Let’s consider the case where UBI is created from taxes. The poorest people now receiving at least $X a year. Why would this cause the supply of goods to increase? Wouldn’t everything just go up in price by $X in aggregate so that all the additional money at the low end is captured leaving everyone just where they are now, and only curtail marginal luxury spending of high earners?
UBI financed by taxes wouldn’t cause the supply of goods to increase (as I suggest, secondary effects could well result in a decrease in supply of goods). But it causes the consumption of goods by higher-income people to decrease (they have to pay more money in taxes that they would otherwise have spent on themselves). So there are more goods available for the lower-income people.
You seem to be assuming that there are two completely separate economies, one for the poor and one for the rich, so any more money for the poor will just result in “poor goods” being bid up in price. But the rich and poor actually consume many of the same goods, and those goods that are mainly consumed by the poor are usually produced using resources that could also be used to produce goods for the rich, so any effects of the sort you seem to be thinking about are likely to be quite small.
I don’t think higher income people are spending as much %% of their money on goods and services, so everyday goods and services may not be protected as much from the “printing money” effect. Much of the shift in those prices comes from the increased spending power on the bottom margin, as the rich already have all the food and such they want anyway.
If you’re already using that money to invest in stocks, then UBI probably inflates basic good prices (as it gives the lower income brackets more money and additionally reduces the labor supply to make them, as we saw in 2020 it might not take much to shake that out of balance). So it’s inflationary on labor. It seems inflationary on markets as the mid-end will buy stocks (again, see 2020), so we get higher interest rates, which again prices the lower end consumers out of the market for houses, cars, and such. My guess is this further destroys anyone in the middle.
The poor in countries where UBI is being considered are not currently starving. So increased spending on food would take the form of buying higher-quality food. The resources for making higher-quality food can also be used for many other goods and services, bought by rich and poor alike. That includes investment goods, bought indirectly by the rich through stock purchases.
UBI could lead to a shift of resources from investment to current consumption, as resources are shifted from the well-off to the poor. This has economic effects, but is not clearly either good or bad. Other things being equal, this would increase interest rates, which is again neither good nor bad of itself.
However, you seem to be assuming the opposite—that UBI would lead to higher investment in stocks (presumably by the middle class?). That would reduce interest rates, not increase them. (I’m referring here to real interest rates, after accounting for inflation. Nominal interest rates could go anywhere, depending on what the central bank decides to do.)
Whether UBI harms the middle class would depend on whether they benefit on net, after accounting for the higher taxes, which could of course be levied in various ways on various groups.
Of course, a sufficiently large UBI would destroy the entire economy, as the incentive to work is destroyed, and any productive activity is heavily taxed to oblivion. But the argument in this post applies to even a small UBI, purporting to show that it would actually make the poor worse off. It wouldn’t, unless you hypothesize long-term speculative effects like “changing the culture of poor people to value hard work less”, which could exist, but apply to numerous other government programs as much or more.
Doesn’t this argument also apply to any form of social security or monetary wealth redistribution whatsoever and e.g. imply that giving people an unemployment benefit of X dollars would give them zero benefit compared to a counterfactual world where they got 0 dollars?
The “universal” part of UBI is an important difference. If you print money to give to only one person then that won’t be inflationary, but the more beneficiaries there are the more inflation will cut into the gains they each individually experience. So unemployment benefit, by hitting a smaller number of people, has less of this.
I think it is plausible that introducing UBI would make certain goods go up in price. For example rents right at the bottom of the market might go up (because landlords know the tenants can pay it), but they might go down at the top (due to the raised taxes cutting into rent budgets of the rich). That would feel exactly the same as inflation to the people effected, although I suppose technically it would not be inflation if the hit at the top balanced it on average. This would increase the supply of “poor person” goods, because the poor can afford more of them, so more will be manufactured.
(Inflation is a weird one because every person experiences a different inflation rate, depending on how the prices of the goods they buy are changing. The headline rate is some kind of average, which for many people might not be very close to their reality.)
The “universal” part of UBI is an important difference.
That is true, but note that relative to the current day, a UBI (at least in the form of the UBI schemes I’m most familiar with) would also only go to a relatively limited number of people. For people already earning a decent income, their taxation would be increased to eliminate the gain from the UBI; and a lot of the people who would income-wise be in a position where their UBI wouldn’t just be taxed out, are already on some form of social security that might be paying them the same as the UBI or more. (More, because the sum for the UBI would be chosen on the assumption that it would provide an income that was enough to make by but was still meager enough to incentivize work; whereas people who are e.g. on a disability pension because they are genuinely incapable of working and can’t be incentivized into it are thought to deserve more than just the bare basic minimum for living.)
I haven’t seen anyone run the numbers on this, and it of course also depends on the details of the exact scheme, but I guess that the number of people whose income would increase due to getting a UBI would be smaller than the number of people who are already getting the same amount or more through some other form of social security.
There’s also the consideration that there might be some people who’d like to quit their jobs, which currently pay them more than a UBI would, but are afraid to do that because they’re concerned that they couldn’t find another job or qualify for social security if they did. But with a UBI and a guaranteed income they would be more willing to quit, even if it meant a cut in their overall income. So there are some people who might move from medium-income to low-income, and have overall less money. Probably not a huge fraction but still something that would somewhat counterbalance the “inflationary on the lowest incomes” effect.
Let’s consider the case where UBI is created from taxes. The poorest people now receiving at least $X a year. Why would this cause the supply of goods to increase? Wouldn’t everything just go up in price by $X in aggregate so that all the additional money at the low end is captured leaving everyone just where they are now, and only curtail marginal luxury spending of high earners?
UBI financed by taxes wouldn’t cause the supply of goods to increase (as I suggest, secondary effects could well result in a decrease in supply of goods). But it causes the consumption of goods by higher-income people to decrease (they have to pay more money in taxes that they would otherwise have spent on themselves). So there are more goods available for the lower-income people.
You seem to be assuming that there are two completely separate economies, one for the poor and one for the rich, so any more money for the poor will just result in “poor goods” being bid up in price. But the rich and poor actually consume many of the same goods, and those goods that are mainly consumed by the poor are usually produced using resources that could also be used to produce goods for the rich, so any effects of the sort you seem to be thinking about are likely to be quite small.
I don’t think higher income people are spending as much %% of their money on goods and services, so everyday goods and services may not be protected as much from the “printing money” effect. Much of the shift in those prices comes from the increased spending power on the bottom margin, as the rich already have all the food and such they want anyway.
If you’re already using that money to invest in stocks, then UBI probably inflates basic good prices (as it gives the lower income brackets more money and additionally reduces the labor supply to make them, as we saw in 2020 it might not take much to shake that out of balance). So it’s inflationary on labor. It seems inflationary on markets as the mid-end will buy stocks (again, see 2020), so we get higher interest rates, which again prices the lower end consumers out of the market for houses, cars, and such. My guess is this further destroys anyone in the middle.
The poor in countries where UBI is being considered are not currently starving. So increased spending on food would take the form of buying higher-quality food. The resources for making higher-quality food can also be used for many other goods and services, bought by rich and poor alike. That includes investment goods, bought indirectly by the rich through stock purchases.
UBI could lead to a shift of resources from investment to current consumption, as resources are shifted from the well-off to the poor. This has economic effects, but is not clearly either good or bad. Other things being equal, this would increase interest rates, which is again neither good nor bad of itself.
However, you seem to be assuming the opposite—that UBI would lead to higher investment in stocks (presumably by the middle class?). That would reduce interest rates, not increase them. (I’m referring here to real interest rates, after accounting for inflation. Nominal interest rates could go anywhere, depending on what the central bank decides to do.)
Whether UBI harms the middle class would depend on whether they benefit on net, after accounting for the higher taxes, which could of course be levied in various ways on various groups.
Of course, a sufficiently large UBI would destroy the entire economy, as the incentive to work is destroyed, and any productive activity is heavily taxed to oblivion. But the argument in this post applies to even a small UBI, purporting to show that it would actually make the poor worse off. It wouldn’t, unless you hypothesize long-term speculative effects like “changing the culture of poor people to value hard work less”, which could exist, but apply to numerous other government programs as much or more.
Doesn’t this argument also apply to any form of social security or monetary wealth redistribution whatsoever and e.g. imply that giving people an unemployment benefit of X dollars would give them zero benefit compared to a counterfactual world where they got 0 dollars?
The “universal” part of UBI is an important difference. If you print money to give to only one person then that won’t be inflationary, but the more beneficiaries there are the more inflation will cut into the gains they each individually experience. So unemployment benefit, by hitting a smaller number of people, has less of this.
I think it is plausible that introducing UBI would make certain goods go up in price. For example rents right at the bottom of the market might go up (because landlords know the tenants can pay it), but they might go down at the top (due to the raised taxes cutting into rent budgets of the rich). That would feel exactly the same as inflation to the people effected, although I suppose technically it would not be inflation if the hit at the top balanced it on average. This would increase the supply of “poor person” goods, because the poor can afford more of them, so more will be manufactured.
(Inflation is a weird one because every person experiences a different inflation rate, depending on how the prices of the goods they buy are changing. The headline rate is some kind of average, which for many people might not be very close to their reality.)
That is true, but note that relative to the current day, a UBI (at least in the form of the UBI schemes I’m most familiar with) would also only go to a relatively limited number of people. For people already earning a decent income, their taxation would be increased to eliminate the gain from the UBI; and a lot of the people who would income-wise be in a position where their UBI wouldn’t just be taxed out, are already on some form of social security that might be paying them the same as the UBI or more. (More, because the sum for the UBI would be chosen on the assumption that it would provide an income that was enough to make by but was still meager enough to incentivize work; whereas people who are e.g. on a disability pension because they are genuinely incapable of working and can’t be incentivized into it are thought to deserve more than just the bare basic minimum for living.)
I haven’t seen anyone run the numbers on this, and it of course also depends on the details of the exact scheme, but I guess that the number of people whose income would increase due to getting a UBI would be smaller than the number of people who are already getting the same amount or more through some other form of social security.
There’s also the consideration that there might be some people who’d like to quit their jobs, which currently pay them more than a UBI would, but are afraid to do that because they’re concerned that they couldn’t find another job or qualify for social security if they did. But with a UBI and a guaranteed income they would be more willing to quit, even if it meant a cut in their overall income. So there are some people who might move from medium-income to low-income, and have overall less money. Probably not a huge fraction but still something that would somewhat counterbalance the “inflationary on the lowest incomes” effect.