From the pessimistic point of view, why would anyone choose to work a crappy job at Walmart or McDonalds when the government would give them the same money without having to do anything.
Walmart and McDonalds (and everyone else) would therefore either go out of business or raise their wages. Raising their wages would increase the price of their goods. Increasing prices of goods would increase the cost of living which would increase the poverty level which would increase the minimum guaranteed income.
It's an inflationary cycle that would be very hard to avoid.
You have precisely no reason for believing that the growth pattern is exponential or an open-ended cycle. In fact the cardinal rule of economics ("things go on until they can't") suggests they will arrive in a steady state.
In order to figure out a likely steady state you'd have to look at the composition of spending and employment by people around or under the proposed income, and try to estimate shifts if there was an effective employer-of-last-resort in the form of a basic income. It gets complicated fast if you want to do a good job. Hand-waving about inflationary spirals is, on the other hand, easy.
> From the pessimistic point of view, why would anyone choose to work a crappy job at Walmart or McDonalds when the government would give them the same money without having to do anything.
Because, unlike current poverty support programs, where the having a benefit program that gives you $X and a job that gives you $X the most you can get is $X, with basic income, you can have the basic income of $X and the job of $X and have $2X.
So, given constant wages, the marginal income effect of working would be the same for anyone not getting a means-tested program now, and greater for anyone who would get a means-tested program now. (The marginal benefit might be less in the former case because of the declining marginal utility of additional income, though.)
> Walmart and McDonalds (and everyone else) would therefore either go out of business or raise their wages.
Entry level wages are artificially high compared to market labor supply because of the minimum wage, so even if BI did reduce the supply of labor for minimum wage jobs, it wouldn't necessarily stop them from being able to fill positions at the existing wage levels. Many BI proposals also include eliminating the minimum wage, which would make work that is not currently economically viable (because, while it provides value, it doesn't provide enough value to warrant the minimum wage) viable.
> Raising their wages would increase the price of their goods. Increasing prices of goods would increase the cost of living which would increase the poverty level which would increase the minimum guaranteed income.
This, OTOH, is a real potential issue with inflation-pegged basic income: if you set the level too high for the current economy to support initially and peg it to inflation, you'll get caught in an inflation cycle.
The solution to this, as I see it, is fairly simply; dedicate a set share of the revenue from progressive income taxes to the basic income, and set benefit levels based on the lower of the levels by equally distributing the revenue from that tax to beneficiaries or the inflation-adjusted level of the starting benefit amount.
You get better self-regulation and signalling of when you need to reexamine the assumptions in your benefit levels and revenue structure, and if you initially set it at a level that would actually pull people out of the work force in a way that would trigger run away inflation, then barring direct intervention it will regulate itself back down (in real terms) until that's not the case.
Yeah, I expect it to push toward more inflation (which should let the Fed go back to actually having an interest rate). I think the proper way to deal with that is have it grow at the inflation rate the Fed is targeting. If there's less inflation, it'll go up (in real terms) and drive a little more. If there's more, it'll go down (in real terms) and drive a little less.
Of course, I'd like to hear from someone with more serious models - this didn't even make it to a napkin...
> Because, unlike current poverty support programs, where the having a benefit program that gives you $X and a job that gives you $X the most you can get is $X, with basic income, you can have the basic income of $X and the job of $X and have $2X.
This is my primary concern with the proposal, but if Walmart and McDonalds were deprived of that cheap workforce, how many of those jobs would they finally figure out how to automate?
The central idea behind basic income is that everyone gets it. Having employment income wouldn't reduce it. So anyone who would have previously worked at McDonalds would still work there if they wanted more money than they already get from BI.
The inflationary cycle only exists if you don't do the math.
If we take a universe where there are 3 people, one guy makes $100, another makes $300 a year, another makes $1000 a year. We'll assume that everyone spends all their money every year.
Suddenly the gov't decides to give everyone basic income, a stipend of about $100 a year.
Suddenly the bottom guy gets enough money to live and quits his job at Walmart. Walmart finds out that people are willing to work for double the old salary though($200). So they multiply the price of goods by 2. The guy from before starts working again.
Guy 1 now has $300 a year, Guy 2 $400, Guy 3 $1100
but prices have doubled right? so in PPP the totals are:
Guy 1 has $150, Guy 2 $200 , Guy 3 $550
Guy 1 still ends up richer in the end.
This universe had 0% unemployment and Walmart made no profits. Basic income doesn't destroy wealth, it transfers wealth just like pretty much any gov't scheme. And richer people will end up paying for it (oh no!).
But on the bright side, people at the bottom will end up richer (because the higher wages end up going to someone), and will be able to live in respectable conditions (Which leads to all sorts of good things like being able to keep themselves and their children healthy, lowering the incentive for crime, etc). And it doesn't have the moral judgements attached to a lot of welfare.
I haven't formalised the calculation, but I'm fairly certain that by the continuity of the universe of economics, and the fact that someone with $0 revenue now will always be richer with basic income, there are winners in the system, and so it doesn't turn into some inflationary spiral.
If only economics were so simple[1]. Nobody disputes that some people will end up richer, and that people who have no income of any sort (generally those who are not employed, not disabled and not looking for work) will indisputably benefit. The rest of the winners and losers depend very heavily on the amount in question, who pays most of the increased burden, what happens to people who were previously entitled to more than the Basic Income; you can nevertheless guarantee that some of the losers will be relatively poor workers, some rich people will end up richer (including some pretty unproductive rich people, like slum landlords) and some rich people will end up broke (especially people providing jobs to relatively-unskilled US workers in competitive international markets).
That said, you can make one pretty uncontroversial prediction: if you try to set the Basic Income high enough to ensure people can actually indefinitely live "in respectable conditions" with it as their main source of income, then there will be a lot less wealth being produced in the US.
And I can't see why only people actually applying for work should be subjected to moral judgements and restrictions on their lifestyle?
[1]I'm not sure who's paying for the stipend in your example. Or why Guy 2 wouldn't push for a pay rise when faced with a 50% reduction in his real wage (presumably he has some bargaining power if he's worth 3x a Walmart worker)
> Suddenly the bottom guy gets enough money to live and quits his job at Walmart. Walmart finds out that people are willing to work for double the old salary though($200). So they multiply the price of goods by 2.
That is an extremely naive conclusion. Re-think your argument.
I'm assuming a magical world where the price of goods depends only on salary (if you actually look at a series where every aspect of the production chain gets hit by the same salary increase, then the price goes up the same amount anyways, irregardless of material costs).
But the government is already subsidizing the base salary. Everything that Walmart gives is in addition to that which would probably reduce their costs.
Also not everything is in the function of pay. Once people have enough for living, the deciding factor like having an enjoyable and meaningful job also do count. It's then up to Walmart to transform themselves to become that place and attract employees.
You are oversimplifying. The people getting the wages aren't necessarily the same people buying the ageearners products. Minimum wage is not the entire labor force.
> From the pessimistic point of view, why would anyone choose to work a crappy job at Walmart or McDonalds when the government would give them the same money without having to do anything.
because, despite the myth of the lazy poor, most people enjoy being productive.
Being lazy isn't the only reason someone would quit working at Walmart. It might just suck to flip burgers for 8 hours a day. Needing to eat is a very good incentive to do things that you wouldn't normally do.
Walmart and McDonalds (and everyone else) would therefore either go out of business or raise their wages. Raising their wages would increase the price of their goods. Increasing prices of goods would increase the cost of living which would increase the poverty level which would increase the minimum guaranteed income.
It's an inflationary cycle that would be very hard to avoid.