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What's to stop UBI from "cancelling itself out" due to inflationary effects? Prior to UBI, the lowest possible income is zero. After UBI, the lowest income is

What's to stop UBI from "cancelling itself out" due to inflationary effects? Prior to UBI, the lowest possible income is zero. After UBI, the lowest income is X. The poorest people in the nation will have an income of X, so X becomes the new relative zero, the new baseline. Prices of everything (food, housing, whatever) will reset relative to X. So uni will become worthless shortly after it's introduced.... but only if it is truly universal. Someone feel free to tell me if I'm missing something.

kalleboo 10y ago
Don't most countries already have welfare systems that keep the lowest possible income at X already? UBI is just supposed to simplify those systems by replacing them with a single non-means-tested system.
- austinjp 10y ago
  It's my suspicion that the means-testing, or other hurdles, prevent the benefit from being universal, thereby preventing the inflationary effect. Incidentally, I'm not declaring a belief in either means-tested benefits nor UBI, just exploring the territory.
  - deleted 10y ago
    [deleted]
  - Retric 10y ago
    Money is not being created from thin air so why would you think there was inflation?
    - anonyfox 10y ago
      Actually, it is. States/Central Banks can print money as they wish. Go be more exact: printing isn't even necessary, money nowadays is barely more than a replicated database entry.
      - rwmj 10y ago
        But that has nothing to do with UBI. All the UBI schemes proposed get the money through general taxation of some kind.
  - kalleboo 10y ago
    Yeah, the effect of a windfall on everyone who already had their basic needs covered would cause one-time inflation, but at least it shouldn't be an inflation treadmill of "people get UBI, prices raised to meet that UBI, raise UBI again, prices rise again" any worse than we have already with welfare.
titanomachy 10y ago
Say you have $0 income. A new policy comes into force that gives you $500 a month basic income. Even if prices increased 10x you would still be better off than before. Prices would have to increase an infinite amount for you to be able to afford the same amount of goods as before (zero). Even if you had $500/month before, you'd still be better off as long as prices don't increase more than 2x. I don't know enough to advocate for or against basic income, but I'm pretty sure that it doesn't amount to a no-op. Whether it's done through printing money or taxation, it ends up redistributing wealth from wealthier people to poorer people. In the case of printing money, the resulting inflation would cause everyone's money to be worth less: rich people, having more money, would end up losing more. In the case of taxation, the redistribution is more direct.
- deleted 10y ago
  [deleted]
- adwn 10y ago
  > Say you have $0 income. It is assumed that someone without a job will still get some money in the form of unemployment benefits, so their buying power won't be $0. Therefore, your premise is wrong.
- grkvlt 10y ago
  Sure, but if hyper-inflation results in that USD 500 buying me a loaf of bread each month, I think 'better off than before' is kindof irrelevant. There have to be tangible benefits to the recipient over and above, say income from finding pennies in the street...
mgamma 10y ago
Consider supply and demand. Say there are 100 people and they all need 1 of resource Z and 100 of resource Z are available. People who have only the UBI can afford the lowest quality of Z but those who have UBI + income will all try to get a higher quality of Z. Net result is that earlier it wasn't possible for low income / no income people to get resource Z, now they can. The rich however will have to start paying a slight premium for finer things in life.
alexbecker 10y ago
This only true if there is no competition and demand for the good is completely inelastic. What stops grocery stores from doubling the price of food? The other stores will make a killing by undercutting them. I think food is pretty safe here. I am concerned about housing though. In some places, the supply is extremely inelastic, limiting competition, and the demand is also inelastic due to the difficulty of moving. Although UBI could make moving to a cheaper area easier.
- bufordsharkley 10y ago
  This is why a Land Value Tax is the clearly logical way to fund a UBI-- by collecting land rents in this fashion, you remove the ability for landlords to effectively confiscate the UBI.
  - Zenst 10y ago
    Alas same effect, the TAX by owners will be passed onto renters with rents going up. Now if excess of housing that will eventually catch up and if a shortage then this will only exacerbate the divide. So much that can go wrong and equally right, hence they are testing this. Though a small test will be isolated from all global country impact and bias towards a false positive due to small impact. If that is projected to the entire country then and only then will the impact be truly seen. But be interesting how this works out, I'm sure the initial trial/test will work out but once you scale that across a country then you start to see the true impact and outcome. One question to ask yourself, when mortgages and taxes increase the costs of owning a property - have rents ever gone down! I'll say no upon that.
    - xvedejas 10y ago
      That's not how Land Value Tax (LVT) works, at least under the economic theories I'm familiar with. And there's this quote[1]: "Because the supply of land is essentially fixed, land rents depend on what tenants are prepared to pay, rather than on landlord expenses, preventing landlords from passing LVT to tenants." Unlike property tax, LVT only taxes based on the land itself, and so doesn't disincentivize more productive (i.e. costlier) use of the land. [1] https://en.wikipedia.org/wiki/Land_value_tax#Economic_effects https://en.wikipedia.org/wiki/Land_value_tax#Economic_effect...
Retric 10y ago
Inflation is a result of increases or decreases in the money supply, wealth transfers like this have minimal impact. Consider in these terms. % of economy going to the bottom may raise from say A% to B% but it's that does not push inflation. Because X% of the population has slightly less money to pay for the wealth transfer ~B-A.
witty_username 10y ago
Sure, that's correct if everyone pays the same amount of tax. But that's not true.
grigjd3 10y ago
You're confusing the distribution of money with the supply of money. The distribution of money affects economic priorities. The supply of money (as total income per unit time) affects the overall inflation. While the priorities of an economy will certainly affect prices, it's that some prices will go up and others go down.
- austinjp 10y ago
  Unless money is redistributed then new money will indeed have to be introduced under UBI. If it is redistributed, then taxes seem an obvious method. And clearly the richer should be taxed more, since we're attempting redistribution. Unfortunately we all know that trickle-down economics fail, and corporate/elite lobbyists work hard to restrain corporate/elite taxes, to keep worker wages low, and to engage in practices such as zero-hours contacts.... and so on. So... introducing new money risks inflation. Redistributing money risks perpetuating the existing broken system.
  - grigjd3 10y ago
    My understanding is that most UBI proposals see the UBI as a replacement for more traditional welfare with some amount of raising taxes to keep it debt-neutral. As for the rest of what you're saying, I have no idea what you are actually trying to communicate.
- damptowel 10y ago
  If there's a big influx in the supply of money bit it only flows into one sector of the economy then the average inflation might be higher, but won't necessarily mean a constant rise in all prices. So I would argue distribution matters also. Likewise, all that new money being spent inside a certain market might raise the average price level if it's supply constrained, but it might also grow the numbers of players in the market leading to higher supply and price competition.
  - grigjd3 10y ago
    Typically, prices go down as a product becomes commoditized - which is the common trend after a couple years of high demand.
known 10y ago
https://en.wikipedia.org/wiki/Parable_of_the_broken_window https://en.wikipedia.org/wiki/Parable_of_the_broken_window
aaron695 10y ago
Because it's a set amount not a % Poor people get 1000% more money rich people get 1% more. Or a poor persons income goes from 1% of a rich persons to 2%
Ericson2314 10y ago
"Multiplicative" basic income (i.e. government gives you x * what you'd get otherwise) would do that, but basic income is additive.
Symmetry 10y ago
If it's paid for by taxes or borrowing there won't be any net inflationary effect because the money going to the recipients comes from elsewhere in the economy. The new stuff that poorer people are now buying is payed for by the creation of less stuff for rich people. Economies aren't perfectly flexible so there will be some increase in the price of good used by poor people in relation to the goods used by rich people but that effect won't be huge. Of course, if an UBI drastically reduces employment that's a whole 'nother story but people are doing these pilots to figure that out.
damptowel 10y ago
The inflation would probably not be homogenous, different markets have different pricing mechanics and characteristics. Another variable is percentage going to debt financing, which will have a stimulating effect. One in increased gdp because the percentage of gdp going to repayments would likely drop, and secondly one in higher degrees of business leverage are likely, leading to bubbles in certain markets. Inflation probably won't be a general issue while the economy is not approaching max capacity, but there might be inflation in some markets, much like QE is acting like a basic income for the top percentiles through financial asset inflation. Employers in certain sectors will probably lose a lot of leverage over low schooled workers, might increase prices through cost and demand, finance will probably try to siphon off as much as possible of the extra income. Assumptions assumptions, probably way off base :)

kalleboo 10y ago

Don't most countries already have welfare systems that keep the lowest possible income at X already? UBI is just supposed to simplify those systems by replacing them with a single non-means-tested system.

austinjp 10y ago
It's my suspicion that the means-testing, or other hurdles, prevent the benefit from being universal, thereby preventing the inflationary effect. Incidentally, I'm not declaring a belief in either means-tested benefits nor UBI, just exploring the territory.
- deleted 10y ago
  [deleted]
- Retric 10y ago
  Money is not being created from thin air so why would you think there was inflation?
  - anonyfox 10y ago
    Actually, it is. States/Central Banks can print money as they wish. Go be more exact: printing isn't even necessary, money nowadays is barely more than a replicated database entry.
    - rwmj 10y ago
      But that has nothing to do with UBI. All the UBI schemes proposed get the money through general taxation of some kind.
- kalleboo 10y ago
  Yeah, the effect of a windfall on everyone who already had their basic needs covered would cause one-time inflation, but at least it shouldn't be an inflation treadmill of "people get UBI, prices raised to meet that UBI, raise UBI again, prices rise again" any worse than we have already with welfare.

titanomachy 10y ago

Say you have $0 income. A new policy comes into force that gives you $500 a month basic income. Even if prices increased 10x you would still be better off than before. Prices would have to increase an infinite amount for you to be able to afford the same amount of goods as before (zero). Even if you had $500/month before, you'd still be better off as long as prices don't increase more than 2x. I don't know enough to advocate for or against basic income, but I'm pretty sure that it doesn't amount to a no-op. Whether it's done through printing money or taxation, it ends up redistributing wealth from wealthier people to poorer people. In the case of printing money, the resulting inflation would cause everyone's money to be worth less: rich people, having more money, would end up losing more. In the case of taxation, the redistribution is more direct.

deleted 10y ago
[deleted]
adwn 10y ago
> Say you have $0 income. It is assumed that someone without a job will still get some money in the form of unemployment benefits, so their buying power won't be $0. Therefore, your premise is wrong.
grkvlt 10y ago
Sure, but if hyper-inflation results in that USD 500 buying me a loaf of bread each month, I think 'better off than before' is kindof irrelevant. There have to be tangible benefits to the recipient over and above, say income from finding pennies in the street...

mgamma 10y ago

Consider supply and demand. Say there are 100 people and they all need 1 of resource Z and 100 of resource Z are available. People who have only the UBI can afford the lowest quality of Z but those who have UBI + income will all try to get a higher quality of Z. Net result is that earlier it wasn't possible for low income / no income people to get resource Z, now they can. The rich however will have to start paying a slight premium for finer things in life.

alexbecker 10y ago

This only true if there is no competition and demand for the good is completely inelastic. What stops grocery stores from doubling the price of food? The other stores will make a killing by undercutting them. I think food is pretty safe here. I am concerned about housing though. In some places, the supply is extremely inelastic, limiting competition, and the demand is also inelastic due to the difficulty of moving. Although UBI could make moving to a cheaper area easier.

bufordsharkley 10y ago
This is why a Land Value Tax is the clearly logical way to fund a UBI-- by collecting land rents in this fashion, you remove the ability for landlords to effectively confiscate the UBI.
- Zenst 10y ago
  Alas same effect, the TAX by owners will be passed onto renters with rents going up. Now if excess of housing that will eventually catch up and if a shortage then this will only exacerbate the divide. So much that can go wrong and equally right, hence they are testing this. Though a small test will be isolated from all global country impact and bias towards a false positive due to small impact. If that is projected to the entire country then and only then will the impact be truly seen. But be interesting how this works out, I'm sure the initial trial/test will work out but once you scale that across a country then you start to see the true impact and outcome. One question to ask yourself, when mortgages and taxes increase the costs of owning a property - have rents ever gone down! I'll say no upon that.
  - xvedejas 10y ago
    That's not how Land Value Tax (LVT) works, at least under the economic theories I'm familiar with. And there's this quote[1]: "Because the supply of land is essentially fixed, land rents depend on what tenants are prepared to pay, rather than on landlord expenses, preventing landlords from passing LVT to tenants." Unlike property tax, LVT only taxes based on the land itself, and so doesn't disincentivize more productive (i.e. costlier) use of the land. [1] https://en.wikipedia.org/wiki/Land_value_tax#Economic_effects https://en.wikipedia.org/wiki/Land_value_tax#Economic_effect...

Retric 10y ago

Inflation is a result of increases or decreases in the money supply, wealth transfers like this have minimal impact. Consider in these terms. % of economy going to the bottom may raise from say A% to B% but it's that does not push inflation. Because X% of the population has slightly less money to pay for the wealth transfer ~B-A.

witty_username 10y ago

Sure, that's correct if everyone pays the same amount of tax. But that's not true.

grigjd3 10y ago

You're confusing the distribution of money with the supply of money. The distribution of money affects economic priorities. The supply of money (as total income per unit time) affects the overall inflation. While the priorities of an economy will certainly affect prices, it's that some prices will go up and others go down.

austinjp 10y ago
Unless money is redistributed then new money will indeed have to be introduced under UBI. If it is redistributed, then taxes seem an obvious method. And clearly the richer should be taxed more, since we're attempting redistribution. Unfortunately we all know that trickle-down economics fail, and corporate/elite lobbyists work hard to restrain corporate/elite taxes, to keep worker wages low, and to engage in practices such as zero-hours contacts.... and so on. So... introducing new money risks inflation. Redistributing money risks perpetuating the existing broken system.
- grigjd3 10y ago
  My understanding is that most UBI proposals see the UBI as a replacement for more traditional welfare with some amount of raising taxes to keep it debt-neutral. As for the rest of what you're saying, I have no idea what you are actually trying to communicate.
damptowel 10y ago
If there's a big influx in the supply of money bit it only flows into one sector of the economy then the average inflation might be higher, but won't necessarily mean a constant rise in all prices. So I would argue distribution matters also. Likewise, all that new money being spent inside a certain market might raise the average price level if it's supply constrained, but it might also grow the numbers of players in the market leading to higher supply and price competition.
- grigjd3 10y ago
  Typically, prices go down as a product becomes commoditized - which is the common trend after a couple years of high demand.

known 10y ago

https://en.wikipedia.org/wiki/Parable_of_the_broken_window https://en.wikipedia.org/wiki/Parable_of_the_broken_window

aaron695 10y ago

Because it's a set amount not a % Poor people get 1000% more money rich people get 1% more. Or a poor persons income goes from 1% of a rich persons to 2%

Ericson2314 10y ago

"Multiplicative" basic income (i.e. government gives you x * what you'd get otherwise) would do that, but basic income is additive.

Symmetry 10y ago

If it's paid for by taxes or borrowing there won't be any net inflationary effect because the money going to the recipients comes from elsewhere in the economy. The new stuff that poorer people are now buying is payed for by the creation of less stuff for rich people. Economies aren't perfectly flexible so there will be some increase in the price of good used by poor people in relation to the goods used by rich people but that effect won't be huge. Of course, if an UBI drastically reduces employment that's a whole 'nother story but people are doing these pilots to figure that out.

damptowel 10y ago

The inflation would probably not be homogenous, different markets have different pricing mechanics and characteristics. Another variable is percentage going to debt financing, which will have a stimulating effect. One in increased gdp because the percentage of gdp going to repayments would likely drop, and secondly one in higher degrees of business leverage are likely, leading to bubbles in certain markets. Inflation probably won't be a general issue while the economy is not approaching max capacity, but there might be inflation in some markets, much like QE is acting like a basic income for the top percentiles through financial asset inflation. Employers in certain sectors will probably lose a lot of leverage over low schooled workers, might increase prices through cost and demand, finance will probably try to siphon off as much as possible of the extra income. Assumptions assumptions, probably way off base :)