Very possibly, but proponents of a basic income consistently fail to articulate three things: how these monies will be collected, what rationale there is for distributing it (other than the implicit acknowledgement that the alternative is civil unrest) and why it won't be inflationary.
> what rationale there is for distributing it (other than the implicit acknowledgement that the alternative is civil unrest)
A basic income removes the need for a long list of bureaucratic social programs like social security, food stamps, housing assistance, pell grants, etc. etc. It's the free market solution for social welfare programs. You allow individuals to decide what they need rather than having the government decide from the office of central planning.
It also eliminates means testing much to the benefit of the middle class (and simplicity and economic efficiency).
> why it won't be inflationary
Inflation comes from increasing the money supply faster than the size of the economy increases. Inflation would only occur if the money paid out was newly printed. When it comes from taxation the amount of money in circulation is unchanged, only the parties holding it change.
Inflation comes from increasing the money supply faster than the size of the economy increases.
This is a strange Austrian definition and is not widely accepted.
The normal definition of inflation is increases in the value of a basket of consumption. CPI is a good proxy for this over the short term (in the long term CPI becomes useless for this purpose since the basket changes).
If BI increases demand for consumption (as most of it's proponents claim it will), then the price of consumption will increase - hence, inflation.
"If BI increases demand for consumption (as most of it's proponents claim it will), then the price of consumption will increase - hence, inflation."
Increased consumption does not necessarily lead to a long term price increase. Often it results in lower prices due to ability to invest in projects with larger upfront/fixed costs.
The only goods that would necessarily increase in price are ones where the supply is currently at, or close to, capacity, and it is difficult/expensive to increase the supply. This isn't the case for most goods.
1) Many people are currently in jobs producing very low multiples of their cost when they have the ability to produce much higher multiples.
E.g. If JK Rowling spent 10 years writing Harry Potter and spent the next 50 years in total consumption mode she would have still produced far more value than if she had worked in a basic office job for 60 years. How many Rowlings are stuck in low value producing roles?
2) Medium-Large companies are incredibly risk averse to the detriment of the overall market. As such the money they tie up gets very low returns. Forcing a shift in this money into either individuals or into automation attempts would provide far greater returns at an increased risk to a few companies but not an increased systematic risk for the economy.
Inflation is measured by an increase in the price of a basket of consumption, not the value, which is almost unmeasureable. If the size of the economy increases faster than the increase in the money supply then there is a greater demand for money to buy all the new stuff being produced, so money is more valuable, therefore you can buy more with your money, ergo prices fall; all taken with the same amount of handwaving bullshit that applies to any economic argument, of course.
Also, the increase in consumption, from basic income, and hence any direct inflationary effect, is bounded by the level of basic income. For basic income to be worthless the level of inflation on the goods bought by those who are the prime targets of basic income (i.e. the poor) would have to match or exceed the additional cash obtained through the basic income. Inflation in goods and services mostly bought by the rich, due to increased wage pressures, are basically (ho ho) irrelevant.
What is required is an argument as to why the inflation on the price of the relevant goods would be higher than the level of the basic income being used to pay for those goods.
You are correct, I should have said "price" instead of "value". Everything you say about the boundedness of the consumption increase is correct. So we'll get a one time inflation spike.
The main issue I take with your post is this: If the size of the economy increases faster than the increase in the money supply...
With more consumption and less investment, we expect the economy to increase more slowly than in the counterfactual (no BI). So holding money supply constant (which is of course ridiculous), we'd expect more inflation in the BI scenario than the no BI scenario.
The real question here, which is more or less unrelated to inflation: why do we want to shift resources from investment to consumption? Do we have a high discount rate and basically not care about the future?
(If we do have a high discount rate, we should probably shift resources away from long term issues like climate change, education, scientific research.)
> With more consumption and less investment, we expect the economy to increase more slowly than in the counterfactual (no BI). So holding money supply constant (which is of course ridiculous), we'd expect more inflation in the BI scenario than the no BI scenario.
Yes, I agree that it seems like there would be more inflation with BI than without it, though, as I said, that will be irrelevant in policy terms as long as the inflation doesn't exceed the BI cash injection. Presumably the level of BI would be tailored to compensate for projected inflation.
> The real question here, which is more or less unrelated to inflation: why do we want to shift resources from investment to consumption? Do we have a high discount rate and basically not care about the future?
I think the answer to this question comes from the fact that BI is a policy designed to alter the distribution of wealth, rather than the overall level of wealth. You might be keeping the same overall discount rate, but adjusting the distribution of rates across society: increasing it for the poorest in society, and decreasing it for the richest, for no net change. There would, therefore, be no change in the handling of long-term issues.
I think the answer to this question comes from the fact that BI is a policy designed to alter the distribution of wealth, rather than the overall level of wealth.
The issue here is not distribution of wealth, it's consumption. The more we consume now, the less we invest in the future. Do you disagree that BI will increase consumption?
Concretely, we could invest in reducing CO2 emissions, building Tesla factories or developing Tinder for Dogs. Alternatively, we could continue emitting CO2, skip the new Tesla factory and instead just ramp up production in the old Toyota factory, and continue producing goods for poor people to consume.
BI pushes us toward the latter alternative. Why should we favor this?
> The issue here is not distribution of wealth, it's consumption. The more we consume now, the less we invest in the future. Do you disagree that BI will increase consumption?
The point of BI is to redistribute consumption to the lower end of the economic distribution, at the expense of the higher end, not to increase overall consumption, though that might happen as a side effect.
The net increase in consumption minus the net productivity gains will be the cost of BI, paid to increase economic equality. However, I have seen quite a few (in fact I would say most) proponents of BI argue that the "cost" will be negative, that the productivity gains will, overall, exceed the increase in consumption.
A basis for this claim is that the marginal return on consumption for poorer people is higher than for richer people, and so they can more efficiently use the redistributed consumption, leading to higher overall productivity. The issue of consumption is, therefore, only half of the argument, and must always be considered in tandem with productivity.
The answer to your final question in this context is that we should favour BI because it is intended to increase net productivity at the same time as increasing consumption on the low end: we will have our cake and eat it.
I believe the gp is saying that BI won't cause a redistribution of consumption from the high-end to the low-end, but instead of redistribution of investment on the high-end (since consumption doesn't scale linearly with income - probably something logrithmic looking), and this loss of investment will have a much greater negative effect on productivity than any minor increase due to consumption on the low end.
Yes, I think at this point it's really just a difference of opinion as to what the effects of BI would be. My view is that the marginal utility of those dollars spent by the high end on investments is lower than the marginal utility of increased consumption at the low end, especially as the actual amounts involved are not that big. I guess the best way to resolve the issue would be experimental validation! ;-)
> The real question here, which is more or less unrelated to inflation: why do we want to shift resources from investment to consumption?
Putting aside the question of whether a basic income would actually shift resources from investment to consumption, there is a very simple way to offset it. Raise the money using a consumption tax (ideally VAT).
> If BI increases demand for consumption (as most of it's proponents claim it will), then the price of consumption will increase - hence, inflation.
This is a very bizarre argument against BI. You can clearly see how silly it is by applying it to reducing the unemployment rate (or for that matter anything that provides income to the poor) -- if more people have income then consumption will increase and cause inflation.
The reason the argument is silly is that it's way more complicated than that. Even the assumption that BI will cause increased consumption is based on other assumptions about what people want at different income levels. It could be that members of the lower middle class are hungry for an opportunity to start a business and will use the money to invest rather than consume. It depends entirely on the contours of the economy at a specific time and place and is constantly in flux. Investment vs. consumption is also a false dichotomy, because investments just turn into the consumption of the entity selling the investment, and businesses obtain capital by selling products as well as by soliciting investors. So it's really the difference between consumption of consumer goods and services like food and entertainment vs. of business goods and services like commercial equipment and marketing services, and even that distinction is as clear as mud.
On top of that, whether an increase in demand causes an increase in price depends on the supply of the goods in question. There are many products for which this relationship is negative. Where there is no practical limit on the number of units suppliers can produce, having more demand will give sellers more units over which to amortize fixed costs and can thereby reduce the unit price.
This makes the statement "basic income will cause inflation" completely meaningless. What it will do is cause the price of some goods and services to increase and others to decrease, much as any economic change will do. Whether this change will on net cause prices to increase more than decrease (and to what degree) depends entirely on the contours of the economy and on which specific goods and services you're measuring.
But perhaps most importantly, even assuming it would cause inflation in a particular economy, the amount of inflation is necessarily less than the amount of the basic income because of the existence (and likely preponderance) of products with less than perfectly inelastic supply.
You can clearly see how silly it is by applying it to reducing the unemployment rate...
Reducing unemployment will increase demand but will also increase supply. So no.
It could be that members of the lower middle class are hungry for an opportunity to start a business and will us the money to invest rather than consume...There are many products for which this relationship is negative. Where there is no practical limit on the number of units suppliers can produce...
So if I'm understanding you right, BI will work because the rich have a higher marginal propensity for consumption, Giffen goods are common and scarcity isn't real? Ok.
It depends entirely on the contours of the economy at a specific time and place and is constantly in flux.
If that is the case then the usefulness of a BI will also constantly be in flux. I guess your opinions on the topic are also constantly in flux? If not, why not?
> Reducing unemployment will increase demand but will also increase supply. So no.
That's just the same fallacy. Why can you assume the thing the employee is producing won't have less price elasticity than the thing the employee buys with the income, but I can't?
> the rich have a higher marginal propensity for consumption
Your argument is that the rich have a much lower marginal propensity for consumption, enough to really matter. And that may even be true if you're talking about a matter of $2, which a poor person would almost certainly use to buy lunch or the like but would have no effect on a rich person's level of consumption. But if you give a poor person $20,000, now you have to ask whether they aren't going use it to attend college or start a business. It's an entirely different dynamic.
Also, if the money is raised using a consumption tax then it can inherently never come from someone making an investment regardless of their income level, which kind of destroys your entire argument, since it is based on where the money comes from as much as who gets it.
> Giffen goods are common
Nobody is even talking about Giffen goods, that's the demand side. And goods whose total cost is dominated by fixed costs are extremely common.
> scarcity isn't real
Scarcity is often not relevant. The market price of a computer or pharmaceuticals or recorded music is completely divorced from the cost of the scarce materials necessary to manufacture it. There is no realistic volume of DVDs that could be produced that would materially affect the market price of plastic.
> If that is the case then the usefulness of a BI will also constantly be in flux.
Whether and to what degree it causes inflation or deflation would constantly be in flux. That it might possibly cause a small amount of inflation is hardly a condemnation, and it is unlikely to cause a large amount of inflation for the reasons I've already mentioned -- its tendency to increase prices in some products is offset by its tendency to reduce prices in other products.
Because it's right. Because the marginal utility of money is much higher for the poor, and because inequality is inherently harmful over and above the effects that low absolute wealth has on the poor.
> why it won't be inflationary
Even if it is inflationary, basic income can't fail to reduce inequality, because money is fungible. If we go from a world in which A has $1 and B has $0 to one where A has $2 and B has $1, we go from A getting all of the resources to A getting 2/3 of the resources and B getting 1/3 of the resources.
That said, the argument is that basic income increases productivity by a) improving the marginal incentives for people to start working or work more hours b) increasing consumer demand
Instead of spending all their time being wage slaves and buying the $2 boots that fall apart every month, they can actually invest in the $15 boots that last 10 years (thus of maximum utility) and help signal to the boot market that we don't need crappy boots.
Poor people cannot invest in good products, so companies build shitty things that sell because people need to survive, but are a bad long-term proposition.
>what rationale there is for distributing it (other than the implicit acknowledgement that the alternative is civil unrest)
So that we can reduce work pressure and people can have fun with their lives instead of struggling for a living in a world of plenty. I mean, DUH. Why does this even need to be stated in the first place?
That's why I would like a basic income, but it won't wash with most people. Perhaps I should have said 'individual rationale'. Look at it from a conservative point of view (becuase that's where the opposition will come from): why should my hard-earned taxes be used to give people money for doing nothing, just so that they can 'have fun with their lives'?
This isn't my personal outlook, but I'm playing devil's advocate here.
You parent's argument is poorly stated if the desire is to appeal to conservatives. Indeed, many people will object for the reason you stated.
There are a few premises that must be established to make a case for BI.
1. We are approaching a post-scarcity economy.
2. In a post-scarcity economy, many people will lose the ability to support themselves\their families, as whole industries are automated.
3. In the case of massive unemployment, consumption will drop dramatically.
4. Drastic drops in consumption will devastate the economy. This will be bad for everyone. Less wealth, less progress, less investment.
5. Therefore, to maintain economic growth/stability in a post-scarcity economy, we should provide a basic income.
That's the best argument I can formulate. It really has nothing to do with having fun and not being forced to do menial work. Those are fringe benefits.
I strongly agree with this. I'm being contrarian with my questions above (and may do so again in the future) becuase it seems to me that the big obstacles to a basic income are cultural and political, and I'm trying to figure out good solutions to that problem.
As a parallel, consider immigration. From an economic point of view, open borders make a lot of sense because the supply of labor can easily adjust to the demand, so I've wondered for a long time why there shouldn't be free movement of labor as well as capital. Indeed, many people agree with this; I can't imagine you'd find anyone in the US that wanted to adopt China's houkou system, and require people from one state to get a work permit before moving to or taking a job in another state. Given the demographic situation in the US with waves of baby boomers retiring but also living longer the resultant worsening retiree:worker ratio, immigration also makes a great deal of sense as a way to keep a lid on payroll taxes and so forth, and this is coincidentally the last opportunity the US is likely to have to exploit a nearby foreign labor surplus just when it needs one (due to falling overseas birthrates and wage equalization eroding the US demand-side advantages).
Pretty much every economist agrees that more immigration with fewer restrictions would be a good thing for the US. But obviously a sizable contingent of the population just cannot stand that idea and any time such proposals are made in DC the objectors melt the congressional switchboard as quickly as possible to express their displeasure.
So I've given up hope that proposals for a basic income would succeed on the grounds of rationality alone.
I agree with you on the immigration front as well. And I agree that it is probably true that immigration reform/BI will not succeed on rational grounds. It seems to me that marketing/emotional appeals have the most effect on political/social systems.
When I discuss these topics, I always attempt to make a valid argument (the conclusion follows from the premises), and try to change the discussion to the truth of the premises. Everyone wants to debate the conclusion without looking at the actual premises/validity of the argument.
I appreciate a devil's advocate because it forces me to clarify my own thinking, which hopefully helps me clarify it to others.
Incidentally, I'm not sure we are really heading for a post-scarcity economy. That seems the weakest part of the argument to me. Or at least the toughest part to demonstrate conclusively. So, i think there are rational reasons to be against BI as well.
Why don't we join together and stablish UNIVERSALY UBI? We are about to finish citizens initiative in Spain. Switzerland is about to make a referendum. UE is discussing it on parlament... This is a global conversation. What inmigration?
In Spain there is already a model with real data. There is no problem to finance, the main difficulty is politic will, not money.
Since you are not injecting money to the system there is no inflation. UBI is a tool for a redistribution of wealth.
Here is the model in spanish: www.nodo50.org/redrentabasica/descargas/RBnoinerte.pdf
