we devalue our money at the same time we're increasing demand causing changes at a rate faster than the markets can compensate.
UBI is a shotgun approach and a political tactic rather than a real plan for helping those who need it. A negative income tax and other options that target this help where it's needed would be better options. either way though the trick is to get money where its needed without increasing debt or the money supply while doing so at a rate that doesn't shock the system.
If we are talking about an idealized world with spherical consumers and a single product, then yes. However inflation is a scalar measure of the development of the prices given some basket of goods. An UBI will change what stuff people buy hugely. The economy will need to shift around a lot to accomodate that. Any use of a "steady-state" model is really inappropriate and you can't draw any conclusion from that.
If we print money to fund it, yes. If we fund with taxes without printing money, then yes, but by less. FTFY
No matter what you do here you're increasing the demand for goods. Without an increase in the total money supply that would stabilize but there would still be some inflation because of it.
No matter what you do here you're increasing the demand for goods. Without an increase in the total money supply that would stabilize but there would still be some inflation because of it.
$1 per month no. But if we give everyone money for housing gas etc, similar way we gave everyone money for student loans, then yes.
No, unless the implementation is completely braindead.
UBI well done would be essentially just transfer and removal/reduction of means testing and lowering effective marginal tax rates for low income people. It would replace many social security benefits at the lower end and it would be taxed away from the higher end.
In Finland we have had UBI proposals that are completely budget neutral.
ps. Increasing money supply (monetary policy) is different subject from fiscal policy (government spending and tax policies). You can increase government spending without increasing money supply.
UBI well done would be essentially just transfer and removal/reduction of means testing and lowering effective marginal tax rates for low income people. It would replace many social security benefits at the lower end and it would be taxed away from the higher end.
In Finland we have had UBI proposals that are completely budget neutral.
ps. Increasing money supply (monetary policy) is different subject from fiscal policy (government spending and tax policies). You can increase government spending without increasing money supply.
Depends on implementation and what your definition of inflation means. If inflation means increase of money supply (printing and giving) and UBI uses that mechanism than Yes, I think inflation goes up. If UBI is implemented by a Tax than giving, then No because it is not an increase in the money supply. This does not mean prices will not fluctuate. Its a complex system after all and the altering flows will affect it.
If I save a dollar and tomorrow you print 10 more dollars out of thin air is my dollar worth the same amount?
If I save a dollar and tomorrow you print 10 more dollars out of thin air is my dollar worth the same amount?
The problem is with taxes not all prices are equal. if the price of wheat doubles but the price of all the sports teams go down in prices by an equal amount. I wouldn't count as inflation but it sure would suck.
> Would a universal basic income lead to inflation?
Immediately adopting a non-trivial UBI, alongside any reasonable deficit-neutral funding stream, with no other accompanying policy changes, would be a transfer of net income from those currently reviewing more to those currently receiving less; it would lead to some inflation in things with greater proportional demand among the net beneficiaries and some deflation among things in greater demand among those seeing lower income after taxes and transfers as a direct result of the policy before considering any effect the change in spending patterns had on domestic velocity of money. As it would probably also slightly increase domestic velocity (increasing after taxes and transfers income across the board), one would probably expect some additional overall inflation on top of the inflation/deflation from demand shifts.
The question of whether it would lead to levels of inflation, overall or in any subsector, large enough to make it a net undesirable policy is hard to answer because:
(1) it involves subjective questions of priorities,
(2) except under the most extreme sets of priorities, it involves complex factual questions whose actual answers are very different for different formulations of the exact UBI and funding policy, and where the actual answers even given the precise policy inputs, even assuming we could isolate all other future situation changes that confound the issue, are very uncertain given the very large degree of uncertainty in predictive economic models (modern economics has some fair ideas of the direction of first order effects of some changes, and seems to in some areas provide generally useful quantitative guidance on small variations well within the historical range of experience, but beyond that... there are very good reasons to gently phase in new policies, continuously assess, and be prepared to alter course.)
Immediately adopting a non-trivial UBI, alongside any reasonable deficit-neutral funding stream, with no other accompanying policy changes, would be a transfer of net income from those currently reviewing more to those currently receiving less; it would lead to some inflation in things with greater proportional demand among the net beneficiaries and some deflation among things in greater demand among those seeing lower income after taxes and transfers as a direct result of the policy before considering any effect the change in spending patterns had on domestic velocity of money. As it would probably also slightly increase domestic velocity (increasing after taxes and transfers income across the board), one would probably expect some additional overall inflation on top of the inflation/deflation from demand shifts.
The question of whether it would lead to levels of inflation, overall or in any subsector, large enough to make it a net undesirable policy is hard to answer because:
(1) it involves subjective questions of priorities,
(2) except under the most extreme sets of priorities, it involves complex factual questions whose actual answers are very different for different formulations of the exact UBI and funding policy, and where the actual answers even given the precise policy inputs, even assuming we could isolate all other future situation changes that confound the issue, are very uncertain given the very large degree of uncertainty in predictive economic models (modern economics has some fair ideas of the direction of first order effects of some changes, and seems to in some areas provide generally useful quantitative guidance on small variations well within the historical range of experience, but beyond that... there are very good reasons to gently phase in new policies, continuously assess, and be prepared to alter course.)
Fundamentally, cash is about redistributing work. I do some work, get cash, and swap it for the fruit of some other labour. If I inherit cash, I swap someone else’s work for mine. It’s not a perfect analogy, eg what if I get lucky and find a treasure, but I guess at a global scale this is what happens.
The question would thus be, if people get basic income, what happens to the total amount of work done? Would 1/3rd of the society stop working, or work less? Fruit of labour like food or entertainment would become more scarce and thus more valuable in cash terms, ie inflation would go up.
Or would BI enable people to be more creative, productive etc and actually we would become more productive as a society? Leading to deflation in fact.
I’d imagine more the former but what do I know. Certainly that scenario I find quite scary: creating a large group of people who are unproductive, depending on BI for sustenance then facing inflation, wiping out their now-only source of sustenance.
The question would thus be, if people get basic income, what happens to the total amount of work done? Would 1/3rd of the society stop working, or work less? Fruit of labour like food or entertainment would become more scarce and thus more valuable in cash terms, ie inflation would go up.
Or would BI enable people to be more creative, productive etc and actually we would become more productive as a society? Leading to deflation in fact.
I’d imagine more the former but what do I know. Certainly that scenario I find quite scary: creating a large group of people who are unproductive, depending on BI for sustenance then facing inflation, wiping out their now-only source of sustenance.
One of the arguments I’ve heard is that if you give $1,000 to everyone who has zero dollars, you’ve just raised the value of zero.
That's not an argument. At best it's reductio ad absurdum, but where's the argument? It wouldn't change the value of zero, because even if it devalued the dollar heavily everyone still has something.
There's no attempt in that argument to say why it would change the "value of zero".
There's no attempt in that argument to say why it would change the "value of zero".
> It wouldn't change the value of zero, because even if it devalued the dollar heavily everyone still has something.
Yes, the value of some ink and paper.
Yes, the value of some ink and paper.
Essentially if everyone had $1000 extra then everything would cost $1000 extra. So if you went from 0 to $1000, you'd just be left with $1000 and nothing to spend it on. You can't eat money.
There is no argument here -- why would everything cost $1000 extra?
You just said "then". Where is the argument?
So if I earn $500 now, and buy 500 lollipops at $1 each.
If everyone gets $1000 as UBI, then those 500 lollipops will cost ... $1001 each and $501000 in total?
Isn't that absurd?
That is what the sentence "everything will cost $1000 extra" means, and the only way "raising the value of zero" makes mathematical sense.
What is probably meant here -- that the sum of what you buy will be $1000 more in total -- is accurarely captured by the term "inflation" in the OP.
But then the statement "raise value of zero" does not make sense.
You just said "then". Where is the argument?
So if I earn $500 now, and buy 500 lollipops at $1 each.
If everyone gets $1000 as UBI, then those 500 lollipops will cost ... $1001 each and $501000 in total?
Isn't that absurd?
That is what the sentence "everything will cost $1000 extra" means, and the only way "raising the value of zero" makes mathematical sense.
What is probably meant here -- that the sum of what you buy will be $1000 more in total -- is accurarely captured by the term "inflation" in the OP.
But then the statement "raise value of zero" does not make sense.
> 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.
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.
But everyone won't immediately demand $1000 more food or housing. Sure I'd buy 1000 slim jims the minute I got the check, but other people may find that ridiculous. Many people will save it, or spend it on something else. Everyone who has their cost of living already accounted for won't participate in this.
"..you misunderstand..."
Hey, I even quoted the interpretation you explain to me here further down in the post I wrote.
What I was arguing about was whether the specific phrase "change the value of zero" makes sense to describe inflation.
Hey, I even quoted the interpretation you explain to me here further down in the post I wrote.
What I was arguing about was whether the specific phrase "change the value of zero" makes sense to describe inflation.
The only way that this will work is if companies reduce their margins making companies less profitable, reducing wealth inequality. That is never going to happen.
You are conflating "giving everyone $1000 of currency" with "giving everyone $1000 worth of value"
The first one just requires changing some digits in a bank account. The second requires an enormous amount of positive work by the whole of society to generate that much value.
The first one just requires changing some digits in a bank account. The second requires an enormous amount of positive work by the whole of society to generate that much value.
The question is where did you get the $1,000 from. If you print money to build a bridge then you can argue that building a bridge caused inflation, but it wasn’t the bridge that was at fault.
Random thought, what if that $1000 UBI was instead a percentage of something else? I'm not sure what though. The GDP Deflator? Total stock market cap? Something to keep it on a level playing field with everything else.
But its not the position of zero, its the derivative.
The car analogy would be something like
"If you raise the speed limit by 1 mph, you've just moved everyone's houses exactly one mile."
The car analogy would be something like
"If you raise the speed limit by 1 mph, you've just moved everyone's houses exactly one mile."
It will increase the cost of labor (that is, hourly wages, salaries). In other words, UBI sets a floor to wages. As one transitions from non-UBI regime to that of UBI, in this transitory period cost-push inflation occurs due to the increase in the cost of wages; and this is the first order effect.
Second order effects: upper class (not super wealthy) owns rental properties, and jack up the rents in order to suck out whatever wage increases due to the UBI floor. This vicious cycle will continue.
UBI is good, if healthcare and housing don't steal whatever wage increase one sees. UBI can be implemented in the developed countries, whose currencies (nominal assets) are swapped with real goods (raw materials, commodities). A country like US, UK, EU, Japan can run UBI; however, India, South Africa, etc can't run such schemes due to the balance of payments constraints, despite whatever MMT folks sell.
Second order effects: upper class (not super wealthy) owns rental properties, and jack up the rents in order to suck out whatever wage increases due to the UBI floor. This vicious cycle will continue.
UBI is good, if healthcare and housing don't steal whatever wage increase one sees. UBI can be implemented in the developed countries, whose currencies (nominal assets) are swapped with real goods (raw materials, commodities). A country like US, UK, EU, Japan can run UBI; however, India, South Africa, etc can't run such schemes due to the balance of payments constraints, despite whatever MMT folks sell.
A land value tax that is set based on basic income needs actually would curb land-owners from raising rents.
If they're taxed based on say average rents, if that goes up their taxes goes up as much as the difference and it goes down and gives them a bonus drop-off IF they are below averages, then I think it could even out more.
LVT's a great way to fund UBI, many great articles on it.
If they're taxed based on say average rents, if that goes up their taxes goes up as much as the difference and it goes down and gives them a bonus drop-off IF they are below averages, then I think it could even out more.
LVT's a great way to fund UBI, many great articles on it.
The issue is: whether the policy of LVT funding GBI has political support in legislative bodies? I don’t think so since the majority of legislators come from upper classes.
Tying taxes to average rents seems like it will cause a Prisoners' Dilemma that will send rent skyrocketing.
How would it be implemented?
If you gave everyone $1k a month by printing more money, then that creates a different scenario that giving everyone $1k a month that's fully funded by taxes.
A UBI that replaces existing benefits which attempts to provide more to people by reducing the administrative costs of providing benefits and which looks to remove any benefit traps will be quite different than UBI that is only added on top of existing benefits.
Without these details I don't think we can give a concrete answer to the question.
If you gave everyone $1k a month by printing more money, then that creates a different scenario that giving everyone $1k a month that's fully funded by taxes.
A UBI that replaces existing benefits which attempts to provide more to people by reducing the administrative costs of providing benefits and which looks to remove any benefit traps will be quite different than UBI that is only added on top of existing benefits.
Without these details I don't think we can give a concrete answer to the question.
imo, yes - the easier you make it for people to live 'ok', without working, the more a certain percentage of people will simply choose not to work - like it or not, we need people making entry-level wages to work, to fill jobs that need to be filled.
If less people are willing to take those entry level jobs, the more those companies need to pay people to entice someone to do that job - so they inevitably need to raise prices to cover those higher costs.
If less people are willing to take those entry level jobs, the more those companies need to pay people to entice someone to do that job - so they inevitably need to raise prices to cover those higher costs.
Would everyone getting a paying job lead to inflation?
And if it would, would that mean that we should rig the system in a way that it can never happen?
And if it would, would that mean that we should rig the system in a way that it can never happen?
Good question. It would depend on whether the newly employed are broadly working "bullshit" (unproductive) jobs, or whether they are adding to productivity.
Inflation occurs when there is an increase in available money (or transiently, in the velocity of money) in excess of any increase in productivity.
Increased productivity (absent of manipulation of the money supply) would suggest that goods get cheaper to produce and are produced in more abundance, leading to decreasing prices.
If the newly employed are not broadly productive, employers would have increased expenditures (wages), without decreasing other expenses. Since the employer doesn't want their own earnings to decrease, the only way they can maintain the standard of living they are used to is to either increase their revenues by increasing prices, or fire the unproductive.
An exception of course, is government, which can simply increase revenues by increasing taxes, which allows them to continually employ unproductive people at the cost of taxpayers.
If you extend this logic to UBI, then every employer now has additional expenses (taxes) to cover the costs of UBI. To maintain the standard of living they are used to, and if they wish to avoid raising prices, they would need to reduce expenses, which would typically mean either: reducing wages, or reducing the number of employees they have.
So the result of UBI would suggest one or more of the following outcomes: 1. Fewer people are employed. 2. Employed people earn less. 3. Prices generally increase.
I would guess at all three occurring simultaneously. Almost like the devil is rubbing his hands in anticipation.
Inflation occurs when there is an increase in available money (or transiently, in the velocity of money) in excess of any increase in productivity.
Increased productivity (absent of manipulation of the money supply) would suggest that goods get cheaper to produce and are produced in more abundance, leading to decreasing prices.
If the newly employed are not broadly productive, employers would have increased expenditures (wages), without decreasing other expenses. Since the employer doesn't want their own earnings to decrease, the only way they can maintain the standard of living they are used to is to either increase their revenues by increasing prices, or fire the unproductive.
An exception of course, is government, which can simply increase revenues by increasing taxes, which allows them to continually employ unproductive people at the cost of taxpayers.
If you extend this logic to UBI, then every employer now has additional expenses (taxes) to cover the costs of UBI. To maintain the standard of living they are used to, and if they wish to avoid raising prices, they would need to reduce expenses, which would typically mean either: reducing wages, or reducing the number of employees they have.
So the result of UBI would suggest one or more of the following outcomes: 1. Fewer people are employed. 2. Employed people earn less. 3. Prices generally increase.
I would guess at all three occurring simultaneously. Almost like the devil is rubbing his hands in anticipation.
It's possible. Nobody can say with certainty because we don't have data on a large enough scale to say for sure. But consider this: We don't have UBI, and we have historically high inflation anyway. If we're going to have high inflation anyway, maybe we should just help people.
So, you're saying that because inflation is bad we should just start printing money, handing it out and making inflation worse?
I guess a $50 loaf of bread is helpful to everyone, eh?
I guess a $50 loaf of bread is helpful to everyone, eh?
Inflation is a scalar measure of a vector valued phenomena. It is usually scalarized using a basket of goods. The impact on the basket of goods people will buy if there is a basic income is hard to model and will likely be bigger then whatever monetary effects an UBI causes. Here are some random predictions anyway:
Subpar food prices will fall until that industry dies. Value items will become more expensive until the demands of everyone being able to afford them is satisfied. Prices for luxury goods will fall, some luxury industries might die. Automation will become more prevalent and cheaper. Car and gas prices will fall as people are less reliant to drive to far away work places. Consumer electronic prices will rise for entertainment related things and fall for things like dish washers. Culture will become cheaper. Land value will fall while houses become more expensive.
Subpar food prices will fall until that industry dies. Value items will become more expensive until the demands of everyone being able to afford them is satisfied. Prices for luxury goods will fall, some luxury industries might die. Automation will become more prevalent and cheaper. Car and gas prices will fall as people are less reliant to drive to far away work places. Consumer electronic prices will rise for entertainment related things and fall for things like dish washers. Culture will become cheaper. Land value will fall while houses become more expensive.
Inflation happens due to more money appearing in the economy. Universal basic income doesn't mean creating money. It just means redistributing existing money. So no, there is no connection between UBI and inflation.
It's more complex than that. Poor people spend very differently than rich people. So assuming you just taxed everybody who was 'rich' (define any way you want) to a level where you could fund UBI, then there would be no new money being introduced in the system. However what that money gets used for will change drastically. The 'rich' people would have used that extra money to either buy luxury goods or for saving/investing, the 'poor' people will mostly use that money to pay for food and housing. This change of can have effects on prices even without increasing the money supply.
So there will be a one time correction of prices on essential goods and services. Inflation means a sustained increase in prices over time, though.
‘Printing’ money leads to inflation. I view the world situation as a control problem: how do political and financial elites control the population and keep most of their privileges.
While I don’t agree with their objectives (usually) I am a digital member of the World Economic Forum because I think that reading their material is a valid signal for what may happen in the future.
I am not sure how it will happen, but I think most common people will be “liberated” from owning property and assets via media enhanced drama like wars, pandemics, dollar crashing, etc. a combination of absolute control of news media and taking advantage of crisis as they occur either naturally or planned will be sufficient for elites to hold on to most of their power while keeping society functioning.
While I don’t agree with their objectives (usually) I am a digital member of the World Economic Forum because I think that reading their material is a valid signal for what may happen in the future.
I am not sure how it will happen, but I think most common people will be “liberated” from owning property and assets via media enhanced drama like wars, pandemics, dollar crashing, etc. a combination of absolute control of news media and taking advantage of crisis as they occur either naturally or planned will be sufficient for elites to hold on to most of their power while keeping society functioning.
The problem is if the supply of what UBI will be used to buy doesn't increase and the impact it will have on the recipients' productivity (e.g. low wage food workers)
Dependes on how is the plan to achieve it. If enough people keeps on working to produce enough stuff for everyone who want to buy it.
Exactly. With the ongoing disaster of COVID Bucks, I can't believe people aren't embarrassed enough that they still want to bring UBI up.
how I see UBI: we are moving to a very automated society that will have most things produced by machines. The only work available probably will be for people who knows to to make and maintain the machines and people who work in things that machines still can do, specially service workers.
So most people will not be able to do any job, or jobs that pay enough for them to survive, so, I can't se where UBI would work without inflation, since productivity would be high.
The thing is, if you look around, most people in the world problably already do a job that could be done by a very simple script, specially office work.
My first job, I got 12 people fired from financial sector in a university because the only thing they did all day was counting checks and money manually.
So most people will not be able to do any job, or jobs that pay enough for them to survive, so, I can't se where UBI would work without inflation, since productivity would be high.
The thing is, if you look around, most people in the world problably already do a job that could be done by a very simple script, specially office work.
My first job, I got 12 people fired from financial sector in a university because the only thing they did all day was counting checks and money manually.
The disaster of employers having to raise their standards (and wages) to actually attract workers?
but if everything the worker was going to buy goes up in price to offset the wages then what's the point? so they can feel richer?
That's why this question of inflation is important. But I would argue it's consumer goods inflation not the price of high end real estate or priceless art etc.
That's why this question of inflation is important. But I would argue it's consumer goods inflation not the price of high end real estate or priceless art etc.
We don't need everybody working.
75% of jobs are bullshit jobs. Just 2% of people work in agriculture.
We slave 30-40 years for a priviledge to live in a house.
(Almost) all money in circulation is owned/issued by banks, and the inflation/interest is a way to keep us all in the rat race, all the time consuming, amassing things, never thinking.
Our civilization is a construct, a glass cage, and we're all afraid to break through.
We don't need (more) stuff. We need to become adults.
75% of jobs are bullshit jobs. Just 2% of people work in agriculture.
We slave 30-40 years for a priviledge to live in a house.
(Almost) all money in circulation is owned/issued by banks, and the inflation/interest is a way to keep us all in the rat race, all the time consuming, amassing things, never thinking.
Our civilization is a construct, a glass cage, and we're all afraid to break through.
We don't need (more) stuff. We need to become adults.
I'd rather live in a house that fits my needs and wants and personal style than I would in a mass produced apartment. I'd rather eat the type of food I enjoy rather than some standard rations cooked up by a factory. I want a certain amount of stuff in my life to satisfy my interests rather than living in a bare room and only enjoying communal property. I prefer to live in a world where silly things like mobile phones and video game graphics cards can lead to revolutions in computing rather than playing the same chess games and watching ballet over and over again for hundreds of years. That said, if you do prefer to live a different way then I'm fine with that, just don't try to foist it upon other people. I would like there to be an option for people who don't want to be part of the rat race where they can go live a relatively comfortable subsistence lifestyle and enjoy seasonal vegetables and walks in the park while the outside world rushes past. It'd probably be nice to vacation there occasionally to take a break from things, maybe it could be funded by tourism.
You know, the way I see it, we can have either star-trek like future, or blade-runner like.
I would very much prefer the first one.
And it does not mean we would have to have mass produced apartments (see cob buildings, hemp crete - the legislature/corporations is/are the problem). There is enough place to give everybody a house & a garden, ideally sustainably built (no plastics in the walls etc.), and with UBI live a good life, without beeing dependent on a job, you don't want, just to be able to live. What progress that would bring.
I'm also not talking about rations and/or soylent - I want healthy vegetables/nuts/seeds, not the unhealthy food & poisons (herbicides,pesticides, vegetable oils, antibiotics, pfoas ...) we're fed right now with our exploitative market economy.
I want healthy planet, full of (free-living) animals and clean air & rivers.
I also want computers (not devices) and agi - but without nsa & patents, please.
I can only dream.
But if we continue to do business-as-usual and keep doing the same stuff over and over, pretending that the rat-race is essential to our progress, and pray for economic growth in expense of our living space (the little blue dot), that's the insanity Einstein was talking about.
We don't have to eat & consume to the extinction. That was my point. And UBI might just be the way to do it.
I would very much prefer the first one.
And it does not mean we would have to have mass produced apartments (see cob buildings, hemp crete - the legislature/corporations is/are the problem). There is enough place to give everybody a house & a garden, ideally sustainably built (no plastics in the walls etc.), and with UBI live a good life, without beeing dependent on a job, you don't want, just to be able to live. What progress that would bring.
I'm also not talking about rations and/or soylent - I want healthy vegetables/nuts/seeds, not the unhealthy food & poisons (herbicides,pesticides, vegetable oils, antibiotics, pfoas ...) we're fed right now with our exploitative market economy.
I want healthy planet, full of (free-living) animals and clean air & rivers.
I also want computers (not devices) and agi - but without nsa & patents, please.
I can only dream.
But if we continue to do business-as-usual and keep doing the same stuff over and over, pretending that the rat-race is essential to our progress, and pray for economic growth in expense of our living space (the little blue dot), that's the insanity Einstein was talking about.
We don't have to eat & consume to the extinction. That was my point. And UBI might just be the way to do it.
I don't see how you could have a back to nature lifestyle + UBI + anti-work + organic gardening and still have any form of progress. You'd need some kind of magical McGuffin like AGI robots that do all of the work and thinking for us. Even if you did, not everyone wants to live that way. For every barefoot hippy there's going to be a gearhead that wants to race loud cars and a thousand other lifestyles and interests that are mutually exclusive.
Nobody knows for sure, but probably not if you combine the UBI with strong progressive taxation.
Whenever someone suggests a central bank creating money will lead to inflation I suggest they read this report - https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
tl;dr Private banks create far more money than central banks. If you're worried about inflation from UBI, stimulus checks, bailouts, etc then your brain will explode when you learn about how much money banks put into the economy in the name of profit every year.
tl;dr Private banks create far more money than central banks. If you're worried about inflation from UBI, stimulus checks, bailouts, etc then your brain will explode when you learn about how much money banks put into the economy in the name of profit every year.
It's not money creation that causes inflation, it's _excess_ money creation.
Banks only loan money to people who have good credit, and can pay it back. Those people with good credit will work to pay it back. This work is often worth more than the loan + interest, and thus, wealth is created by this process. E.g., you borrow money to build a business. And for consumer loans, the consumer would have to work harder to pay it back in the future, or sacrifice future consumption to pay it back.
Money "printing" by banks are unlikely to cause inflation, unless they lent so much that productivity increases cannot keep up.
Money printing by governments, however, will cause inflation. Venezuela and Zimbabwe both printed to solve their debt problems and spending obligations. But these aren't loans, and spending these money does not increase productivity. Therefore, they cause inflation.
Banks only loan money to people who have good credit, and can pay it back. Those people with good credit will work to pay it back. This work is often worth more than the loan + interest, and thus, wealth is created by this process. E.g., you borrow money to build a business. And for consumer loans, the consumer would have to work harder to pay it back in the future, or sacrifice future consumption to pay it back.
Money "printing" by banks are unlikely to cause inflation, unless they lent so much that productivity increases cannot keep up.
Money printing by governments, however, will cause inflation. Venezuela and Zimbabwe both printed to solve their debt problems and spending obligations. But these aren't loans, and spending these money does not increase productivity. Therefore, they cause inflation.
> It's not money creation that causes inflation, it's _excess_ money creation.
No, it's just money creation. Money creation and inflation are essentially synonymous.
> Banks only loan money to people who have good credit, and can pay it back.
Well, that's clearly been far from the truth if we look back at recent events. But apart from that, the majority of bank loans nowadays go into housing and house prices are forever rising. So a bank might lend out $100k today but in 10 years when it's paid back they'll be lending out $200k to someone else for the same house.
No, it's just money creation. Money creation and inflation are essentially synonymous.
> Banks only loan money to people who have good credit, and can pay it back.
Well, that's clearly been far from the truth if we look back at recent events. But apart from that, the majority of bank loans nowadays go into housing and house prices are forever rising. So a bank might lend out $100k today but in 10 years when it's paid back they'll be lending out $200k to someone else for the same house.
Money creation and inflation are the same, according to an economic view that's like 100 years out of date. Money has to be spent to create inflation. Money that goes nowhere does nothing. What happens in the economy matters.Supply AND demand make inflation.
Also, what is 'excess money'? How do you know what is 'necessary' and what is 'excess'?
Also, what is 'excess money'? How do you know what is 'necessary' and what is 'excess'?
If you print $1000 to lend to a startup business, and that business grows to generate more than $1000 of raw value, then that original printed $1000 (that was paid back) is not inflation, its growth.
Imagine you could print corn seeds. You print the seeds and get a whole bunch of (real) corn cobs back.
Imagine you could print corn seeds. You print the seeds and get a whole bunch of (real) corn cobs back.
Banks only loan money to people who have good credit, and can pay it back.
2008 called. Not sure what it was saying because it was laughing too much.
2008 called. Not sure what it was saying because it was laughing too much.
I think the question is what happens when that money goes to the lowest income individuals and not the wealthiest, corporations, and the Military?
If everyone has more money and there is constrained supply of a desired thing the price will go up. Housing prices, for example, would almost certainly rise with a UBI.
Not saying a UBI would be a bad idea, but it would almost certainly cause massive inflation because the lowest income individual of society would have the largest increase in spending power—supply and demand and all that.
If everyone has more money and there is constrained supply of a desired thing the price will go up. Housing prices, for example, would almost certainly rise with a UBI.
Not saying a UBI would be a bad idea, but it would almost certainly cause massive inflation because the lowest income individual of society would have the largest increase in spending power—supply and demand and all that.
This was one of the most mind-blowing things I learnt about money. So many people assume the government prints money, but in fact government printed money is about 2% of the money in the economy. The vast majority of it is created by banks when they make loans, which are predominantly mortgages. Banks have been consistently creating money via mortgages at a higher rate than people are paying them back for decades. This is possible because house prices are constantly rising.
Isn't it more important who gets the money and how the money is spent? Like if you create a trillion dollars but it goes to a single person who is incapable of spending it all so most of it winds up in high priced assets or investments vs. creating a trillion dollars and splitting it evenly among the entire population where it would wind up being spent on a wide variety of goods and services. In my mind, inflation is like bidding at an auction, the more people that participate and the more money they each have, the higher the prices will trend since they will attempt to outbid each other for the limited supply of goods. We saw this effect during the pandemic when spending shifted away from restaurants, entertainment and vacations to home improvements and home gyms for example. The prices at hardware and fitness stores went through the roof because there were suddenly more dollars and a big pool of people buying the same things.
I've been curious about questions like this and have tried to read some things on my own. I have a few thoughts that may well have errors or misunderstandings.
1. Of all the various schools of economics post-keynesian economics (PKE) made the most sense to me. "Monetary Economics" by Godley and Lavoie is a good reference. A few claims: the money supply inflates and contracts based on the credible demand for loans and the bank money multiplier does not exist in almost all modern economies for the past 20 years. https://www.exploring-economics.org/en/orientation/post-keyn...
2. In section 10.7.3 of Monetary Economics they do an experiment where government expenditures have a sudden and permanent increase (in this setup the government borrows money for the expenditures instead of simply printing money). The experiment uses a simulator with watertight accounting and models various interdependencies between consumer behavior, consumption, banks, interest rates, etc. My reading of the results is that in the steady state inflation is higher, households have more disposable income (good) but their assets depreciate at a faster rate due to increased inflation (bad). The steady state output, consumption and income are all higher for households. Interestingly the debt to GDP ratio initially increases and then comes back down when inflation increases (inflation is helpful for borrowers).
3. I am not familiar enough with this book as I should be but I believe there's some assumption here that new deficit spending actually leads to new economic output. Meaning the well of new investment opportunities and capacity of existing businesses has not been tapped out. It seems like as long as this assumption holds this simulation is saying that increasing the deficit will in the steady state lead to increased inflation and a loss of savings from depreciated assets in exchange for more consumption and output.
I'm possibly more interested in the case where the government uses deficit spending over a limited period of time to combat a recession or high unemployment.
4. This may be straying from PKE but a common rules is that inflation is positive if the money supply increases faster than GDP increases (you've produced more currency than goods). I believe this assumes that human behavior of consumption is relatively stable (the velocity of money and the propensity to consume/save do not change). Following my own thinking, if the government uses deficit spending to send $100M in covid checks, and there is some slack in the economy where businesses are ready to produce more goods and services at roughly the same price levels, then this could reasonably lead to an additional $150M worth of economic output (someone spends $70 of their covid check, the recipient turns around and spends $50, etc). In this example we have increased the money supply by $100M and increased output (GDP) by $150M. Does this cause inflation or deflation? Have we increased the money supply faster than GDP? That depends on the existing ratio of money supply relative to GDP. And to get that ratio we have to decide which money supply (M1, M2, M3, M4) or weighted average we are considering.
5. The point of the above is that I believe there is a case where government spending could unlock an economy that is not at full labor and production capacity and actually cause deflation (more goods are produced relative to the increased money supply than the existing GDP/MoneySupply ratio). If in the other extreme no businesses has any spare capacity to produce more and there are no investment opportunities than nothing is added to the GDP and the money supply is increased so there must be inflation.
To answer your question is: given a leading simulation with reasonable assumptions and an economy that can increase production a UBI program would cause the steady state of inflation to be higher. Over a shorter horizon given my amateurish assumptions the answer is maybe.
1. Of all the various schools of economics post-keynesian economics (PKE) made the most sense to me. "Monetary Economics" by Godley and Lavoie is a good reference. A few claims: the money supply inflates and contracts based on the credible demand for loans and the bank money multiplier does not exist in almost all modern economies for the past 20 years. https://www.exploring-economics.org/en/orientation/post-keyn...
2. In section 10.7.3 of Monetary Economics they do an experiment where government expenditures have a sudden and permanent increase (in this setup the government borrows money for the expenditures instead of simply printing money). The experiment uses a simulator with watertight accounting and models various interdependencies between consumer behavior, consumption, banks, interest rates, etc. My reading of the results is that in the steady state inflation is higher, households have more disposable income (good) but their assets depreciate at a faster rate due to increased inflation (bad). The steady state output, consumption and income are all higher for households. Interestingly the debt to GDP ratio initially increases and then comes back down when inflation increases (inflation is helpful for borrowers).
3. I am not familiar enough with this book as I should be but I believe there's some assumption here that new deficit spending actually leads to new economic output. Meaning the well of new investment opportunities and capacity of existing businesses has not been tapped out. It seems like as long as this assumption holds this simulation is saying that increasing the deficit will in the steady state lead to increased inflation and a loss of savings from depreciated assets in exchange for more consumption and output.
I'm possibly more interested in the case where the government uses deficit spending over a limited period of time to combat a recession or high unemployment.
4. This may be straying from PKE but a common rules is that inflation is positive if the money supply increases faster than GDP increases (you've produced more currency than goods). I believe this assumes that human behavior of consumption is relatively stable (the velocity of money and the propensity to consume/save do not change). Following my own thinking, if the government uses deficit spending to send $100M in covid checks, and there is some slack in the economy where businesses are ready to produce more goods and services at roughly the same price levels, then this could reasonably lead to an additional $150M worth of economic output (someone spends $70 of their covid check, the recipient turns around and spends $50, etc). In this example we have increased the money supply by $100M and increased output (GDP) by $150M. Does this cause inflation or deflation? Have we increased the money supply faster than GDP? That depends on the existing ratio of money supply relative to GDP. And to get that ratio we have to decide which money supply (M1, M2, M3, M4) or weighted average we are considering.
5. The point of the above is that I believe there is a case where government spending could unlock an economy that is not at full labor and production capacity and actually cause deflation (more goods are produced relative to the increased money supply than the existing GDP/MoneySupply ratio). If in the other extreme no businesses has any spare capacity to produce more and there are no investment opportunities than nothing is added to the GDP and the money supply is increased so there must be inflation.
To answer your question is: given a leading simulation with reasonable assumptions and an economy that can increase production a UBI program would cause the steady state of inflation to be higher. Over a shorter horizon given my amateurish assumptions the answer is maybe.
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It's an important question.
A lot of the discussion around basic income takes place in the context of Modern Monetary Theory. I mean, it kind of has too, because otherwise basic income is pretty unaffordable. I've done the math, it is possible but really hard.
To significantly oversimplify one stream of thought in Modern Monetary Theory, the idea is that you grow the money supply through government programs and shrink it through taxation and that's how you keep inflation in check. (That's also why you don't have to worry about the cost of government programs. The government can print and spend as much money as it wants, because doing so is just growing the money supply. And if inflation starts to go up, you just raise taxes in response.)
If you look at what's happening with inflation right now, some of it is wage growth pressure. You could argue that some of it was growth in the money supply - although I would give serious side eye to that argument because not very much was given out in those stimulus checks. But if you really look at what's driving price increases, you have to look at what's happening internally to companies. Wages are growing, yes, but prices are growing faster than wages. Why? Because corporate profits are growing even faster.
So one of the primary factors driving inflation isn't the increase in the money supply, or workers wage increases - it's companies taking advantage of the inflation to raise their prices even more. If you look at the numbers, if worker wage increases would require a 5% increase in prices, companies are taking that and then raises their prices 10% and taking the difference as profits. Corporate profits were already at all time highs, so they absolutely do not have to do that. It's effectively price gouging.
So if we look at a basic income, if we implement it in isolation, it's reasonable to believe the same thing will happen. Companies will simply raise their prices so that the top 10% (who own the majority of the stock), walk away with all that new money added to the supply.
If we really want basic income to have the impact we all hope it will have, we have to implement it alongside income and wealth caps. Basically, if you actually want a more equitable (and healthier for everyone) distribution of wealth, then you have to put hard limits on hoarding. And that's how you manage the money supply to manage inflation. You implement basic income alongside 100% wealth and income taxes above a certain level.
A lot of the discussion around basic income takes place in the context of Modern Monetary Theory. I mean, it kind of has too, because otherwise basic income is pretty unaffordable. I've done the math, it is possible but really hard.
To significantly oversimplify one stream of thought in Modern Monetary Theory, the idea is that you grow the money supply through government programs and shrink it through taxation and that's how you keep inflation in check. (That's also why you don't have to worry about the cost of government programs. The government can print and spend as much money as it wants, because doing so is just growing the money supply. And if inflation starts to go up, you just raise taxes in response.)
If you look at what's happening with inflation right now, some of it is wage growth pressure. You could argue that some of it was growth in the money supply - although I would give serious side eye to that argument because not very much was given out in those stimulus checks. But if you really look at what's driving price increases, you have to look at what's happening internally to companies. Wages are growing, yes, but prices are growing faster than wages. Why? Because corporate profits are growing even faster.
So one of the primary factors driving inflation isn't the increase in the money supply, or workers wage increases - it's companies taking advantage of the inflation to raise their prices even more. If you look at the numbers, if worker wage increases would require a 5% increase in prices, companies are taking that and then raises their prices 10% and taking the difference as profits. Corporate profits were already at all time highs, so they absolutely do not have to do that. It's effectively price gouging.
So if we look at a basic income, if we implement it in isolation, it's reasonable to believe the same thing will happen. Companies will simply raise their prices so that the top 10% (who own the majority of the stock), walk away with all that new money added to the supply.
If we really want basic income to have the impact we all hope it will have, we have to implement it alongside income and wealth caps. Basically, if you actually want a more equitable (and healthier for everyone) distribution of wealth, then you have to put hard limits on hoarding. And that's how you manage the money supply to manage inflation. You implement basic income alongside 100% wealth and income taxes above a certain level.
Where would new money even go in a system with both fiat currency and wealth caps? Do you have to constantly increase the wealth caps with inflation? How do you perfectly manage that rate? As we can see governments are not capable of doing that now. Do you cap the profits of businesses as well and if so why do they continue to innovate or expand once they've reached the same level as all of their competitors? You're really just proposing a centrally planned economy where all wages and prices will be set by the government, that never works and never will work since no small group of people will ever be able to plan the lives of a much larger group without producing a lot of misery. Not to mention all the usual human failings and corruption that creep into every system over time.
All of those questions have pretty straight forward answers. But your first question has really just floored me. Really? If money can't go into the pockets of the very wealthy it has nowhere else to go?
The money would spread out through out the rest of the economy. We don't have a scarcity problem right now, we have a distribution problem. We have plenty of resources to go around, but we have a problem where a very few people are hoarding the vast majority of those resources. So a wealth and income cap is designed to stop that hoarding and force a wider distribution of those resources.
As for the rest of your questions.
> Do you have to constantly increase the wealth caps with inflation?
Yep. Just as we really should be (but aren't) linking minimum wage to inflation currently. And linking our progressive income tax brackets to inflation. And linking our property taxes to inflation.
> How do you perfectly manage that rate?
You don't have to. We don't manage it it now in all of our existing taxation systems (both wealth based and income based). We only have to do good enough to keep inflation broadly in check.
> Do you cap the profits of businesses as well and if so why do they continue to innovate or expand once they've reached the same level as all of their competitors?
No. These are individual income and wealth caps. Business profits are business profits. The idea is that if individuals are limited in how much they can take out of the business, the businesses profits will be more widely distributed among those who contributed to the business. And the business will have less incentive to price gouge.
> You're really just proposing a centrally planned economy where all wages and prices will be set by the government
No I am not. I'm not proposing anything much different than we have now. We have a minimum wage, we're adding a UBI to put a floor under people. We already have a wealth tax for the 90% of people who's wealth is entirely in their real property (their houses), we just leave the 10% of people who's wealth is primarily stocks, commodities or other assets out of it. We already have a progressive income tax, and we've had a progressive income tax that got very close to 100% above a certain level in the past (in the 50s in the US it was ~90% above ~$4 million).
The only thing new I'm proposing is putting a hard cap on overall wealth.
The money would spread out through out the rest of the economy. We don't have a scarcity problem right now, we have a distribution problem. We have plenty of resources to go around, but we have a problem where a very few people are hoarding the vast majority of those resources. So a wealth and income cap is designed to stop that hoarding and force a wider distribution of those resources.
As for the rest of your questions.
> Do you have to constantly increase the wealth caps with inflation?
Yep. Just as we really should be (but aren't) linking minimum wage to inflation currently. And linking our progressive income tax brackets to inflation. And linking our property taxes to inflation.
> How do you perfectly manage that rate?
You don't have to. We don't manage it it now in all of our existing taxation systems (both wealth based and income based). We only have to do good enough to keep inflation broadly in check.
> Do you cap the profits of businesses as well and if so why do they continue to innovate or expand once they've reached the same level as all of their competitors?
No. These are individual income and wealth caps. Business profits are business profits. The idea is that if individuals are limited in how much they can take out of the business, the businesses profits will be more widely distributed among those who contributed to the business. And the business will have less incentive to price gouge.
> You're really just proposing a centrally planned economy where all wages and prices will be set by the government
No I am not. I'm not proposing anything much different than we have now. We have a minimum wage, we're adding a UBI to put a floor under people. We already have a wealth tax for the 90% of people who's wealth is entirely in their real property (their houses), we just leave the 10% of people who's wealth is primarily stocks, commodities or other assets out of it. We already have a progressive income tax, and we've had a progressive income tax that got very close to 100% above a certain level in the past (in the 50s in the US it was ~90% above ~$4 million).
The only thing new I'm proposing is putting a hard cap on overall wealth.
I think the first question is a very valid one. You say that newly created money will simply go to people who aren't at the wealth cap but my question is how exactly would that happen? I don't see a direct connection between the creation of new money and the supposedly underpaid people you think should be the recipients. You seem to think the only thing standing in the way is so called wealth hoarding, fine lets eliminate that with a wealth cap but then what? Give me a few extra steps here so it make sense.