4 ms·
MV = PQ. Money * Velocity = Price level * Quantity of goods and services. Friedman assumes the velocity of money is constant (good assumption), so really the o
by nateberkopec 9y ago
MV = PQ. Money * Velocity = Price level * Quantity of goods and services.
Friedman assumes the velocity of money is constant (good assumption), so really the only why you can cause inflation is to increase the supply of money, M. UBI increases the velocity of money by moving money from low-consumption, high-investment rich people to high-consumption, low-investment poor-to-middle-class people. Increase money velocity, and you'll see price inflation to compensate.
- pyoung 9y agoBut if we are demand constrained as opposed to supply constrained for most consumer goods, than you will see an increase in 'Q', not 'P'.
- mjevans 9y agoEnergy, time and space. Distance is effort, both in energy and time. Space is already constrained by historical distributional of 'valuable' lands, and restrictions on new ones. There's nowhere left to go out and just settle that someone else doesn't already claim somehow. (Yes, if you go out of the solar system you might claim that... but that's literally how bad the issue is.) The real solution is increasing supply. Yes, UBI will help individuals, but society must actively balance to ensure that there is enough supply in the markets to maintain liquidity. Otherwise (as we see with housing) flow seizes and prices dramatically rise.
- pyoung 9y agoEnergy: It's getting cheaper and cheaper thanks to competing technologies. California's wholesale rate went negative (due to solar) for the first time ever in April. If you are unemployed and on UBI, you have more freedom to to take advantage of time-of-use rates. Or better yet, hook up some cheap solar panels and some lead-acid batteries and make your own energy. Time: If you are unemployed and on UBI, you have more free time. If prices spike for food, then you can always grow your own. If prices spike for gasoline, then ride a bike. Space: With UBI, you no longer need to cram into a handful of high-growth economic areas. You can move to cheaper areas, grow your own food, and ride a bike everywhere. People with a lot of free time, and not a lot of money, will be a lot more price sensitive than in our current environment (where time = money). If prices rise due to inflation, they will either do without, or find/create a substitute.
- omginternets 9y agoWhat is meant by "velocity" in this context? I'm unfamiliar with the term.
- desdiv 9y agohttps://en.wikipedia.org/wiki/Velocity_of_money https://en.wikipedia.org/wiki/Velocity_of_money
- imh 9y agoWould adopting UBI correspond to a one-time step increase in velocity that sits constant again afterwards?
- nateberkopec 9y agoProbably, yes. But the question is how much of a bump in prices that translates to - how much of the UBI will it wipe out?