5 ms·

Producers of most goods will not be able to raise prices, but providers of scarce goods with inelastic supply will be able to raise prices. Like land. Land has

by nwah1 9y ago

Producers of most goods will not be able to raise prices, but providers of scarce goods with inelastic supply will be able to raise prices. Like land. Land has a perfectly inelastic supply, and thus expectations of more income will lead to increases in rent. Whereas, by contrast, increases in the price of food quickly lead to increases in the supply of food. As Matt Rognlie of MIT showed, rents have been responsible for almost all of the returns to the already-wealthy over the past few centuries that Piketty documented.

jackcosgrove 9y ago
If labor becomes scarce as a result of UBI, and producers can no longer recoup production costs at current prices, they will cease operations, reducing supply and raising prices. I think it's incorrect to think that a good has an intrinsically elastic or inelastic supply.
Godel_unicode 9y ago
Why on Earth do you think producers will be unable to raise prices? > Land has a perfectly inelastic supply, and thus expectations of more income will lead to increases in rent. It seems like you're talking about housing rather than land, you don't think that more construction happens when there's more demand? Most of the populated world doesn't have the unique constraints present in the Bay area or NYC.
- nwah1 9y ago
  >Why on Earth do you think producers will be unable to raise prices? Because of the law of supply and demand, as it pertains to the outputs of a productive process in a relatively free market context. The prices will generally tend towards the costs (including opportunity costs) in the long run, and demand shocks will only cause temporary rises in price until production can catch up. With naturally scarce commodities, that is not possible, because there is no production. >you don't think that more construction happens when there's more demand? Land supply is perfectly inelastic. Improvements on land are somewhat elastic, although ultimately anchored by lots of factors... and the speculative holding of land is a big one. Furthermore, there's an upper limit to the amount of density that a region can sustain and still be livable. There's a "standard of comfort" that people have, which ultimately determines a lot of it, though. So, in theory, if we became more comfortable at higher densities, we could live like people in Hong Kong. Yet, that doesn't mean even they can sustain infinite density, and indeed they have high rents in Hong Kong.
  - Godel_unicode 9y ago
    The idea of speculative holding of land is incompatible with perfectly inelastic supply. If someone is speculatively holding land, there is a price (demand) at which they will sell (supply) that land to be used. The supply of land is not the amount of land which exists, it's the amount of land in the market (just like the supply of oil is not the oil in the ground it's the gasoline in pumps). That amount reacts to price, which is the definition of elasticity of supply.
    - nwah1 9y ago
      Land is not the same as oil commodities because oil must be discovered and drilled, whereas we already know where all the terrestrial land is, and for the most part it is all already owned by someone. Oil rights are a kind of land, of course, because that is what land really is... the rights. Those rights are precisely quantifiable in the form of land titles. The scope of those titles, and the quantity of land subsumed under them, is precisely quantifiable and does not change from year to year. The speculative holders of the rights are often neglecting to rent out the land, but in economic terms they are just consuming their own imputed rents. The rents are a flow that continuously accrues to the title.
- Suncho 9y ago
  > Why on Earth do you think producers will be unable to raise prices? One of the cool things about basic income is that because it distributes the incomes evenly, it flattens out the demand curve or increases the price elasticity of demand. This means that (even absent competition) if producers raise prices, they'll lose customers. Conversely, if they lower prices they'll get more customers. A basic income creates an incentive for producers to keep their prices low. This incentive is higher than it would be without the basic income. Another way to think about it is that basic income, doesn't give people more money to spend on goods they're already buying. Instead, it gives money to more people to spend on goods they wouldn't have bought before. It's the difference between giving money primarily to people who already have it and giving money to people who don't. Basic income allows the economy to start activating previously unused productive capacity that was already available. Of course this doesn't work for goods whose production is being constrained by resource limits. For example, under basic income, you might see the price of meat rise, which would cause people to buy less meat and substitute other types of food. We have the capacity to feed the world, but we don't necessarily have the capacity to feed everyone meat 24/7.
vinceguidry 9y ago
> Land has a perfectly inelastic supply, and thus expectations of more income will lead to increases in rent. This is a common misconception. In fact real estate is just as supply-elastic as everything else. New developments open up all the time. Development makes land more attractive for more people. And areas become blighted and therefore less attractive, lowering prices. Some places have sharply-constrained supply, such as San Francisco, but this isn't the norm. The norm is cities slowly expanding outwards, as new investments in the center require more time and effort to bear fruit. Politics often throws a monkey wrench into market functionality, but the vast majority of real estate markets function and clear just fine.
- bduerst 9y ago
  If that were true then natural monopolies would not exist. Electricity too expensive? Let's just build some electric poles in the middle of the tundra and people will move their homes there for their electricity demand. Land (as in housing) is widely accepted as being supply-elastic, especially since in addition to scarcity it's also heavily regulated. You can't wave your hands at SF and say it's an exception because you want UBI to work. Markets like SF are proof that housing pricing is income-elastic, and can't be dismissed when discussing raising the income floor for entire populations.
  - conanbatt 9y ago
    California in general is supply ineslactic. Raise in prices do not transform well in increase development. I fail to see the relationship to UBI with that.
  - AnthonyMouse 9y ago
    > Electricity too expensive? Let's just build some electric poles in the middle of the tundra and people will move their homes there for their electricity demand. If you built some electric poles in the middle of the tundra and by moving there people could pay significantly lower prices per KWh, people with high electricity consumption absolutely would show up there to consume it. There are companies that build data centers in cold climates just to save on air conditioning. > Land (as in housing) is widely accepted as being supply-elastic, especially since in addition to scarcity it's also heavily regulated. You can't wave your hands at SF and say it's an exception because you want UBI to work. Not all housing markets are hampered by bad regulations. Houston has much less restrictive zoning and rents are much lower there than SF. They're also lower in Tokyo despite the incredibly high demand for housing there, because Tokyo isn't afraid of density. It doesn't say anything to say the combination of UBI and terrible zoning regulations will cause rents to be high in SF. They're already high in SF because of terrible zoning regulations even without a UBI. The only way to have reasonable rents is to fix the zoning rules, after which supply will meet demand as it ought to.
djrogers 9y ago
First of all, your assumption that producers of goods won't be able to raise prices is unsupported by economic theory - inflation is a real thing, and denying it seems silly. Secondly, if your theory on rent is true that by extension must lead to a rise in prices for goods, as commercial real estate costs go up and directly impact the cost of production.
- nwah1 9y ago
  It can affect it, but commodities like food are an international market. More importantly, a basic income increasing the pocket money of regular individuals is likely to raise residential rents, but may have no effect whatsoever on agricultural rents. Only a small portion of UBI recipients are going to be speculating on agricultural real estate.
aptwebapps 9y ago
Your comment doesn't seem very responsive to its parent. Are you saying that did not happen during stagflation or that it will not happen again for some reason?
namlem 9y ago
That's why you implement a land value tax.
rayiner 9y ago
The major thing you’re missing is that UBI will make land (and housing) supply much more elastic. SF and NYC landlords can get away with raising rents because that’s where the jobs are, and people are tied to their jobs. With UBI, lower income people can move to places with cheaper housing instead of paying higher rents. Indeed, UBI could cause rents in high-cost cities to totally collapse.
- kamaal 9y ago
  The point of UBI is to give you money for unfortunate life circumstances like a loss of job, or other unfortunate life events where you would need some money to get by. UBI is not a replacement for a job. And unless you wish to survive on extremely minimal living standards, UBI alone won't be of much help to you.
  - heckerhut 9y ago
    That’s social welfare. We already have that in most civilized places. It’s a punishment for failing to have a job whilest keeping you barely alive.
  - Suncho 9y ago
    I think there's plenty of disagreement over what the "point" of basic income is. Compensating people for unfortunate life circumstances is not at the top of my list. Maximizing social prosperity and stabilizing the economy would probably #1 and #2 for me.
conanbatt 9y ago
Mm I don't think its quite right, but it looks at the right path. If you implemented UBI federally, rents in general could take a huge hit. That is because people would use ubi to go from high rent to low rent places, because their marginal savings rate would be much better. Without implementation details, its hard to say if it will raise or reduce rent.
rwnspace 9y ago
I don't claim to understand economics very well, but I'm led to believe the Georgist Land Value Tax is a good way to combat 'landowners' aggregating wealth sans labour or adding value. How would this marry with our theoretical impact of UBI?
- Suncho 9y ago
  Henry George was alive during a time when the amount of currency the government could create was constrained by the size of its gold reserves. These days, the amount of money the government is able to spend has very little to do with the size of their tax revenues. You can certainly tax landowners, but you should only do so if you want to punish people for owning land. The money you collect is meaningless. As has been mentioned by me and others in other comments, basic income will push down real estate prices all on its own.
Suncho 9y ago
> Land has a perfectly inelastic supply, and thus expectations of more income will lead to increases in rent. Sort of. But land is not a uniform commodity. Different parcels of land are subject different levels of demand. For a place like New York City, the demand for real estate is fairly inelastic. But a basic income would decrease the incentive for people to live near where the jobs are. This would likely cause real estate prices to crash in more expensive places like San Francisco and New York. Many of those prices are inflated due to speculation anyway.

by nwah1 9y ago

jackcosgrove 9y ago

If labor becomes scarce as a result of UBI, and producers can no longer recoup production costs at current prices, they will cease operations, reducing supply and raising prices. I think it's incorrect to think that a good has an intrinsically elastic or inelastic supply.

Godel_unicode 9y ago

Why on Earth do you think producers will be unable to raise prices? > Land has a perfectly inelastic supply, and thus expectations of more income will lead to increases in rent. It seems like you're talking about housing rather than land, you don't think that more construction happens when there's more demand? Most of the populated world doesn't have the unique constraints present in the Bay area or NYC.

nwah1 9y ago
>Why on Earth do you think producers will be unable to raise prices? Because of the law of supply and demand, as it pertains to the outputs of a productive process in a relatively free market context. The prices will generally tend towards the costs (including opportunity costs) in the long run, and demand shocks will only cause temporary rises in price until production can catch up. With naturally scarce commodities, that is not possible, because there is no production. >you don't think that more construction happens when there's more demand? Land supply is perfectly inelastic. Improvements on land are somewhat elastic, although ultimately anchored by lots of factors... and the speculative holding of land is a big one. Furthermore, there's an upper limit to the amount of density that a region can sustain and still be livable. There's a "standard of comfort" that people have, which ultimately determines a lot of it, though. So, in theory, if we became more comfortable at higher densities, we could live like people in Hong Kong. Yet, that doesn't mean even they can sustain infinite density, and indeed they have high rents in Hong Kong.
- Godel_unicode 9y ago
  The idea of speculative holding of land is incompatible with perfectly inelastic supply. If someone is speculatively holding land, there is a price (demand) at which they will sell (supply) that land to be used. The supply of land is not the amount of land which exists, it's the amount of land in the market (just like the supply of oil is not the oil in the ground it's the gasoline in pumps). That amount reacts to price, which is the definition of elasticity of supply.
  - nwah1 9y ago
    Land is not the same as oil commodities because oil must be discovered and drilled, whereas we already know where all the terrestrial land is, and for the most part it is all already owned by someone. Oil rights are a kind of land, of course, because that is what land really is... the rights. Those rights are precisely quantifiable in the form of land titles. The scope of those titles, and the quantity of land subsumed under them, is precisely quantifiable and does not change from year to year. The speculative holders of the rights are often neglecting to rent out the land, but in economic terms they are just consuming their own imputed rents. The rents are a flow that continuously accrues to the title.
Suncho 9y ago
> Why on Earth do you think producers will be unable to raise prices? One of the cool things about basic income is that because it distributes the incomes evenly, it flattens out the demand curve or increases the price elasticity of demand. This means that (even absent competition) if producers raise prices, they'll lose customers. Conversely, if they lower prices they'll get more customers. A basic income creates an incentive for producers to keep their prices low. This incentive is higher than it would be without the basic income. Another way to think about it is that basic income, doesn't give people more money to spend on goods they're already buying. Instead, it gives money to more people to spend on goods they wouldn't have bought before. It's the difference between giving money primarily to people who already have it and giving money to people who don't. Basic income allows the economy to start activating previously unused productive capacity that was already available. Of course this doesn't work for goods whose production is being constrained by resource limits. For example, under basic income, you might see the price of meat rise, which would cause people to buy less meat and substitute other types of food. We have the capacity to feed the world, but we don't necessarily have the capacity to feed everyone meat 24/7.

vinceguidry 9y ago

> Land has a perfectly inelastic supply, and thus expectations of more income will lead to increases in rent. This is a common misconception. In fact real estate is just as supply-elastic as everything else. New developments open up all the time. Development makes land more attractive for more people. And areas become blighted and therefore less attractive, lowering prices. Some places have sharply-constrained supply, such as San Francisco, but this isn't the norm. The norm is cities slowly expanding outwards, as new investments in the center require more time and effort to bear fruit. Politics often throws a monkey wrench into market functionality, but the vast majority of real estate markets function and clear just fine.

bduerst 9y ago
If that were true then natural monopolies would not exist. Electricity too expensive? Let's just build some electric poles in the middle of the tundra and people will move their homes there for their electricity demand. Land (as in housing) is widely accepted as being supply-elastic, especially since in addition to scarcity it's also heavily regulated. You can't wave your hands at SF and say it's an exception because you want UBI to work. Markets like SF are proof that housing pricing is income-elastic, and can't be dismissed when discussing raising the income floor for entire populations.
- conanbatt 9y ago
  California in general is supply ineslactic. Raise in prices do not transform well in increase development. I fail to see the relationship to UBI with that.
- AnthonyMouse 9y ago
  > Electricity too expensive? Let's just build some electric poles in the middle of the tundra and people will move their homes there for their electricity demand. If you built some electric poles in the middle of the tundra and by moving there people could pay significantly lower prices per KWh, people with high electricity consumption absolutely would show up there to consume it. There are companies that build data centers in cold climates just to save on air conditioning. > Land (as in housing) is widely accepted as being supply-elastic, especially since in addition to scarcity it's also heavily regulated. You can't wave your hands at SF and say it's an exception because you want UBI to work. Not all housing markets are hampered by bad regulations. Houston has much less restrictive zoning and rents are much lower there than SF. They're also lower in Tokyo despite the incredibly high demand for housing there, because Tokyo isn't afraid of density. It doesn't say anything to say the combination of UBI and terrible zoning regulations will cause rents to be high in SF. They're already high in SF because of terrible zoning regulations even without a UBI. The only way to have reasonable rents is to fix the zoning rules, after which supply will meet demand as it ought to.

djrogers 9y ago

First of all, your assumption that producers of goods won't be able to raise prices is unsupported by economic theory - inflation is a real thing, and denying it seems silly. Secondly, if your theory on rent is true that by extension must lead to a rise in prices for goods, as commercial real estate costs go up and directly impact the cost of production.

nwah1 9y ago
It can affect it, but commodities like food are an international market. More importantly, a basic income increasing the pocket money of regular individuals is likely to raise residential rents, but may have no effect whatsoever on agricultural rents. Only a small portion of UBI recipients are going to be speculating on agricultural real estate.

aptwebapps 9y ago

Your comment doesn't seem very responsive to its parent. Are you saying that did not happen during stagflation or that it will not happen again for some reason?

namlem 9y ago

That's why you implement a land value tax.

rayiner 9y ago

The major thing you’re missing is that UBI will make land (and housing) supply much more elastic. SF and NYC landlords can get away with raising rents because that’s where the jobs are, and people are tied to their jobs. With UBI, lower income people can move to places with cheaper housing instead of paying higher rents. Indeed, UBI could cause rents in high-cost cities to totally collapse.

kamaal 9y ago
The point of UBI is to give you money for unfortunate life circumstances like a loss of job, or other unfortunate life events where you would need some money to get by. UBI is not a replacement for a job. And unless you wish to survive on extremely minimal living standards, UBI alone won't be of much help to you.
- heckerhut 9y ago
  That’s social welfare. We already have that in most civilized places. It’s a punishment for failing to have a job whilest keeping you barely alive.
- Suncho 9y ago
  I think there's plenty of disagreement over what the "point" of basic income is. Compensating people for unfortunate life circumstances is not at the top of my list. Maximizing social prosperity and stabilizing the economy would probably #1 and #2 for me.

conanbatt 9y ago

Mm I don't think its quite right, but it looks at the right path. If you implemented UBI federally, rents in general could take a huge hit. That is because people would use ubi to go from high rent to low rent places, because their marginal savings rate would be much better. Without implementation details, its hard to say if it will raise or reduce rent.

rwnspace 9y ago

I don't claim to understand economics very well, but I'm led to believe the Georgist Land Value Tax is a good way to combat 'landowners' aggregating wealth sans labour or adding value. How would this marry with our theoretical impact of UBI?

Suncho 9y ago
Henry George was alive during a time when the amount of currency the government could create was constrained by the size of its gold reserves. These days, the amount of money the government is able to spend has very little to do with the size of their tax revenues. You can certainly tax landowners, but you should only do so if you want to punish people for owning land. The money you collect is meaningless. As has been mentioned by me and others in other comments, basic income will push down real estate prices all on its own.

Suncho 9y ago

> Land has a perfectly inelastic supply, and thus expectations of more income will lead to increases in rent. Sort of. But land is not a uniform commodity. Different parcels of land are subject different levels of demand. For a place like New York City, the demand for real estate is fairly inelastic. But a basic income would decrease the incentive for people to live near where the jobs are. This would likely cause real estate prices to crash in more expensive places like San Francisco and New York. Many of those prices are inflated due to speculation anyway.