Due to money neutrality[1], increases in the supply of money that’s in circulation (either because the government is printing money to fund UBI or, to a lesser extent, because they are taxing ultra-rich people, whose wealth generally has a lower velocity than that of the lower-income recipients that save a smaller percentage of their income) do not modify real variables, such as real GDP.
This means that the total supply of goods and services in a country does not change, and the increase in people’s disposable income and thus capacity to buy is, on the whole, captured entirely by inflation and rent-seeking. Note that rent alone does not go up by exactly the value of the UBI, but since other goods and services increase in price as well, the total real effect is zero. Of course, many answers have already mentioned that the rent-seeking part can be addressed (at least in part) by Land Value Taxes (LVT).
While LVT seems to me like a good idea on the whole, it still has some serious implementation issues. Firstly, on the federal level, it is almost certainly a non-income direct tax and thus covered by Article I, Section 9, Clause 4 of the Constitution, which requires apportionment among the states[2] (and it’s likely not covered by the 16th Amendment, which generates a exemption from this). Secondly, there are other practical problems, such as accurately assessing the value of (unimproved) land separately from whatever is built on top of it. Moreover, most Georgists support a tax rate of below 100%, which would reduce but not eliminate land rent-seeking. There are other arguments that have been brought against LVT, of course, but they don’t ultimately seem to hold up, in my view.
Of course, there is also the additional issue that land is not the only area in which sustained economic rent-seeking happens. What makes land easier to tackle in this regard, at least conceptually, is that, in practice, it is almost perfectly inelastic, so taxation of it does not generate productivity-destroying Deadweight Loss the way any other non-Pigouvian taxes do. Other areas in which we have rent-seeking likely do not benefit from the same feature, so taxation would need to be implemented very carefully, so as to generate the roughly estimated the social benefit and thus socially desirable quantity of some area of the economy.
In any case, even though the aggregate real effect of UBI would be approximately zero, this does not mean that there would not be people who benefit. On the contrary, it seems sensible to expect lower-income consumers to benefit the most: for illustrative purposes, an extreme example is someone who starts of with a disposable income of $0. They cannot buy anything at the beginning, but if they receive $2k in UBI, let’s say, they can now afford more goods and services than before, even if those goods and services get more expensive. Less extremely, a hypothetical scenario in which each citizen/resident has the same consumption demand curves and receives the same lump sum of money from the government simply results in the value of money decreasing by a factor of total old money+total new moneytotal old money, so the total value stays the same, but it is more evenly distributed (poorer people get richer in real terms and richer people get poorer in real terms).
This doesn’t quite match reality because rich people and poor people do have measurable differences in consumption preferences and demand curves. But I think we have good reason to suspect that the overall effects generated by this are small and should not change our conclusion (that UBI generally has a progressive aspect) too much.
Apportionment has been described by scholars as “an absurd requirement, almost always impossible or else so perverse in effect that no democracy, indeed no rational government, could adopt it”
I think this explains what I was concerned about with UBI. The aggregate effects will be zero, but combined with you and others pointing out that it’s a wealth transfer from the wealthiest (whether this happens directly or indirectly), UBI may reasonably give people at the bottom of the market sufficient money to become participants.
I think my concerns about rent seeking tanking UBI are perhaps separate from whether UBI can work in theory, although in practice I’m still quite suspicious that rent seeking will prevent UBI from achieving its desired effects.
>UBI may reasonably give people at the bottom of the market sufficient money to become participants.
The incentive is still going to drive a businessperson to come up with a way to take that money from those people (as it is now). So the rent seeking could expand to include something like slum-lording trailer parks in areas which are even further from possible employment, potentially locking those residents into a radius where no one around does anything but pot and video games.
Meanwhile, since there is more money available to the middle classes, can’t I just sell/rent them a house with more bells and whistles? Maybe they’re discerning customers with an extra thousand dollars, so we build the house on 16“ centers again instead of 20” and sell them their new, wonderful, higher-quality lifestyle. Or maybe we just put a thousand dollar countertop on the same crummy house.
Or is something more fundamentally changed by UBI in the basic system underlying rent-seeking and inflation (in essence, the dynamics of capitalism)? To me, rent-seeking is only a specific incarnation of that greater dynamic of exploiting whatever source of income you can by whatever advantage you have within the system to take money from whoever can and will give it to you, and not as distinct as people make it out to be. The only thing UBI fundamentally changes in this equation is who can render funds, and how much they can render.
Due to money neutrality[1], increases in the supply of money that’s in circulation (either because the government is printing money to fund UBI or, to a lesser extent, because they are taxing ultra-rich people, whose wealth generally has a lower velocity than that of the lower-income recipients that save a smaller percentage of their income) do not modify real variables, such as real GDP.
This means that the total supply of goods and services in a country does not change, and the increase in people’s disposable income and thus capacity to buy is, on the whole, captured entirely by inflation and rent-seeking. Note that rent alone does not go up by exactly the value of the UBI, but since other goods and services increase in price as well, the total real effect is zero. Of course, many answers have already mentioned that the rent-seeking part can be addressed (at least in part) by Land Value Taxes (LVT).
While LVT seems to me like a good idea on the whole, it still has some serious implementation issues. Firstly, on the federal level, it is almost certainly a non-income direct tax and thus covered by Article I, Section 9, Clause 4 of the Constitution, which requires apportionment among the states[2] (and it’s likely not covered by the 16th Amendment, which generates a exemption from this). Secondly, there are other practical problems, such as accurately assessing the value of (unimproved) land separately from whatever is built on top of it. Moreover, most Georgists support a tax rate of below 100%, which would reduce but not eliminate land rent-seeking. There are other arguments that have been brought against LVT, of course, but they don’t ultimately seem to hold up, in my view.
Of course, there is also the additional issue that land is not the only area in which sustained economic rent-seeking happens. What makes land easier to tackle in this regard, at least conceptually, is that, in practice, it is almost perfectly inelastic, so taxation of it does not generate productivity-destroying Deadweight Loss the way any other non-Pigouvian taxes do. Other areas in which we have rent-seeking likely do not benefit from the same feature, so taxation would need to be implemented very carefully, so as to generate the roughly estimated the social benefit and thus socially desirable quantity of some area of the economy.
In any case, even though the aggregate real effect of UBI would be approximately zero, this does not mean that there would not be people who benefit. On the contrary, it seems sensible to expect lower-income consumers to benefit the most: for illustrative purposes, an extreme example is someone who starts of with a disposable income of $0. They cannot buy anything at the beginning, but if they receive $2k in UBI, let’s say, they can now afford more goods and services than before, even if those goods and services get more expensive. Less extremely, a hypothetical scenario in which each citizen/resident has the same consumption demand curves and receives the same lump sum of money from the government simply results in the value of money decreasing by a factor of total old money+total new moneytotal old money, so the total value stays the same, but it is more evenly distributed (poorer people get richer in real terms and richer people get poorer in real terms).
This doesn’t quite match reality because rich people and poor people do have measurable differences in consumption preferences and demand curves. But I think we have good reason to suspect that the overall effects generated by this are small and should not change our conclusion (that UBI generally has a progressive aspect) too much.
Which is basically correct in the medium-to-long-term
Apportionment has been described by scholars as “an absurd requirement, almost always impossible or else so perverse in effect that no democracy, indeed no rational government, could adopt it”
I think this explains what I was concerned about with UBI. The aggregate effects will be zero, but combined with you and others pointing out that it’s a wealth transfer from the wealthiest (whether this happens directly or indirectly), UBI may reasonably give people at the bottom of the market sufficient money to become participants.
I think my concerns about rent seeking tanking UBI are perhaps separate from whether UBI can work in theory, although in practice I’m still quite suspicious that rent seeking will prevent UBI from achieving its desired effects.
>UBI may reasonably give people at the bottom of the market sufficient money to become participants.
The incentive is still going to drive a businessperson to come up with a way to take that money from those people (as it is now). So the rent seeking could expand to include something like slum-lording trailer parks in areas which are even further from possible employment, potentially locking those residents into a radius where no one around does anything but pot and video games.
Meanwhile, since there is more money available to the middle classes, can’t I just sell/rent them a house with more bells and whistles? Maybe they’re discerning customers with an extra thousand dollars, so we build the house on 16“ centers again instead of 20” and sell them their new, wonderful, higher-quality lifestyle. Or maybe we just put a thousand dollar countertop on the same crummy house.
Or is something more fundamentally changed by UBI in the basic system underlying rent-seeking and inflation (in essence, the dynamics of capitalism)? To me, rent-seeking is only a specific incarnation of that greater dynamic of exploiting whatever source of income you can by whatever advantage you have within the system to take money from whoever can and will give it to you, and not as distinct as people make it out to be. The only thing UBI fundamentally changes in this equation is who can render funds, and how much they can render.