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Basic Income: Unintended Consequences
- desireco42 11y agoI think this is an exceptionally stupid idea and I think part of basic income should be stipulation that it can't be used to get loans ie. make this illegal. Because first thing financial industry would use it against the poor, get them lump sum and eliminate benefits of basic income. I am sure this can be made in a way that wouldn't be limiting too much, yet prevent obvious abuses you are bringing.
- desireco42 11y agoTo clarify, I am considering this idea not good, not reflective of OP.
- drcode 11y agoThe problem of course is that BI's main benefit is to reduce regulatory burden, which is supposed to reduce bureaucratic overhead- now you're suggesting a new regulatory burden of policing issuing of predatory loans against BI holders.
- merpnderp 11y agoNo regulatory burden necessary. Basic income not subject to credit defaults. Done and done.
- Zigurd 11y agoProtect it from attachments and it can't be used to secure loans.
- jjxw 11y agoIn general, I agree, but there is a cost to such regulation in the sense that it would make banks more wary to lend to legitimate borrowers on the promise of future basic income payments. Making it illegal to seize basic income assets in the event of default creates a classic adverse selection problem where bad actors will have incentives to attempt to take a loan. That being said, the point of a basic income in the first place is to introduce financial stability to all households so any costs associated with preventing lending on basic income collateral may be societally optimal.
- icebraining 11y agoAdverse selection happens when the borrower knows more than the loaner, no? Why would that happen here? Banks and other credit institutions already force you to prove that you have assets and/or income; here they would do the exact same thing, just disregarding the BI.
- jjxw 11y agoAh, you are correct. The term I was actually looking for is moral hazard. The reason why banks require evidence of ability to repay the loan is because, without them, there would be a huge incentive for borrowers to take loans without paying them back. This is where the adverse selection comes in - the information asymmetry results from the borrowers knowing what their intent for the loan is and the incentive to mislead the lender. This leads to lenders being more wary (and implementing requirements) when issuing loans.
- desireco42 11y agoMaybe you didn't read it completely or I was not clear, I would just make it illegal to lend money expecting it to be paid by basic income. Anyone getting basic income should be completely free to spend it any way they want. That is essential.
- dawnbreez 11y ago>Anyone getting basic income should be completely free to spend it any way they want. Such as to pay off a loan? Therein lies the problem: if you make it illegal to lend money explicitly based on BI, and the debtor pays with BI, who is liable? And if someone is liable, is the debtor truly free to spend BI as they wish? If nobody is liable, then what stops me from claiming that my BI is instead my paycheck, and then taking a loan based on it?
- dawnbreez 11y agoPart of the point of BI is that you can do what you want with it. Yes, the poor would be disadvantaged by this. The solution isn't to take away everyone's ability to take loans on BI; this would leave people unable to take loans on their BI once they've got a stable income. The answer is to educate, to explain that taking that lump sum leaves you unable to use BI later when you need it. At most, pass a regulation stating that loaners are liable if they don't make it clear that the loan is paid off with BI over the course of X years.
- andraganescu 11y agoWould basic income still register in the collective mindset as “help”? Because if it registers as “free money” I fear prices will go up. I understand that since BI correlates with income tax no inflation should be created. Yet people have particular ways to understand how welfare happens. In a poor community, when you know for sure that everyone there can afford some stuff, wouldn’t that be an incentive to collectively raise prices, just because you know there is definitely new money to be spent.
- jjxw 11y agoMy understanding of most implementations of Basic Income is that the funds would come from taxes or budget cuts in other parts of the government rather than printing money which would reduce inflationary pressure. The problem with raising prices is that collective coordination would be difficult for goods which operate in a competitive market.
- andraganescu 11y agoYes, indeed it's not inflation I fear, but the collective mentality people have. Markets in poor communities are not as competitive as we'd think. Not to mention big retailers who are not that many to make coordination impossible.
- TrevorJ 11y agoThere's some evidence to suggest that this is what has happened with tuition rates due to the availability of student loans.
- ctdonath 11y agoAmazing how many people don't understand the concept of "supply and demand". Increase the availability of money, increasing demand, and the prices increase so long as supply can't keep up. This has been manifestly demonstrated by tuition, health care, mortgages, insurance, etc.
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- drcode 11y agoThe main unintended consequence is that nobody is going to want to be a grocery store clerk for minimum wage if they get BI. Hence, salaries for menial jobs will go through the roof... All of a sudden a gallon of milk will have to cost $20 to pay grocery store salaries... Now salaries will need to go even higher so that employees can afford food, themselves... And now you've got hyperinflation.
- plaid_hatter 11y agoActually, I think you'll find a lot of people will opt for part time lower income jobs than before as they are just supplementing the guaranteed income which means that there is net total more than before.
- ap3 11y agoAs opposed to right now when many people are only able to get low income part time jobs
- dllthomas 11y agoThe salaries for jobs that nobody is going to want to do are going to have to climb, or we're going to need to automate those jobs. But if that's unsustainable and we approach hyperinflation, we quickly get to a circumstance resembling no basic income - at which point, people will start to be (economically) forced into doing those jobs again. This is assuming we don't raise the BI in response to inflation. We shouldn't do that. (Matching or slightly exceeding targeted inflation seems a good idea; raising in response to observed or expected inflation seems potentially disastrous).
- dagw 11y agoHence, salaries for menial jobs will go through the roof Or we'll find a way to survive with a lot fewer minimum wage grocery clerks in the future.
- bryanlarsen 11y agoI predict the opposite is going to happen. Most proponents of BI also propose lowering the minimum wage. So let's suppose you're on BI receiving $12K a year. That's about enough to put a roof over your head, leaving very little for food or anything else. You see a clerk job advertised for $5 an hour. You don't have to take the job, but that $5/hr is the difference between eating rice and beans yet again or actually having a little bit of meat with your meal and being able to afford an occasional XBox game. The big difference I see is that truly unpleasant and unsafe jobs will see wages rise. Being a clerk is not a great job, but it's not a bad job unless you have an awful boss. If your boss at the grocery store starts giving you trouble, it becomes much easier to just walk away and eat rice and beans for a while until you can find another job.
- merpnderp 11y agoThe whole point of these unintended consequences are easily corrected by allowing penalty free (for the basic income at least) defaults. Just like the student loan issue would be solved overnight by allowing defaults, basic incomes would never have a problem in the first place with them.
- bsbechtel 11y agoSo in addition to $12,000 a year from the government, someone could borrow from lenders and never pay it back?
- dagw 11y agoIf they could find a lender stupid enough to lend to them on those terms, then sure why not?
- phaer 11y agoNo, because almost nobody would be lending money to people who have nothing to secure the loan beside their basic income.
- emp_zealoth 11y agoWhich would be a good thing because those people can not afford the credit anyway
- TrevorJ 11y agoReally not following this line of reasoning.
- icebraining 11y agoEssentially the base line for credit would be raised to the level of basic income. Right now, if you have zero assets and no income, you can file for bankruptcy and discharge your obligations. Hence, nobody in their right mind lends money to such people. In this new situation, the basic income would be the "new zero" - you could file for bankruptcy if all you had was a basic income, and hence few people would loan you money if you were in that situation.
- bsbechtel 11y agoI feel like there would be a number of arbitrage opportunities that would become available as well, though it's late and I can't think of any off of the top of my head. How it affects the currency exchange markets would be interesting as well. IMHO, a better option would be to provide Tax credits to employers for each employee's pay up to the poverty line. If employers don't pay poverty level wages, the government is stepping in with federal benefits. A tax credit is a more efficient transfer mechanism than the current system as well, but still encourages some sort of productivity.
- jjxw 11y agoThe EITC has got you covered: https://en.wikipedia.org/wiki/Earned_income_tax_credit https://en.wikipedia.org/wiki/Earned_income_tax_credit
- bsbechtel 11y agoNot the same thing. The tax credit I'm talking about goes to the employer. Right now, we just tax the employer (or the wealthy owners of the business) and redistribute. Let's cut out the middleman that's the government, and not tax employers who pay their employees up to the poverty level.
- jjxw 11y agoAh, I misunderstood. It looks like a version of this exists which provides tax incentives to hire veterans, food stamp recipients, and other disadvantaged groups. https://www.doleta.gov/business/incentives/opptax/wotcEmployers.cfm https://www.doleta.gov/business/incentives/opptax/wotcEmploy...
- bsbechtel 11y agoYes, this looks similar to what I was thinking....basically employers are paying what would otherwise be a government expense to provide federal benefits to these individuals, so those employers are saving the government money. I don't have time to research now, but I would be curious to learn if the program is successful - is it revenue neutral? How much of a credit do employers get? etc...
- acgourley 11y agoTo expand on his migration point, I worry that BI will create inland ghettos where the BI allowance is enough on it's own to cover the cost of living. At least some people would choose this lifestyle. Over time these ghettos would evolve their own cultures and start to be very separate from the rest of us. While I value personal freedom of an adult to chose to do this with their life, I worry about their children who will have a hard time leaving and I worry about internal fragmentation of our nation. I think overall the net positive effect of BI probably counteracts the concerns above - but it will be interesting to see if such a phenomenon develops in Finland.
- bryanlarsen 11y agoThe best protection against this is the same as it is without BI: a high quality universal education system.
- sokoloff 11y agoAt the youngest ages, kids learn more from the adults in their household than from all outsiders combined, including teachers. I think that cultural islands such as GP is worried about would not be entirely or even substantially broken down by any educational system.
- socalnate1 11y agoDoesn't the exact same thing happen now with poor areas? (i.e. evolve its own culture and make it hard for a child born in a poor area to leave)
- orthecreedence 11y agoNo, in our current system everyone is equal and has the same opportunities as everyone else. The market is essentially a benevolent, moral being that cares for the sick and needy whilst rewarding the hard working. Joking aside, I'd be really interested to see what happens in an economy where starting a business is easy because you don't have to worry about it covering your basic needs. I'd imagine many people within ghettos would finally be able to leave and seek opportunities elsewhere, or be able to create their own opportunities within their current situation. Would some people sit around not working while spending money on drugs or booze? Of course. But those people exist already. I'd be interested to see how the ratio of these types of folks compares before and after BI, and also the ratio of people making money from jobs vs self-created small businesses. I really want another country to try this out =]. Not saying I don't want it for the US (I do, and if nothing else than for an interesting experiment), but I really don't see that happening with the weird fear we have of anything even remotely perceived as socialism/communism.
- mindslight 11y agoThis really cuts to the heart of the matter. In fact, so much so that I'm left wondering if the recent publicity behind BI is simply yet another wall street scam in the making. Rather than added to with BI, what really needs to happen is the reduction of rent. Specifically the financial rent paid to the cabal of moneyprinters for the "privilege" of partaking in the markets that said moneyprinters have inflated the fuck out of - housing, cars and education - via the Fed policy of forced inflation. Real goods get continually cheaper (that's central to economic competition) so to make the CPI inflationary in a time of increasing productivity gains, the credit-based expenses skyrocket. Their only limit is the carrying cost of the principal - if interest rates halve, home prices double. Without addressing how the Fed and banks have perverted our society away from wealth-based independence and toward mass indentured servitude, I fear the only thing BI would do is turn the treadmill up correspondingly quicker.
- jmspring 11y agoThe individual is pretty flawed in his reasoning and examples... "Since the lifetime of the average person is roughly 78 years, net present valuing a lifetime of $12,000 yearly basic income payments works out to roughly $287,000 assuming that yearly payments total $10,000 and applying a 4% yearly discount factor. That is enough to purchase a median priced single family home" While factually true, in total, $12k a year isn't going to buy you a house anywhere near the median in your life time. Too much hyperbole in the read.
- jmspring 11y agoYep, point out a non millennial point, so much down voting... #win
- icebraining 11y agoI have no idea what a "millennial point" is, but you'd probably get a better response if you explained why not.
- bryanlarsen 11y agoMost mortgage payments are under $1K a month, so you can easily buy a house with $12K of excess income.
- dawnbreez 11y agoHe's saying that if you take out a loan for 12k * 78 = 287k, you can buy a house.
- erispoe 11y agoBasic Income is designed to replace welfare benefits, and get rid the many adverse effects that a complicated welfare system creates. Therefore it should benefit from the same type of protection. It's not complicated, many countries have this system in place already: welfare benefits cannot be financial collaterals and they are not seizable.
- woopwoop 11y agoConcerns about people using their basic income to secure credit strike me as awfully similar to the old "What if they use it to buy drugs?"
- ap3 11y agoIf you are on basic income the last thing you need is a loan