4 ms·

All other considerations aside, isn't this going to create some form of inflation? At least in the beginning (first couple years), I would think that a greater

by kelvin0 11y ago

All other considerations aside, isn't this going to create some form of inflation? At least in the beginning (first couple years), I would think that a greater monetary mass (everyone has more money) would see an increased price tag on goods? I am no economist, just wondering what others take is on this?

jackcosgrove 11y ago
It would do exactly that. Scarcity is relative, so giving everyone in the world a basic income will simply raise the prices of basic goods such that many again would be unable to afford them even on a basic income. The best way to end hunger is to grow more food, not to give everyone more money.
- AngrySkillzz 11y ago
  That really isn't true though. You can find the data on this almost everywhere: we produce enough food to feed the entire world's population more than adequately, but it doesn't get to the people that need it because of poverty. [1] [1] http://www.worldhunger.org/articles/Learn/world%20hunger%20facts%202002.htm#Does_the_world_produce_enough_food_to_feed_everyone http://www.worldhunger.org/articles/Learn/world%20hunger%20f...
  - jackcosgrove 11y ago
    You're advocating for demand-side stimulus by giving everyone money to spend on goods without increasing the productive capacity of the economy. This led to stagflation in the USA in the 1970s. There are other examples such as Venezuela today where simply giving out money does not improve welfare if the supply of goods and services does not grow as well.
- clavalle 11y ago
  That is only true if competition between the sellers of those goods is broken or there truly is a global shortage of all types of goods that can fulfill a basic need.
  - jackcosgrove 11y ago
    If competition is not broken, sellers will raise prices to be whatever the buyer can bear, not whatever it costs to produce the product.
    - clavalle 11y ago
      That's not how competition works. If I can produce my good for $10 and sell for $20 and my competition sells for $15, what will a consumer do? What will I do in response?
    - norea-armozel 11y ago
      If and only if the competing sellers also raise their prices in step with yours. But that's generally not how the price rises for food, even for restaurants. It's more they're in line with imperfect competition where MR >= MC and in most cases MR is only but a fraction higher than MC (say 1-5% if we take grocery store business accounting profits as a measure which is around 1%). Basically, food markets aren't very profitable businesses compared to technology or entertainment where you have various legal restrictions on supply. There's nothing stopping a firm from starting up their own farms, bakeries, and the like. So, unless you can show me that MC for all firms is going to rise in step with each other versus demand for supply of food I can't say your argument holds water. I'm not saying there won't be a rise in the price, but rather than the rise in the price will be negligible for food. Now, for services or any other product I'd say you're right. And we'll see many goods come out of reach for the proof despite the injection of money. But that would likely be goods like housing and services of any kind like Internet or phone utilities. But for the rest of the economy, there's not much incentive to raise the price unless your costs of covering the extra demand is killing your bottom line. If it doesn't then you don't care either way.
Symmetry 11y ago
For locally produced goods that will partially offset the gains. Ultimately, though, the money entering the economy comes from elsewhere and should cause good and services from that elsewhere to flow to the place receiving the donations.
savanaly 11y ago
It's true. At its most simple, the Price level can be though of as (Quantity of Money) / (Quantity of Goods), and all goods' prices more or less rise and fall with the Price level. Don't forget, though, that some of the goods purchased by people with newfound spending power might be imported (thus increasing the denominator in that equation and lowering the price level), some of the money might be saved or invested abroad (lowering the numerator in that equation), or it might have some stimulative effect on the economy (one can only hope!), thus raising the denominator. The net effect will probably still be inflation, especially in the short term, but with the poorer population having a greater share of the purchasing power.
- brent_noorda 11y ago
  The Quantity of Money isn't increasing. In other words, GiveDirectly isn't printing cash, only transferring the fixed quantity of cash from those with too much to those with too little.
  - savanaly 11y ago
    They are paying for the program with taxes from the rich? I had thought the startup was paying for it, or coordinating funds from charitable organizations.
    - brent_noorda 11y ago
      "Taxes" from the rich? No, where did you get that idea. They are "donations" from the rich. Most of us who are reading HN are probably rich, and can (and should) easily donate at the GiveDirectly web site.
clavalle 11y ago
It's complicated. There are a couple of directions to examine this question. First, from the supply of money and how it is used. While everyone will have more money, that doesn't necessarily mean that each unit of currency will be worth much less. One characteristic of being in poverty is needing things that you cannot purchase. If you need $1000 worth of stuff and you are given $100 or even $900 you are paying not only the nominal price of those goods but a very real and a very felt opportunity cost of not getting some other needed good. IOW, it makes sense to be nearly as careful and frugal as it was before you got your windfall. Once you get past the threshold of 'needed' items and into 'important' items the calculus changes a bit and when you move from that to 'nice to have' it changes even further. It is easy to imagine inflation running a bit wild if a community of middle class people were all given a million dollars, for example. Look at the gold rush or the recent oil boom towns. From the other direction, the demand for money and time from this population. Sellers who know that a population has an influx in cash might try to demand more for it. They will have trouble because that extra cash still mean a lot as examined above and they will need to compete with others for that cash. Where things will really change are people that don't need cash from this population but time in the form of labor. People who employ the poverty stricken have a distinct advantage that other employers do not have in their negotiations -- the other party is bargaining for their life. If they don't work this week they may not eat next week. This causes those in poverty to sell their time for a loss as long as that loss is not as much as the loss they'd see if they didn't work at all...and it is hard to imagine a greater loss than the pain and risk of death of starvation, homelessness, or lack of medical care for yourself and your family. Under basic income, however, this calculus changes dramatically. Suddenly these people have a much stronger bargaining position. They are now negotiating for gain rather than loss. Employers now have to entice them to work. They have to pay their employees more than their time is worth to them for other activities like recreation or education or spending time with their family. It is not all bad; thanks to basic income it is easier to reach the gain vs. loss threshold but it will likely be more than what they can get away with when the alternative for the employee is pain or death. These employers might eat some of this cost but some will likely be pushed onto their customers. Some jobs might be lost altogether because people are not willing to pay enough for a service to make up the difference. These tend to be low value add jobs since they were, in effect, subsidized by desperation. These three effects will lead to some inflation but, unless basic income can push people from 'need to have' to 'nice to have', a big jump, I think it will be held in check.

by kelvin0 11y ago

jackcosgrove 11y ago

It would do exactly that. Scarcity is relative, so giving everyone in the world a basic income will simply raise the prices of basic goods such that many again would be unable to afford them even on a basic income. The best way to end hunger is to grow more food, not to give everyone more money.

AngrySkillzz 11y ago
That really isn't true though. You can find the data on this almost everywhere: we produce enough food to feed the entire world's population more than adequately, but it doesn't get to the people that need it because of poverty. [1] [1] http://www.worldhunger.org/articles/Learn/world%20hunger%20facts%202002.htm#Does_the_world_produce_enough_food_to_feed_everyone http://www.worldhunger.org/articles/Learn/world%20hunger%20f...
- jackcosgrove 11y ago
  You're advocating for demand-side stimulus by giving everyone money to spend on goods without increasing the productive capacity of the economy. This led to stagflation in the USA in the 1970s. There are other examples such as Venezuela today where simply giving out money does not improve welfare if the supply of goods and services does not grow as well.
clavalle 11y ago
That is only true if competition between the sellers of those goods is broken or there truly is a global shortage of all types of goods that can fulfill a basic need.
- jackcosgrove 11y ago
  If competition is not broken, sellers will raise prices to be whatever the buyer can bear, not whatever it costs to produce the product.
  - clavalle 11y ago
    That's not how competition works. If I can produce my good for $10 and sell for $20 and my competition sells for $15, what will a consumer do? What will I do in response?
  - norea-armozel 11y ago
    If and only if the competing sellers also raise their prices in step with yours. But that's generally not how the price rises for food, even for restaurants. It's more they're in line with imperfect competition where MR >= MC and in most cases MR is only but a fraction higher than MC (say 1-5% if we take grocery store business accounting profits as a measure which is around 1%). Basically, food markets aren't very profitable businesses compared to technology or entertainment where you have various legal restrictions on supply. There's nothing stopping a firm from starting up their own farms, bakeries, and the like. So, unless you can show me that MC for all firms is going to rise in step with each other versus demand for supply of food I can't say your argument holds water. I'm not saying there won't be a rise in the price, but rather than the rise in the price will be negligible for food. Now, for services or any other product I'd say you're right. And we'll see many goods come out of reach for the proof despite the injection of money. But that would likely be goods like housing and services of any kind like Internet or phone utilities. But for the rest of the economy, there's not much incentive to raise the price unless your costs of covering the extra demand is killing your bottom line. If it doesn't then you don't care either way.

Symmetry 11y ago

For locally produced goods that will partially offset the gains. Ultimately, though, the money entering the economy comes from elsewhere and should cause good and services from that elsewhere to flow to the place receiving the donations.

savanaly 11y ago

It's true. At its most simple, the Price level can be though of as (Quantity of Money) / (Quantity of Goods), and all goods' prices more or less rise and fall with the Price level. Don't forget, though, that some of the goods purchased by people with newfound spending power might be imported (thus increasing the denominator in that equation and lowering the price level), some of the money might be saved or invested abroad (lowering the numerator in that equation), or it might have some stimulative effect on the economy (one can only hope!), thus raising the denominator. The net effect will probably still be inflation, especially in the short term, but with the poorer population having a greater share of the purchasing power.

brent_noorda 11y ago
The Quantity of Money isn't increasing. In other words, GiveDirectly isn't printing cash, only transferring the fixed quantity of cash from those with too much to those with too little.
- savanaly 11y ago
  They are paying for the program with taxes from the rich? I had thought the startup was paying for it, or coordinating funds from charitable organizations.
  - brent_noorda 11y ago
    "Taxes" from the rich? No, where did you get that idea. They are "donations" from the rich. Most of us who are reading HN are probably rich, and can (and should) easily donate at the GiveDirectly web site.

clavalle 11y ago

It's complicated. There are a couple of directions to examine this question. First, from the supply of money and how it is used. While everyone will have more money, that doesn't necessarily mean that each unit of currency will be worth much less. One characteristic of being in poverty is needing things that you cannot purchase. If you need $1000 worth of stuff and you are given $100 or even $900 you are paying not only the nominal price of those goods but a very real and a very felt opportunity cost of not getting some other needed good. IOW, it makes sense to be nearly as careful and frugal as it was before you got your windfall. Once you get past the threshold of 'needed' items and into 'important' items the calculus changes a bit and when you move from that to 'nice to have' it changes even further. It is easy to imagine inflation running a bit wild if a community of middle class people were all given a million dollars, for example. Look at the gold rush or the recent oil boom towns. From the other direction, the demand for money and time from this population. Sellers who know that a population has an influx in cash might try to demand more for it. They will have trouble because that extra cash still mean a lot as examined above and they will need to compete with others for that cash. Where things will really change are people that don't need cash from this population but time in the form of labor. People who employ the poverty stricken have a distinct advantage that other employers do not have in their negotiations -- the other party is bargaining for their life. If they don't work this week they may not eat next week. This causes those in poverty to sell their time for a loss as long as that loss is not as much as the loss they'd see if they didn't work at all...and it is hard to imagine a greater loss than the pain and risk of death of starvation, homelessness, or lack of medical care for yourself and your family. Under basic income, however, this calculus changes dramatically. Suddenly these people have a much stronger bargaining position. They are now negotiating for gain rather than loss. Employers now have to entice them to work. They have to pay their employees more than their time is worth to them for other activities like recreation or education or spending time with their family. It is not all bad; thanks to basic income it is easier to reach the gain vs. loss threshold but it will likely be more than what they can get away with when the alternative for the employee is pain or death. These employers might eat some of this cost but some will likely be pushed onto their customers. Some jobs might be lost altogether because people are not willing to pay enough for a service to make up the difference. These tend to be low value add jobs since they were, in effect, subsidized by desperation. These three effects will lead to some inflation but, unless basic income can push people from 'need to have' to 'nice to have', a big jump, I think it will be held in check.