
Basic Income: Unintended Consequences - jjxw
http://jonthewang.com/2016/02/15/basic-income-unintended-consequences/
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acgourley
To expand on his migration point, I worry that BI will create inland ghettos
where the BI allowance is enough on it's own to cover the cost of living. At
least some people would choose this lifestyle. Over time these ghettos would
evolve their own cultures and start to be very separate from the rest of us.
While I value personal freedom of an adult to chose to do this with their
life, I worry about their children who will have a hard time leaving and I
worry about internal fragmentation of our nation.

I think overall the net positive effect of BI probably counteracts the
concerns above - but it will be interesting to see if such a phenomenon
develops in Finland.

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socalnate1
Doesn't the exact same thing happen now with poor areas?

(i.e. evolve its own culture and make it hard for a child born in a poor area
to leave)

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orthecreedence
No, in our current system everyone is equal and has the same opportunities as
everyone else. The market is essentially a benevolent, moral being that cares
for the sick and needy whilst rewarding the hard working.

Joking aside, I'd be really interested to see what happens in an economy where
starting a business is easy because you don't have to worry about it covering
your basic needs. I'd imagine many people within ghettos would finally be able
to leave and seek opportunities elsewhere, or be able to create their own
opportunities within their current situation.

Would some people sit around not working while spending money on drugs or
booze? Of course. But those people exist already. I'd be interested to see how
the ratio of these types of folks compares before and after BI, and also the
ratio of people making money from jobs vs self-created small businesses.

I really want another country to try this out =]. Not saying I don't want it
for the US (I do, and if nothing else than for an interesting experiment), but
I really don't see that happening with the weird fear we have of anything even
remotely _perceived_ as socialism/communism.

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erispoe
Basic Income is designed to replace welfare benefits, and get rid the many
adverse effects that a complicated welfare system creates. Therefore it should
benefit from the same type of protection. It's not complicated, many countries
have this system in place already: welfare benefits cannot be financial
collaterals and they are not seizable.

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desireco42
I think this is an exceptionally stupid idea and I think part of basic income
should be stipulation that it can't be used to get loans ie. make this
illegal.

Because first thing financial industry would use it against the poor, get them
lump sum and eliminate benefits of basic income.

I am sure this can be made in a way that wouldn't be limiting too much, yet
prevent obvious abuses you are bringing.

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jjxw
In general, I agree, but there is a cost to such regulation in the sense that
it would make banks more wary to lend to legitimate borrowers on the promise
of future basic income payments. Making it illegal to seize basic income
assets in the event of default creates a classic adverse selection problem
where bad actors will have incentives to attempt to take a loan.

That being said, the point of a basic income in the first place is to
introduce financial stability to all households so any costs associated with
preventing lending on basic income collateral may be societally optimal.

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icebraining
Adverse selection happens when the borrower knows more than the loaner, no?
Why would that happen here? Banks and other credit institutions already force
you to prove that you have assets and/or income; here they would do the exact
same thing, just disregarding the BI.

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jjxw
Ah, you are correct. The term I was actually looking for is moral hazard.

The reason why banks require evidence of ability to repay the loan is because,
without them, there would be a huge incentive for borrowers to take loans
without paying them back. This is where the adverse selection comes in - the
information asymmetry results from the borrowers knowing what their intent for
the loan is and the incentive to mislead the lender. This leads to lenders
being more wary (and implementing requirements) when issuing loans.

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merpnderp
The whole point of these unintended consequences are easily corrected by
allowing penalty free (for the basic income at least) defaults. Just like the
student loan issue would be solved overnight by allowing defaults, basic
incomes would never have a problem in the first place with them.

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bsbechtel
So in addition to $12,000 a year from the government, someone could borrow
from lenders and never pay it back?

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phaer
No, because almost nobody would be lending money to people who have nothing to
secure the loan beside their basic income.

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emp_zealoth
Which would be a good thing because those people can not afford the credit
anyway

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bsbechtel
I feel like there would be a number of arbitrage opportunities that would
become available as well, though it's late and I can't think of any off of the
top of my head. How it affects the currency exchange markets would be
interesting as well. IMHO, a better option would be to provide Tax credits to
employers for each employee's pay up to the poverty line. If employers don't
pay poverty level wages, the government is stepping in with federal benefits.
A tax credit is a more efficient transfer mechanism than the current system as
well, but still encourages some sort of productivity.

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TheOtherHobbes
The UK does something like this. It's a disaster, because it gives employers
an excuse to cut wages knowing that the government will cover the rest -
effectively a handout to employers, who don't usually need the money, not to
employees, who do.

It's also a disaster because the UK gov is famous for changing payment rules,
sometimes retrospectively. The most recent changes leave some of the poorest
people owing between a quarter and twice a year's income in supposed
overpayments - which they accepted in good faith, with no suspicion that the
government would change its mind about them later.

Any tax credit scheme is going to be open to similar abuse - whether
accidental, because of incompetence, or deliberate because of political
malice.

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bsbechtel
Could you link to what you're referring to so I can understand better? I think
we are talking about different things. The tax credit would go to the
employer, not the individual. Based on your statement, i think you are talking
about the UK version of the EITC?

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drcode
The main unintended consequence is that nobody is going to want to be a
grocery store clerk for minimum wage if they get BI. Hence, salaries for
menial jobs will go through the roof... All of a sudden a gallon of milk will
have to cost $20 to pay grocery store salaries... Now salaries will need to go
even higher so that employees can afford food, themselves... And now you've
got hyperinflation.

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bryanlarsen
I predict the opposite is going to happen. Most proponents of BI also propose
lowering the minimum wage. So let's suppose you're on BI receiving $12K a
year. That's about enough to put a roof over your head, leaving very little
for food or anything else. You see a clerk job advertised for $5 an hour. You
don't have to take the job, but that $5/hr is the difference between eating
rice and beans yet again or actually having a little bit of meat with your
meal and being able to afford an occasional XBox game.

The big difference I see is that truly unpleasant and unsafe jobs will see
wages rise. Being a clerk is not a great job, but it's not a bad job unless
you have an awful boss. If your boss at the grocery store starts giving you
trouble, it becomes much easier to just walk away and eat rice and beans for a
while until you can find another job.

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drcode
No- You're giving a person a choice between (1) getting to lounge around all
day and play xbox or (2) earning 20% more income above BI by working hard all
week doing an unpleasant and belittling job in a grocery store.

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mindslight
This really cuts to the heart of the matter. In fact, so much so that I'm left
wondering if the recent publicity behind BI is simply yet another wall street
scam in the making.

Rather than added to with BI, what really needs to happen is the _reduction of
rent_. Specifically the financial rent paid to the cabal of moneyprinters for
the "privilege" of partaking in the markets that said moneyprinters have
inflated the fuck out of - housing, cars and education - via the Fed policy of
forced inflation. Real goods get continually cheaper (that's central to
economic competition) so to make the CPI inflationary in a time of increasing
productivity gains, the credit-based expenses skyrocket. Their only limit is
the carrying cost of the principal - if interest rates halve, home prices
double.

Without addressing how the Fed and banks have perverted our society away from
wealth-based independence and toward mass indentured servitude, I fear the
only thing BI would do is turn the treadmill up correspondingly quicker.

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woopwoop
Concerns about people using their basic income to secure credit strike me as
awfully similar to the old "What if they use it to buy drugs?"

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andraganescu
Would basic income still register in the collective mindset as “help”? Because
if it registers as “free money” I fear prices will go up. I understand that
since BI correlates with income tax no inflation should be created. Yet people
have particular ways to understand how welfare happens. In a poor community,
when you know for sure that everyone there can afford some stuff, wouldn’t
that be an incentive to collectively raise prices, just because you know there
is definitely new money to be spent.

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jjxw
My understanding of most implementations of Basic Income is that the funds
would come from taxes or budget cuts in other parts of the government rather
than printing money which would reduce inflationary pressure. The problem with
raising prices is that collective coordination would be difficult for goods
which operate in a competitive market.

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andraganescu
Yes, indeed it's not inflation I fear, but the collective mentality people
have. Markets in poor communities are not as competitive as we'd think. Not to
mention big retailers who are not that many to make coordination impossible.

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ap3
If you are on basic income the last thing you need is a loan

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jmspring
The individual is pretty flawed in his reasoning and examples...

"Since the lifetime of the average person is roughly 78 years, net present
valuing a lifetime of $12,000 yearly basic income payments works out to
roughly $287,000 assuming that yearly payments total $10,000 and applying a 4%
yearly discount factor. That is enough to purchase a median priced single
family home"

While factually true, in total, $12k a year isn't going to buy you a house
anywhere near the median in your life time. Too much hyperbole in the read.

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jmspring
Yep, point out a non millennial point, so much down voting... #win

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icebraining
I have no idea what a "millennial point" is, but you'd probably get a better
response if you explained why not.

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bryanlarsen
Most mortgage payments are under $1K a month, so you can easily buy a house
with $12K of _excess_ income.

