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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 s

by 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?
    - chipsy 13y ago
      This is a good question, and it's one of the more challenging aspects of neoclassical macroeconomics(as taught in most U.S. schools). It's also heavily contested, and one of the reasons why I started to dislike my study of economics, because the theory has to make some big assumptions to get any result. The rationale given to not do this is that any policy change from the government is going to affect expectations of the future - if (on balance) most economic actors are rational and know that there will be inflation in the future, they will take steps _now_ to protect themselves from the side effects. If you change policy on both ends, expectations about the economy become uncertain - more so than if there's no change - which means that the market will start to move its investment towards other countries with more predictable economies. Here's a Wikipedia article describing the original proposition that this theory was built on: http://en.wikipedia.org/wiki/Policy_Ineffectiveness_Proposition http://en.wikipedia.org/wiki/Policy_Ineffectiveness_Proposit...
      - scotty79 13y ago
        I think that any potential incentive for the investments to leave could be properly offset by lowering or abolishing taxes.

by chipsy 13y ago

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?
  - chipsy 13y ago
    This is a good question, and it's one of the more challenging aspects of neoclassical macroeconomics(as taught in most U.S. schools). It's also heavily contested, and one of the reasons why I started to dislike my study of economics, because the theory has to make some big assumptions to get any result. The rationale given to not do this is that any policy change from the government is going to affect expectations of the future - if (on balance) most economic actors are rational and know that there will be inflation in the future, they will take steps _now_ to protect themselves from the side effects. If you change policy on both ends, expectations about the economy become uncertain - more so than if there's no change - which means that the market will start to move its investment towards other countries with more predictable economies. Here's a Wikipedia article describing the original proposition that this theory was built on: http://en.wikipedia.org/wiki/Policy_Ineffectiveness_Proposition http://en.wikipedia.org/wiki/Policy_Ineffectiveness_Proposit...
    - scotty79 13y ago
      I think that any potential incentive for the investments to leave could be properly offset by lowering or abolishing taxes.