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Question (and this is motivated out of my ignorance, not any political leaning) -- If everyone gets a Basic Income, wouldn't prices merely rise to compensate f

Question (and this is motivated out of my ignorance, not any political leaning) -- If everyone gets a Basic Income, wouldn't prices merely rise to compensate for it, leaving us in the same state we're in now? In other words, when it comes to prices, isn't everything "relative," since prices are determined by supply and demand?

textminer 13y ago
I feel like it'd be affine, so the floor buying power of each individual wouldn't be zero, but some offset of zero that nonetheless has buying power (even if that marginal amount is less than in the original system).
skyraider 13y ago
The income must be cash or cash-equivalent (as opposed to a monopsony, where a single payer buys tries to negotiate lower rates with, say, farms and landlords) so that purchasing occurs competitively. Government's role would be to break up monopolies on basic goods and services.
gizmo686 13y ago
Economics is one of those subjects where simple questions have complicated answers. At a basic level, we have more than ample resources to give everyone ample food, shelter, etc. However, because of the way money is distributed, it is more profitable for producers to create less nessasary items for those with a lot of money. With a Basic Income, producers would have a reason to create more of the basic goods now that more people have money to give for it. Of course, the fact that these people are now spending more money does have a significant positive effect on the economy, as it is essential the definition of not a depression.
- sliverstorm 13y ago
  the fact that these people are now spending more money does have a significant positive effect on the economy This sounds like a house of cards. Does Zimbabwe have a significantly positive economy because of just how many Zimbabwean dollars are being spent?
  - gizmo686 13y ago
    Zimbabwe had hyperinflation resulting from printing money. The classical cause of depressions is that once people are unemployed, they no longer spend money so other people can no longer make money from them. The logic behind stimulus programs is to get people spending again to bootstrap the economy.
  - taejo 13y ago
    Just FYI, no Zimbabwean dollars are being spent: the only trade involving Zim dollars these days is selling notes to tourists as souvenirs -- for US dollars (in which the government has denominated its accounts since 2009), South African rand, Botswana pula, etc.
chipsy 13y ago
For prices to rise, the nominal amount of money flowing through the economy must increase somewhere along the line. However, what occurs in basic income is a straight-up "redistribution of wealth" from richer to poorer, which means that the nominal amount of money in the system should be no different from the laissez-faire situation. This in turn means that prices aren't going to change as a direct result, as in inflation(where there is an overt increase in money supply). But they are likely to change when consumer demand changes, which could happen if, for example, people receiving basic income start to upgrade their lifestyle away from abject poverty. Some prices may actually drop as a result; for example, if more people can afford health insurance and get preventative care, the economies of scale for health insurance coverage improve. On the other hand, luxury goods with limited supply are likely to be pushed upwards to remain out of reach of the masses.
- ams6110 13y ago
  You're assuming that the basic income dollars would actually be transferred and not just printed.
  - chipsy 13y ago
    Indeed. That's consistent with most proposals(including negative income tax) and the few real world implementations such as the Alaskan benefit. The government can always opt to print for its expenditures - there is nothing stopping them from doing so, and it's a typical last resort of desperate leaders, but economic prescriptions avoid it since it lowers confidence, which has destabilizing effects beyond inflation.
    - scotty79 13y ago
      Why government printing money for its expenditures is considered bad? I know that it's tempting for government to print money uncontrollably. But what if printing money was proprly offset by increasing reserve requirement so that banks would create less money with credit at the same time?
      - 13y ago
nazgulnarsil 13y ago
In the short run yes, money would be redistributed within the economy towards things poor folk like to buy, causing prices to rise. In the longer term price increases signal profitability and other providers enter the market or existing players compete to drive prices back towards the cost of production.
zurn 13y ago
Have a look at some places where the social safety net (unemployment benefits and so on) is pretty strong. The answer is no, and typically the minimun income is tied to a cost of living index. Prices are a little higher compared to a neighbour country with no such net though.
roguecoder 13y ago
As clarified below, not necessarily: it has nothing to do with the quantity of money being created. However, I would also like to point out that some inflation is desirable in order to prevent hording of cash and that the informational value of money is improved by giving everyone a floor on income. Basically, when the optimization function of our economy only takes into account the preferences of the rich and the government, we create many inefficiencies in the production and distribution of goods and services. When we instead redistribute money such that everyone has at least some, the economy is more efficient and production changes to match. If more people want to buy simple clothing and the price rises more people will make simple clothing and the price will fall again. This is the hypothesis I have heard for why raising the minimum wage doesn't lower employment (the experimental result which perhaps most clearly demonstrates the flaws in modern macroeconomic models.) People who receive minimum wage spend it on other goods that are produced employing more people who earn minimum wage.

textminer 13y ago

I feel like it'd be affine, so the floor buying power of each individual wouldn't be zero, but some offset of zero that nonetheless has buying power (even if that marginal amount is less than in the original system).

skyraider 13y ago

The income must be cash or cash-equivalent (as opposed to a monopsony, where a single payer buys tries to negotiate lower rates with, say, farms and landlords) so that purchasing occurs competitively. Government's role would be to break up monopolies on basic goods and services.

gizmo686 13y ago

Economics is one of those subjects where simple questions have complicated answers. At a basic level, we have more than ample resources to give everyone ample food, shelter, etc. However, because of the way money is distributed, it is more profitable for producers to create less nessasary items for those with a lot of money. With a Basic Income, producers would have a reason to create more of the basic goods now that more people have money to give for it. Of course, the fact that these people are now spending more money does have a significant positive effect on the economy, as it is essential the definition of not a depression.

sliverstorm 13y ago
the fact that these people are now spending more money does have a significant positive effect on the economy This sounds like a house of cards. Does Zimbabwe have a significantly positive economy because of just how many Zimbabwean dollars are being spent?
- gizmo686 13y ago
  Zimbabwe had hyperinflation resulting from printing money. The classical cause of depressions is that once people are unemployed, they no longer spend money so other people can no longer make money from them. The logic behind stimulus programs is to get people spending again to bootstrap the economy.
- taejo 13y ago
  Just FYI, no Zimbabwean dollars are being spent: the only trade involving Zim dollars these days is selling notes to tourists as souvenirs -- for US dollars (in which the government has denominated its accounts since 2009), South African rand, Botswana pula, etc.

chipsy 13y ago

For prices to rise, the nominal amount of money flowing through the economy must increase somewhere along the line. However, what occurs in basic income is a straight-up "redistribution of wealth" from richer to poorer, which means that the nominal amount of money in the system should be no different from the laissez-faire situation. This in turn means that prices aren't going to change as a direct result, as in inflation(where there is an overt increase in money supply). But they are likely to change when consumer demand changes, which could happen if, for example, people receiving basic income start to upgrade their lifestyle away from abject poverty. Some prices may actually drop as a result; for example, if more people can afford health insurance and get preventative care, the economies of scale for health insurance coverage improve. On the other hand, luxury goods with limited supply are likely to be pushed upwards to remain out of reach of the masses.

ams6110 13y ago
You're assuming that the basic income dollars would actually be transferred and not just printed.
- chipsy 13y ago
  Indeed. That's consistent with most proposals(including negative income tax) and the few real world implementations such as the Alaskan benefit. The government can always opt to print for its expenditures - there is nothing stopping them from doing so, and it's a typical last resort of desperate leaders, but economic prescriptions avoid it since it lowers confidence, which has destabilizing effects beyond inflation.
  - scotty79 13y ago
    Why government printing money for its expenditures is considered bad? I know that it's tempting for government to print money uncontrollably. But what if printing money was proprly offset by increasing reserve requirement so that banks would create less money with credit at the same time?
    - 13y ago

nazgulnarsil 13y ago

In the short run yes, money would be redistributed within the economy towards things poor folk like to buy, causing prices to rise. In the longer term price increases signal profitability and other providers enter the market or existing players compete to drive prices back towards the cost of production.

zurn 13y ago

Have a look at some places where the social safety net (unemployment benefits and so on) is pretty strong. The answer is no, and typically the minimun income is tied to a cost of living index. Prices are a little higher compared to a neighbour country with no such net though.

roguecoder 13y ago

As clarified below, not necessarily: it has nothing to do with the quantity of money being created. However, I would also like to point out that some inflation is desirable in order to prevent hording of cash and that the informational value of money is improved by giving everyone a floor on income. Basically, when the optimization function of our economy only takes into account the preferences of the rich and the government, we create many inefficiencies in the production and distribution of goods and services. When we instead redistribute money such that everyone has at least some, the economy is more efficient and production changes to match. If more people want to buy simple clothing and the price rises more people will make simple clothing and the price will fall again. This is the hypothesis I have heard for why raising the minimum wage doesn't lower employment (the experimental result which perhaps most clearly demonstrates the flaws in modern macroeconomic models.) People who receive minimum wage spend it on other goods that are produced employing more people who earn minimum wage.