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The idea that UBI would cause inflation seems intuitive but it's shown to be a small effect at most: https://www.vox.com/policy-and-politics/2017/9/20/16256240

by zik 7y ago

The idea that UBI would cause inflation seems intuitive but it's shown to be a small effect at most: https://www.vox.com/policy-and-politics/2017/9/20/16256240/mexico-cash-transfer-inflation-basic-income https://www.vox.com/policy-and-politics/2017/9/20/16256240/m...

prepend 7y ago
That study does not show much at all. They gave a small amount, $20, and prices went up 0.2%. Even if prices went up or down, a small amount of a specific item, food, doesn’t really equate to what UBI is trying to accomplish. Giving a more significant amount of cash to large groups would drive up prices and increase inflation.
- gremlinsinc 7y ago
  There's an easy solution to this. Integrate some sort of tax on rent increase. Have a threshold to allow competition but if someone is gouging then their entire tax bracket moves up a notch and they spend a lot more than the money they make via upping their prices. E.g. Say they sell rice at $3/lb, because of UBI they think they can sell it at $5/lb, gov't says 10% markup seems normal, but you've marked it up 200%, so you'll now pay 20% more taxes across the board --say the markup divided by 10. Of course that takes a large amount effort behind the scenes...maybe an easier method would be say to Walmart: If you forbid sales of products where they raise prices in relation to GBI we'll give you a 10% discount in taxes. Most small retailers and distributors do NOT want to lose good grace w/ walmart so they keep prices stable. Since walmart and other big retailers cover a lot of territory government only needs to make the deal with a few partners : Amazon, Walmart, Target, etc...
  - niij 7y ago
    Your solution to government overreach of UBI is.. government mandated price controls? Fixing one problem with a bigger one. I'm going to go out on a limb here and say that's never worked anywhere.
baddox 7y ago
Why does it "seem intuitive?" It's never seemed intuitive to me. It doesn't make sense to me that McDonald's is only charging me $4 for a meal because there are people in the world with zero money, and that if suddenly those people had greater than zero money, McDonald's would suddenly start charging me more than $4.
- leetcrew 7y ago
  overall, McDonald's is probably not a good example of the sort of inflation that might occur under UBI. the supply of McDonald's meals is not really constrained. they can basically make as much food as people will buy, so the mere fact that people can afford more happy meals probably doesn't move the price. stuff like housing tends to be a lot more constrained, so you would expect rent/mortgages to go up roughly in proportion to how much extra money people have to bid them up. now a large part of why McDonald's can sell you a meal for $4 is that they can pay people through the whole supply chain very little money to do mostly undesirable work. if you start just giving these people money, they might be less willing to do these jobs for the same pay. so McDonald's would either have to pay them more or invest in more automation. either way, some of the cost increase gets passed on to the consumer. the works get paid more, which is cool, but they also probably see the cost of most goods and services rise as well, which is less cool. to be clear, I'm not actually arguing this is what would happen. I'm just explaining the naive econ 101 perspective on why UBI would cause inflation. even if it did cause inflation, it would still probably decrease inequality more efficiently than the current byzantine web of welfare, as long as it was funded by some sort of progressive tax(es).
- esotericn 7y ago
  With a high enough UBI they don't 'suddenly start charging you more than $4'; their cost of goods increases beyond $4 and they are forced to either do that or stop doing business. As a trivial example - imagine that the UBI is set at the McD's full time wage. Some nonzero number of people will stop working there, forcing McD to increase wages to maintain staff levels. For those that do continue to work there, even if the McD wage remains constant, more money will be sloshing about in the local economy because they're suddenly earning twice as much. Anything scarce will increase in price (e.g. rental housing), as a first order effect at least, because at the bottom end of the market pricing is basically about allocation of scarcity. FWIW I think this is a _good thing_. A business that relies on forms of indirect indentured servitude (e.g. the entire class of jobs that people work in order to eat as opposed to actively choosing them in some form) should only exist for as long as we need it to. If we can make an economy work without it, let's do it.
aeternum 7y ago
For food especially, it is unlikely to cause inflation since we already heavily subsidize food and grow much more than we can consume. Housing is another story.

by zik 7y ago

prepend 7y ago

That study does not show much at all. They gave a small amount, $20, and prices went up 0.2%. Even if prices went up or down, a small amount of a specific item, food, doesn’t really equate to what UBI is trying to accomplish. Giving a more significant amount of cash to large groups would drive up prices and increase inflation.

gremlinsinc 7y ago
There's an easy solution to this. Integrate some sort of tax on rent increase. Have a threshold to allow competition but if someone is gouging then their entire tax bracket moves up a notch and they spend a lot more than the money they make via upping their prices. E.g. Say they sell rice at $3/lb, because of UBI they think they can sell it at $5/lb, gov't says 10% markup seems normal, but you've marked it up 200%, so you'll now pay 20% more taxes across the board --say the markup divided by 10. Of course that takes a large amount effort behind the scenes...maybe an easier method would be say to Walmart: If you forbid sales of products where they raise prices in relation to GBI we'll give you a 10% discount in taxes. Most small retailers and distributors do NOT want to lose good grace w/ walmart so they keep prices stable. Since walmart and other big retailers cover a lot of territory government only needs to make the deal with a few partners : Amazon, Walmart, Target, etc...
- niij 7y ago
  Your solution to government overreach of UBI is.. government mandated price controls? Fixing one problem with a bigger one. I'm going to go out on a limb here and say that's never worked anywhere.

baddox 7y ago

Why does it "seem intuitive?" It's never seemed intuitive to me. It doesn't make sense to me that McDonald's is only charging me $4 for a meal because there are people in the world with zero money, and that if suddenly those people had greater than zero money, McDonald's would suddenly start charging me more than $4.

leetcrew 7y ago
overall, McDonald's is probably not a good example of the sort of inflation that might occur under UBI. the supply of McDonald's meals is not really constrained. they can basically make as much food as people will buy, so the mere fact that people can afford more happy meals probably doesn't move the price. stuff like housing tends to be a lot more constrained, so you would expect rent/mortgages to go up roughly in proportion to how much extra money people have to bid them up. now a large part of why McDonald's can sell you a meal for $4 is that they can pay people through the whole supply chain very little money to do mostly undesirable work. if you start just giving these people money, they might be less willing to do these jobs for the same pay. so McDonald's would either have to pay them more or invest in more automation. either way, some of the cost increase gets passed on to the consumer. the works get paid more, which is cool, but they also probably see the cost of most goods and services rise as well, which is less cool. to be clear, I'm not actually arguing this is what would happen. I'm just explaining the naive econ 101 perspective on why UBI would cause inflation. even if it did cause inflation, it would still probably decrease inequality more efficiently than the current byzantine web of welfare, as long as it was funded by some sort of progressive tax(es).
esotericn 7y ago
With a high enough UBI they don't 'suddenly start charging you more than $4'; their cost of goods increases beyond $4 and they are forced to either do that or stop doing business. As a trivial example - imagine that the UBI is set at the McD's full time wage. Some nonzero number of people will stop working there, forcing McD to increase wages to maintain staff levels. For those that do continue to work there, even if the McD wage remains constant, more money will be sloshing about in the local economy because they're suddenly earning twice as much. Anything scarce will increase in price (e.g. rental housing), as a first order effect at least, because at the bottom end of the market pricing is basically about allocation of scarcity. FWIW I think this is a _good thing_. A business that relies on forms of indirect indentured servitude (e.g. the entire class of jobs that people work in order to eat as opposed to actively choosing them in some form) should only exist for as long as we need it to. If we can make an economy work without it, let's do it.

aeternum 7y ago

For food especially, it is unlikely to cause inflation since we already heavily subsidize food and grow much more than we can consume. Housing is another story.