I think you are getting very distracted by the money flows here. A generally-useful move in these sorts of problems is to forget about the money flows, and just look at the real goods/services/economic value produced and consumed.
If a UBI causes a bunch of people to stop working, what does that mean in terms of production and consumption of real value?
Well, obviously if someone stops working then there is less total goods and services produced. That’s a loss of real economic value. The trade-off is that the (former) worker gains some leisure time. So, from a real value perspective, the main question is whether the leisure gained has more real economic value than the goods/services no longer being produced.
There will also be second-order redistributive effects, as the redistribution of income/wealth changes spending patterns, but the analysis there shouldn’t be any different from redistribution more generally. (This would include e.g. your Netflix/city apartment examples.) The part which is specific to UBI is the trade-off between leisure and goods/services produced.
Well, obviously if someone stops working then there is less total goods and services produced. That’s a loss of real economic value
If they stop, and they were doing something useful, and nothing replaces them. Getting rid of bullshit jobs and increasing automation aren’t bad things. Although that won’t be the whole story.
If I earn less money than I spend less money. The question is whether the combination of {me working} + {me consuming} is better or worse for the rest of the world than {me relaxing}, since what’s at issue is precisely whether individuals who decide not to work are a sign of social inefficiency.
For the purpose of that comparison, the consumption seems just as relevant as the production. You seem to be disagreeing, but I’m not sure why. Yes, it’s true that if I give someone a UBI they will also spend the UBI, and that’s the same as any redistribution, but that’s not relevant to analyzing whether their decision to not work is socially inefficient.
The question is whether the combination of {me working} + {me consuming} is better or worse for the rest of the world than {me relaxing}
Huh?? This does not make sense to me, in two ways:
If we’re talking economic efficiency, then your own utility should be included. What’s best for “the rest of the world” isn’t the efficiency question; we should be asking what’s best for everyone, including you. Why would we focus on the rest of the world?
In a UBI scenario, you should be able to stop working while still consuming (though someone else will consume less). You may cut back consumption to some extent, but presumably by much less than if you just stopped working and had no income at all. The choice between {me working} + {me consuming} vs {me relaxing} is the choice faced when considering retirement, not when considering UBI.
If we’re talking economic efficiency, then your own utility should be included.
My starting assumption is that I decided not to work because I believe I am better off. We are wondering if my decision to stop working was inefficient, i.e. if it makes the world worse off despite me voluntarily choosing to do it. So the salient questions are (i) how does this affect everyone else? Does it cause harms to the rest of the world? (ii) am I predictably making a mistake (e.g. by not adequately accounting for the ways in which working benefits my future self)?
In a UBI scenario, you should be able to stop working while still consuming
Yes, I’m talking about the additional consumption if you earn+spend more money.
Yes, I’m talking about the additional consumption if you earn+spend more money.
Generally speaking, if we’re asking “what’s the impact of policy X?” in economics, we:
consider how each agent will react to policy X
compare outcomes under the decisions which each agent will actually make
Key point: we do not compare outcomes under decisions the agents could make (i.e. their choice-sets), we compare outcomes under decisions they will make, in both a with-policy scenario and a without-policy scenario.
In this context, that means we ask
How will you react to the UBI—i.e. how will your production and consumption (as well as everyone else’ production and consumption) change in a world with UBI vs a world without UBI?
What does that imply about how nice the world will be with or without UBI?
The question you are currently asking is instead “given UBI, how will production and consumption change if I do vs do not work?”. But that’s not the relevant question for evaluating UBI. For evaluating UBI, the questions are
“given UBI, will you work?”—to which we’ll assume the answer is “no”, for current purposes
given that, is the world better off with (no UBI + you working) or (UBI + you not working)
In particular:
We are wondering if my decision to stop working was inefficient
This is not the question. The question is whether UBI is inefficient, given that you will react to the UBI by not working. The question is not whether your own decision is inefficient.
(If the question were whether your own decision is inefficient, then the discussion of externalities would be roughly correct; at that point it’s basically just the usual question of whether individual utility-maximization produces efficient outcomes.)
Many people’s view of a UBI depends on whether recipients in fact stop working. For example, people are interested in running studies on that question, often with a clear indication that they would support a UBI if and only if recipients don’t significantly decrease hours worked.
What are we to make of this concern?
A natural way to understand it is to separate the effects of UBI into {recipients may decide to reduce hours worked} from {all other effects}. Then the concern could be understood as a suggestion that this change in hours worked is bad even if the the other effects of a UBI would be good. Put differently, people who express this concern may believe that a UBI would be good if we magically causally intervened to ensure that people continued working the same amount, while the effects of UBI alone are more uncertain.
The reason to respond to this view, rather than directly analyzing all the effects of a UBI together, is that it seemed to me to indicate a moral error that could be separated from the other complex empirical questions at stake.
(Given that this seems like a kind of unenlightening thread about a topic that’s not super important to me, I’ll probably drop it.)
(Given that this seems like a kind of unenlightening thread about a topic that’s not super important to me, I’ll probably drop it.)
Reasonable. If you want a halfway-decent defense of the view that whether UBI is a good idea should depend on whether recipients stop working (while still accepting that work is not inherently good), you might like this.
Learning a lot from this discussion, thank you. I am in agreement with idea that viability of UBI depends on people who are currently working more or less continuing to work. If everyone stopped working, then obviously UBI (and civilization) fails. In fact, you need a large proportion (dependent on level of UBI) to keep working and paying taxes, otherwise UBI consumption simply fires inflation. On the other hand, everyone who does work has more spending power than those who don’t so it seems to me there is powerful incentive to work. I can see that people might use it to reduce work hours, but given experiments on 4 day week, I dont think that would necessarily reduce productivity in many industries.
I cant see a way to determine by reason alone that UBI will be successful without actually running trials over long period to assess response.
People do those transactions voluntarily, so the net value of working + consuming must be greater than that of leisure. When I pay someone to do work I’ve already decided that I value their work more than the money I paid them, and they value the money I pay them more than the work they do. When they spend the money, the same applies, no matter what they buy.
Basically the whole case comes down to the externalities of working+consuming though (both the case in favor and the case against). It seems the point stands that the externalities of working and consuming are both relevant, there’s not really an asymmetry there, and I don’t see how this is related to “getting distracted by the money flows.”
Like, I might produce value because some gets more surplus from hiring me than they would have gotten from hiring someone else (in the competitive limit that gap converges to 0 and they are indifferent, but presumably it won’t be 0 in the real world). And similarly I might produce value because someone gets more surplus from selling to me than they would have gotten from selling to me. But those things seem symmetrical.
UBI could enhance production for some people, if it enables them to invest more in job skills or other forms of capital. The argument for every social program—the military and police, vaccination, education, infrastructure, scientific R&D, and so on—is that they produce more value than they cost.
This also applies to forms of welfare. For example, the ER visits circumvented by housing the homeless may save the taxpayer more money than providing the housing costs.
The essential argument about UBI is not whether greater leisure time is worth the cost.
It’s whether we can get more leisure time and more production at a net savings to the taxpayer with UBI.
For example, I am currently in school preparing for a degree in bioinformatics, but I am also working part-time in my old job as a piano teacher. Society could allow me to pump more STEM knowledge into my head if I didn’t have to work 20 hours a week providing an after-school activity for bored rich children. It could also reduce the risk that I’ll burn out before I make good on my investment.
Whether this sort of dynamic outweighs the productive loss from people choosing to live off UBI and not work at all is an empirical question.
I think you are getting very distracted by the money flows here. A generally-useful move in these sorts of problems is to forget about the money flows, and just look at the real goods/services/economic value produced and consumed.
If a UBI causes a bunch of people to stop working, what does that mean in terms of production and consumption of real value?
Well, obviously if someone stops working then there is less total goods and services produced. That’s a loss of real economic value. The trade-off is that the (former) worker gains some leisure time. So, from a real value perspective, the main question is whether the leisure gained has more real economic value than the goods/services no longer being produced.
There will also be second-order redistributive effects, as the redistribution of income/wealth changes spending patterns, but the analysis there shouldn’t be any different from redistribution more generally. (This would include e.g. your Netflix/city apartment examples.) The part which is specific to UBI is the trade-off between leisure and goods/services produced.
If they stop, and they were doing something useful, and nothing replaces them. Getting rid of bullshit jobs and increasing automation aren’t bad things. Although that won’t be the whole story.
If I earn less money than I spend less money. The question is whether the combination of {me working} + {me consuming} is better or worse for the rest of the world than {me relaxing}, since what’s at issue is precisely whether individuals who decide not to work are a sign of social inefficiency.
For the purpose of that comparison, the consumption seems just as relevant as the production. You seem to be disagreeing, but I’m not sure why. Yes, it’s true that if I give someone a UBI they will also spend the UBI, and that’s the same as any redistribution, but that’s not relevant to analyzing whether their decision to not work is socially inefficient.
Huh?? This does not make sense to me, in two ways:
If we’re talking economic efficiency, then your own utility should be included. What’s best for “the rest of the world” isn’t the efficiency question; we should be asking what’s best for everyone, including you. Why would we focus on the rest of the world?
In a UBI scenario, you should be able to stop working while still consuming (though someone else will consume less). You may cut back consumption to some extent, but presumably by much less than if you just stopped working and had no income at all. The choice between {me working} + {me consuming} vs {me relaxing} is the choice faced when considering retirement, not when considering UBI.
My starting assumption is that I decided not to work because I believe I am better off. We are wondering if my decision to stop working was inefficient, i.e. if it makes the world worse off despite me voluntarily choosing to do it. So the salient questions are (i) how does this affect everyone else? Does it cause harms to the rest of the world? (ii) am I predictably making a mistake (e.g. by not adequately accounting for the ways in which working benefits my future self)?
Yes, I’m talking about the additional consumption if you earn+spend more money.
Generally speaking, if we’re asking “what’s the impact of policy X?” in economics, we:
consider how each agent will react to policy X
compare outcomes under the decisions which each agent will actually make
Key point: we do not compare outcomes under decisions the agents could make (i.e. their choice-sets), we compare outcomes under decisions they will make, in both a with-policy scenario and a without-policy scenario.
In this context, that means we ask
How will you react to the UBI—i.e. how will your production and consumption (as well as everyone else’ production and consumption) change in a world with UBI vs a world without UBI?
What does that imply about how nice the world will be with or without UBI?
The question you are currently asking is instead “given UBI, how will production and consumption change if I do vs do not work?”. But that’s not the relevant question for evaluating UBI. For evaluating UBI, the questions are
“given UBI, will you work?”—to which we’ll assume the answer is “no”, for current purposes
given that, is the world better off with (no UBI + you working) or (UBI + you not working)
In particular:
This is not the question. The question is whether UBI is inefficient, given that you will react to the UBI by not working. The question is not whether your own decision is inefficient.
(If the question were whether your own decision is inefficient, then the discussion of externalities would be roughly correct; at that point it’s basically just the usual question of whether individual utility-maximization produces efficient outcomes.)
Many people’s view of a UBI depends on whether recipients in fact stop working. For example, people are interested in running studies on that question, often with a clear indication that they would support a UBI if and only if recipients don’t significantly decrease hours worked.
What are we to make of this concern?
A natural way to understand it is to separate the effects of UBI into {recipients may decide to reduce hours worked} from {all other effects}. Then the concern could be understood as a suggestion that this change in hours worked is bad even if the the other effects of a UBI would be good. Put differently, people who express this concern may believe that a UBI would be good if we magically causally intervened to ensure that people continued working the same amount, while the effects of UBI alone are more uncertain.
The reason to respond to this view, rather than directly analyzing all the effects of a UBI together, is that it seemed to me to indicate a moral error that could be separated from the other complex empirical questions at stake.
(Given that this seems like a kind of unenlightening thread about a topic that’s not super important to me, I’ll probably drop it.)
Reasonable. If you want a halfway-decent defense of the view that whether UBI is a good idea should depend on whether recipients stop working (while still accepting that work is not inherently good), you might like this.
Learning a lot from this discussion, thank you. I am in agreement with idea that viability of UBI depends on people who are currently working more or less continuing to work. If everyone stopped working, then obviously UBI (and civilization) fails. In fact, you need a large proportion (dependent on level of UBI) to keep working and paying taxes, otherwise UBI consumption simply fires inflation. On the other hand, everyone who does work has more spending power than those who don’t so it seems to me there is powerful incentive to work. I can see that people might use it to reduce work hours, but given experiments on 4 day week, I dont think that would necessarily reduce productivity in many industries.
I cant see a way to determine by reason alone that UBI will be successful without actually running trials over long period to assess response.
People do those transactions voluntarily, so the net value of working + consuming must be greater than that of leisure. When I pay someone to do work I’ve already decided that I value their work more than the money I paid them, and they value the money I pay them more than the work they do. When they spend the money, the same applies, no matter what they buy.
Basically the whole case comes down to the externalities of working+consuming though (both the case in favor and the case against). It seems the point stands that the externalities of working and consuming are both relevant, there’s not really an asymmetry there, and I don’t see how this is related to “getting distracted by the money flows.”
Like, I might produce value because some gets more surplus from hiring me than they would have gotten from hiring someone else (in the competitive limit that gap converges to 0 and they are indifferent, but presumably it won’t be 0 in the real world). And similarly I might produce value because someone gets more surplus from selling to me than they would have gotten from selling to me. But those things seem symmetrical.
UBI could enhance production for some people, if it enables them to invest more in job skills or other forms of capital. The argument for every social program—the military and police, vaccination, education, infrastructure, scientific R&D, and so on—is that they produce more value than they cost.
This also applies to forms of welfare. For example, the ER visits circumvented by housing the homeless may save the taxpayer more money than providing the housing costs.
The essential argument about UBI is not whether greater leisure time is worth the cost.
It’s whether we can get more leisure time and more production at a net savings to the taxpayer with UBI.
For example, I am currently in school preparing for a degree in bioinformatics, but I am also working part-time in my old job as a piano teacher. Society could allow me to pump more STEM knowledge into my head if I didn’t have to work 20 hours a week providing an after-school activity for bored rich children. It could also reduce the risk that I’ll burn out before I make good on my investment.
Whether this sort of dynamic outweighs the productive loss from people choosing to live off UBI and not work at all is an empirical question.