I think the usual assumption is that UBI is financed by an increase in taxes (which means for people with more than a certain amount of other income, they come out behind when you subtract the extra taxes they pay from the UBI they receive). If so, there is no direct effect on inflation—some people get more money, some get less. There is a less direct effect in that there may be less incentive for people to work (and hence produce goods), as well as some administrative cost, but this is true for numerous other government programs as well. There’s nothing special about UBI, except maybe quantitatively.
Another possibility is that UBI is financed by just printing money. This will certainly result in higher inflation than would otherwise obtain. But many governments print money for other reasons, so again, this is at most quantitatively different from the current situation. When the economy is expanding, one should be able to print a certain amount of money while keeping inflation at zero, since more money is needed to facilitate transactions in a bigger economy. The flaw here is quantitative: a UBI financed in this way wouldn’t be very large.
Printing money to finance UBI was a basic tenant of the “Social Credit” ideology due to Major Douglas, most prominant in the 1930s.
None of this says that UBI is either morally or practically justified. But it isn’t infeasible for the reason you give.
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.
You could also take this further and finance a large UBI by printing money, and this would cause (more) inflation, but if you model it out it ends up doing the same sort of transfer from richer people to poorer people as progressive tax financing (people with more money are “taxed” more by inflation).
Does this really hold? I’d expect inflation to cost richer people more purchasing power on an absolute scale (because they have more cash to devalue), but less as a percentage of same (because that cash is a smaller proportion of their net worth).
You’re right, and I hadn’t thought of that. I think you’d still get the overall effect of a real transfer from richer to poorer people, but the way the tax falls on specific people would be different based on how much money they save and whether they save it in the form of dollars, plus whether they get paid in dollars.
I fully agree with Radford, while all others also made some good points. My question is: why does UBI have to be paid out as dollar, and not e.g. in form of coupons for say, e-books? The cost for producing one more copy of ebook is almost zero, so you can even finance it by printing money and the price won’t go up, as the quantity varies with demand.
You could even do it on a larger scale: you give everyone a special card with certain amount which can only be used at vendors who agree to keep price constant. For instance, if strawberry sellers have plenty strawberries to sell in May, where the marginal cost is almost zero, they can apply to be partner in May and promise to keep price constant in May, and mid May they can apply for June or decide not to. If Alaska suffers from declining population, it can apply and promise to keep rents constant for a year, and 6 months before year end it can decide whether to continue. The card holders can see online or in a dedicated app, where they can use this card for what and how long. The card is not as comfortable as cash to use, but one gets it for free. For the society as a whole, it can tilt demand towards where supply curve is flat and the risk of inflation is low, since only vendors with (temporary or permanent) low variable cost will apply, otherwise it wouldn’t be profitable to promise a constant price to attract more demand. What do you think?
And if you don’t mind, I‘d also like to ask what are the two numbers beside the commentator id mean. One looks like the thumb up/down as in other social networks, but what is the other for?
I think you’re right that, for many goods, it would be better if we did goods rather than money transfers, similar to how we have SNAP/food stamps, Medicaid/Medicare, etc. programs today. This is because, having been poor myself at times and been around poor people, many people are stuck in poverty not because they want to be but because they have trouble managing money effectively, such that cash transfers would be less effective at improving quality of life than goods transfers. Yes, this is reasoning from anecdata, but I’ve seen it enough to think it’s an important aspect of policy design for wealth transfers.
That said, UBI would serve a somewhat different purpose and in theory subsibdize people who today manage their money fine, but in the future may not have a source of income due to automation from AI.
We used to avoid this problem by having special stores that distributed government food programs, but for a variety of reasons people didn’t like it (higher labor costs born directly by the government, stigma of going to the government food store, eating generic food (“government cheese”)), however this helps deal with the blackmarket problem if you, personally, have to show up to get the food you are owed, and then have literal food to barter with.
I’m not saying we can completely stop economic activity. What I am saying is that there’s a lot of benefit to providing tools to help people enforce rules on themselves that they would endorse in hindsight but have trouble enforcing on themselves in the short term due to issues like poor impulse control that are causally upstream of poverty for many.
Yes, the special card I suggested is like food stamps (I guess with food stamps you can also choose between different foods and are not bound to a particular food) or Medicare (where you can also choose I guess), only the card idea is slightly more oriented to the supply side (a flat supply curve is the premise), while ultimately the consumers also benefit.
I guess in many aspects I‘m also a poor person, but I haven’t yet found the time to really think about it, because I really doubt if things would be any different if I would be a bit richer. I certainly don’t starve, in fact I‘m thinking about putting up a foundation to give something back to the society, because in Germany you can also put up a foundation with little capital. My idea also has something to do with AI, but not with UBI. I think labor division is great, but also has side effects: people in different jobs tend to be alienated and fragile, a lawyer doesn’t really understand a nurse, losing a good paid job often makes the person suddenly doubt on her worthiness although it’s still the same person. With AI I could generate lots of contents to help people navigate the life. For example, if someone looks for food, I can show them where to find the food cheaper, how to assess the nutritional value of the food, and how the food is made. If you have made the food yourself one time, you can more appreciate the time and effort by the producer, I think. By no means should everyone make all his own food, that’s contra-productive, but they should have the possibility to know how things they depend on daily are made, that gives them more confidence, and sometimes someone may even find a new endeavor, (I know there are some former chemists who became chefs and teach molecular cooking). The users can also network, discuss new ideas, get together for a project or put up a new company. The general idea is that now things can be produced cheaper due to scale effect, so we need new demand, including new idea. If someone earns lots on AI, the money he gets has no direct use for him, he must buy goods. If we can make more users acquainted with entrepreneurship, turn more consumers into producers, then today’s winners can also get more rewards in real terms, namely more gadgets which are new of its kind, while today’s losers can find new work to do which in turn enables them to buy more AI. By blurring the boundaries between producers and consumers, as well as between different professions, people can also understand each other better. While this is not about UBI, I do see both as complimentary: with some UBI, or food stamps or whatever, people are insured, have time to get better informed and improve themselves, and I intend to serve them the above mentioned information to help them find a better opportunity more easily.
I think the usual assumption is that UBI is financed by an increase in taxes (which means for people with more than a certain amount of other income, they come out behind when you subtract the extra taxes they pay from the UBI they receive). If so, there is no direct effect on inflation—some people get more money, some get less. There is a less direct effect in that there may be less incentive for people to work (and hence produce goods), as well as some administrative cost, but this is true for numerous other government programs as well. There’s nothing special about UBI, except maybe quantitatively.
Another possibility is that UBI is financed by just printing money. This will certainly result in higher inflation than would otherwise obtain. But many governments print money for other reasons, so again, this is at most quantitatively different from the current situation. When the economy is expanding, one should be able to print a certain amount of money while keeping inflation at zero, since more money is needed to facilitate transactions in a bigger economy. The flaw here is quantitative: a UBI financed in this way wouldn’t be very large.
Printing money to finance UBI was a basic tenant of the “Social Credit” ideology due to Major Douglas, most prominant in the 1930s.
None of this says that UBI is either morally or practically justified. But it isn’t infeasible for the reason you give.
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.
You could also take this further and finance a large UBI by printing money, and this would cause (more) inflation, but if you model it out it ends up doing the same sort of transfer from richer people to poorer people as progressive tax financing (people with more money are “taxed” more by inflation).
Does this really hold? I’d expect inflation to cost richer people more purchasing power on an absolute scale (because they have more cash to devalue), but less as a percentage of same (because that cash is a smaller proportion of their net worth).
You’re right, and I hadn’t thought of that. I think you’d still get the overall effect of a real transfer from richer to poorer people, but the way the tax falls on specific people would be different based on how much money they save and whether they save it in the form of dollars, plus whether they get paid in dollars.
I fully agree with Radford, while all others also made some good points. My question is: why does UBI have to be paid out as dollar, and not e.g. in form of coupons for say, e-books? The cost for producing one more copy of ebook is almost zero, so you can even finance it by printing money and the price won’t go up, as the quantity varies with demand.
You could even do it on a larger scale: you give everyone a special card with certain amount which can only be used at vendors who agree to keep price constant. For instance, if strawberry sellers have plenty strawberries to sell in May, where the marginal cost is almost zero, they can apply to be partner in May and promise to keep price constant in May, and mid May they can apply for June or decide not to. If Alaska suffers from declining population, it can apply and promise to keep rents constant for a year, and 6 months before year end it can decide whether to continue. The card holders can see online or in a dedicated app, where they can use this card for what and how long. The card is not as comfortable as cash to use, but one gets it for free. For the society as a whole, it can tilt demand towards where supply curve is flat and the risk of inflation is low, since only vendors with (temporary or permanent) low variable cost will apply, otherwise it wouldn’t be profitable to promise a constant price to attract more demand. What do you think?
And if you don’t mind, I‘d also like to ask what are the two numbers beside the commentator id mean. One looks like the thumb up/down as in other social networks, but what is the other for?
I think you’re right that, for many goods, it would be better if we did goods rather than money transfers, similar to how we have SNAP/food stamps, Medicaid/Medicare, etc. programs today. This is because, having been poor myself at times and been around poor people, many people are stuck in poverty not because they want to be but because they have trouble managing money effectively, such that cash transfers would be less effective at improving quality of life than goods transfers. Yes, this is reasoning from anecdata, but I’ve seen it enough to think it’s an important aspect of policy design for wealth transfers.
That said, UBI would serve a somewhat different purpose and in theory subsibdize people who today manage their money fine, but in the future may not have a source of income due to automation from AI.
I imagine that would create a black market where people sell food stamps (with discount) for cash, which they can then freely spend on alcohol.
We used to avoid this problem by having special stores that distributed government food programs, but for a variety of reasons people didn’t like it (higher labor costs born directly by the government, stigma of going to the government food store, eating generic food (“government cheese”)), however this helps deal with the blackmarket problem if you, personally, have to show up to get the food you are owed, and then have literal food to barter with.
I’m not saying we can completely stop economic activity. What I am saying is that there’s a lot of benefit to providing tools to help people enforce rules on themselves that they would endorse in hindsight but have trouble enforcing on themselves in the short term due to issues like poor impulse control that are causally upstream of poverty for many.
Yes, the special card I suggested is like food stamps (I guess with food stamps you can also choose between different foods and are not bound to a particular food) or Medicare (where you can also choose I guess), only the card idea is slightly more oriented to the supply side (a flat supply curve is the premise), while ultimately the consumers also benefit.
I guess in many aspects I‘m also a poor person, but I haven’t yet found the time to really think about it, because I really doubt if things would be any different if I would be a bit richer. I certainly don’t starve, in fact I‘m thinking about putting up a foundation to give something back to the society, because in Germany you can also put up a foundation with little capital. My idea also has something to do with AI, but not with UBI. I think labor division is great, but also has side effects: people in different jobs tend to be alienated and fragile, a lawyer doesn’t really understand a nurse, losing a good paid job often makes the person suddenly doubt on her worthiness although it’s still the same person. With AI I could generate lots of contents to help people navigate the life. For example, if someone looks for food, I can show them where to find the food cheaper, how to assess the nutritional value of the food, and how the food is made. If you have made the food yourself one time, you can more appreciate the time and effort by the producer, I think. By no means should everyone make all his own food, that’s contra-productive, but they should have the possibility to know how things they depend on daily are made, that gives them more confidence, and sometimes someone may even find a new endeavor, (I know there are some former chemists who became chefs and teach molecular cooking). The users can also network, discuss new ideas, get together for a project or put up a new company. The general idea is that now things can be produced cheaper due to scale effect, so we need new demand, including new idea. If someone earns lots on AI, the money he gets has no direct use for him, he must buy goods. If we can make more users acquainted with entrepreneurship, turn more consumers into producers, then today’s winners can also get more rewards in real terms, namely more gadgets which are new of its kind, while today’s losers can find new work to do which in turn enables them to buy more AI. By blurring the boundaries between producers and consumers, as well as between different professions, people can also understand each other better. While this is not about UBI, I do see both as complimentary: with some UBI, or food stamps or whatever, people are insured, have time to get better informed and improve themselves, and I intend to serve them the above mentioned information to help them find a better opportunity more easily.