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So you don’t think there would be any inflationary impact if you gave everybody, to use an extreme example, an extra 1 million dollars a month? I guess I don’t

So you don’t think there would be any inflationary impact if you gave everybody, to use an extreme example, an extra 1 million dollars a month? I guess I don’t really see how that’s possible but I’ll admit much of economics is over my head.

azernik 8y ago
Depends on where that money's coming from. If you take it away from the wealthy, that reduces their a) consumption spending, and b) investment, which causes a countervailing downward pressure on prices. The total amount of money floating around, however, stays the same. This comes with some caveats, of course: This would probably cause a demand shock as spending shifts from the things the rich do to the things the newly-not-poor do - so there would probably be a short-term jump in the price of e.g. low-end smartphones and middle-end IKEA furniture, and a crash in the price of international travel and of certain investments, until the economy properly shifts over to the new production priorities. Which can be interpreted oh so hilariously from a Marxist perspective. There may be an increase in money velocity when shifting income to (on average) lower income brackets; i.e. it may be the case that money changes hands more quickly in the case of (poor people consume items, and then the places they buy it from plow that money into both investment and into the taxes necessary to fund the UBI program) than in the current case of (rich people put money into their more high-brow consumption and into investments, and the Apples and Fidelities of the world put their revenue and investments to use). That is, the same amount of money gets spent more often. And that could cause inflation. But of course the determinants of velocity of money, and its effects on inflation, are an open question in economics.
- DataWorker 8y ago
  But everybody gets it, it’s not taken away from any person. The wealthy get a million dollars extra just like everyone else. Let’s also assume it’s revenue neutral, so the government doesn’t need to raise taxes. I hear that’s the claim of most ubi proponents.
  - azernik 8y ago
    The wealthy get a million dollars along with everyone else, and that money has to come from somewhere, so you need to tax the wealthy a lot more than a million dollars on average. Basically the way to think of it is: you're giving everyone a million dollars on average, so you need to tax everyone a million dollars on average, and the only way to make that work is to actually tax someone with, say, $5M/year in income $4M of that income to balance out the people who make only $20K/year and can't pay anywhere near their share. (That tax rate is probably impractical, but then we're looking at a pathological case for the sake of analysis anyway.) If it's revenue neutral, then that means you're taking money from other programs - which by definition spend that money. Just on different things. (And probably a lot of the same things, if you're taking that money from existing welfare programs.)
    - DataWorker 8y ago
      The more serious proposals I’ve heard are for revenue neutral ubi. Which means taking the money from current entitlements and giving it evenly to everyone. I’d love to hear a real economist who supports the idea and is in favor of paying for ubi by raising taxes on the wealthy. I do not know of any economists that fit that description.
      - azernik 8y ago
        On the contrary. Most of the "revenue neutral" claims I've heard are Americans making a politically-motivated claim to reduce libertarian/conservative opposition. Actual concrete proposals always require taxation - see e.g. the Swiss proposal (voted down in a referendum because of the taxation requirements) and this [1] overview in the Economist of the prospects of adoption in other countries. Generally, if I see a claim that a proposal for UBI is revenue neutral, I assume they're either a) left-wing Americans trying to sneak welfare hikes by right-wing Americans, or b) right-wing Americans trying to sneak a drop in net income transfer to the poor past left-wing Americans. [1] https://www.economist.com/blogs/economist-explains/2016/06/economist-explains-4 https://www.economist.com/blogs/economist-explains/2016/06/e...

azernik 8y ago

Depends on where that money's coming from. If you take it away from the wealthy, that reduces their a) consumption spending, and b) investment, which causes a countervailing downward pressure on prices. The total amount of money floating around, however, stays the same. This comes with some caveats, of course: This would probably cause a demand shock as spending shifts from the things the rich do to the things the newly-not-poor do - so there would probably be a short-term jump in the price of e.g. low-end smartphones and middle-end IKEA furniture, and a crash in the price of international travel and of certain investments, until the economy properly shifts over to the new production priorities. Which can be interpreted oh so hilariously from a Marxist perspective. There may be an increase in money velocity when shifting income to (on average) lower income brackets; i.e. it may be the case that money changes hands more quickly in the case of (poor people consume items, and then the places they buy it from plow that money into both investment and into the taxes necessary to fund the UBI program) than in the current case of (rich people put money into their more high-brow consumption and into investments, and the Apples and Fidelities of the world put their revenue and investments to use). That is, the same amount of money gets spent more often. And that could cause inflation. But of course the determinants of velocity of money, and its effects on inflation, are an open question in economics.

DataWorker 8y ago
But everybody gets it, it’s not taken away from any person. The wealthy get a million dollars extra just like everyone else. Let’s also assume it’s revenue neutral, so the government doesn’t need to raise taxes. I hear that’s the claim of most ubi proponents.
- azernik 8y ago
  The wealthy get a million dollars along with everyone else, and that money has to come from somewhere, so you need to tax the wealthy a lot more than a million dollars on average. Basically the way to think of it is: you're giving everyone a million dollars on average, so you need to tax everyone a million dollars on average, and the only way to make that work is to actually tax someone with, say, $5M/year in income $4M of that income to balance out the people who make only $20K/year and can't pay anywhere near their share. (That tax rate is probably impractical, but then we're looking at a pathological case for the sake of analysis anyway.) If it's revenue neutral, then that means you're taking money from other programs - which by definition spend that money. Just on different things. (And probably a lot of the same things, if you're taking that money from existing welfare programs.)
  - DataWorker 8y ago
    The more serious proposals I’ve heard are for revenue neutral ubi. Which means taking the money from current entitlements and giving it evenly to everyone. I’d love to hear a real economist who supports the idea and is in favor of paying for ubi by raising taxes on the wealthy. I do not know of any economists that fit that description.
    - azernik 8y ago
      On the contrary. Most of the "revenue neutral" claims I've heard are Americans making a politically-motivated claim to reduce libertarian/conservative opposition. Actual concrete proposals always require taxation - see e.g. the Swiss proposal (voted down in a referendum because of the taxation requirements) and this [1] overview in the Economist of the prospects of adoption in other countries. Generally, if I see a claim that a proposal for UBI is revenue neutral, I assume they're either a) left-wing Americans trying to sneak welfare hikes by right-wing Americans, or b) right-wing Americans trying to sneak a drop in net income transfer to the poor past left-wing Americans. [1] https://www.economist.com/blogs/economist-explains/2016/06/economist-explains-4 https://www.economist.com/blogs/economist-explains/2016/06/e...