11 ms·

Can someone please explain to me why a BI wouldn't simply result in higher prices, resulting in the need for a higher BI, resulting in higher prices, resulting

by cheald 13y ago

Can someone please explain to me why a BI wouldn't simply result in higher prices, resulting in the need for a higher BI, resulting in higher prices, resulting in the need for a higher BI, etc? You have two mechanisms by which you can fund such a proposal: * The government prints money and hands it out. Basically, just direct inflation; the BI becomes an arms race to keep up with inflation caused by BI. * The people who successfully make money have a larger portion of it taken away by the government and given to people who don't make money. They recoup their losses by raising prices and re-extracting it from the people it has been given to, except now the government gets a cut of it twice. BI has to be increased to keep pace with rising prices caused by funding BI. (There is a third proposal: Borrow it without any plan to actually repay it, which is not self-sustaining for obvious reasons) In either case, I can't understand how a BI would lead to a more stable economy. The endgame of the first option is Zimbabwe. The endgame of the second option is Marxist communism; the point at which the system reaches stability is the point at which there is nobody left to extract extra money from to distribute. I feel like I'm missing something critical that makes it a viable strategy. I don't think anyone at all is in favor of uncontrolled hyperinflation, so I'm left to conclude that the favored option is the second choice. We know from history that communism just doesn't work once you reach a large enough population that people are not personally accountable to each other; why would it be different here? (I want to make it clear that if I could snap my fingers and make the world such that nobody had to live in poverty and had food, clothing, shelter, and an internet connection, I'd do it. I don't have anything against the moral goals of BI. I just don't see how it's sustainable, since the money for it has to some from somewhere.)

anoncowherd 13y ago
Nice to see someone capable of independent thought.
jayd16 13y ago
Demand isn't the only thing that sets a price. Competition keeps prices low.
- cheald 13y ago
  Sure, but if we posit that we have a functioning capitalist system right now, then prices are already at a natural low due to the existence of competition. In markets where competition is actually healthy, prices should have already reached an economically viable minimum. If the government shows up and says "k, we're taking an extra 15% of your income to fund this program", then suddenly your net revenues are lower than you can afford for them to be, and you have to make up the difference somewhere. That means either improving the efficiency of production (which basically means firing workers and working your existing workers harder, barring some technological leap) or raising prices. Competition keeps prices balanced; it doesn't drive them arbitrarily low. Nobody will sell at a price that doesn't allow them to sustain their business.
  - dkuntz2 13y ago
    Alternatively, we could find such a system by: 1. Using public pensions. While unlikely to be supported by the people making the laws (it is their pension), if they have basic income, they don't need a pension. 2. Move all funds currently in other welfare programs into the basic income program. This both moves existing funding m and gets rid of those departments, removing people working for those departments from the payroll. While my statement may be crass, it's a valid solution. 3. Take some of our military funding. Also give some of it to NASA. None of those solutions decrease net income, except for people losing their jobs (they can find another one?) or their public pension (they're getting the basic income, and the original idea was that once someone served their term, they'd return to their previous profession, and become contributing members of society).
deleted 13y ago
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- ams6110 13y ago
  The thing about luxury goods is that they are, well, luxuries. Nobody has to buy them. http://articles.sun-sentinel.com/1993-08-16/news/9301300112_1_luxury-tax-boat-builders-boat-building-industry http://articles.sun-sentinel.com/1993-08-16/news/9301300112_...
  - michaelt 13y ago
    It depends on how broad your definition of luxury is. The UK has a sales tax called 'VAT' that applies to almost everything, with a defined list of exceptions. Most types of food are untaxed, as are books, children's clothes, college education, safety boots, gold investment coins, sport activities, tap water, most healthcare services, burials and cremations, museum entry fees, houseboat moorings, charter of military aeroplanes, and so on [1]. OK so the list of things that are exempt or 0% taxed is fairly long. But the vast majority of things are subject to VAT. [1] http://www.hmrc.gov.uk/vat/forms-rates/rates/goods-services.htm http://www.hmrc.gov.uk/vat/forms-rates/rates/goods-services....
- cheald 13y ago
  Okay, I can accept that. Let's run some numbers: What are we going to set BI at? There are 228 million adults in the US. If we set BI at a nice round number, say $1,000/month (equivalent to a full-time $6.00/hour job with 2 weeks paid vacation per year), we have to come up with $228 billion dollars per month to fund it. How much of that is a luxury tax going to cover?
  - deleted 13y ago
    [deleted]
    - cheald 13y ago
      If someone can present an actual spreadsheet showing where the money would come from and how to avoid impacting the prices of things that people requiring BI would be purchasing, then I would be extremely interested in it, but I am willing to flat out say that it's impossible to cough up $2.7 trillion yearly (that's 18% of the US's GDP) without moving the needle in a substantial manner.
fnordfnordfnord 13y ago
>Can someone please explain to me why a BI wouldn't simply result in higher prices, resulting in the need for a higher BI, resulting in higher prices, resulting in the need for a higher BI, etc? Of course it would. But there is no reason to think that an equilibrium couldn't / wouldn't be reached. >The endgame of the first option is Zimbabwe. We can get Zimbabwe or Weimar Germany without BI. > The endgame of the second option is Marxist communism; the point at which the system reaches stability is the point at which there is nobody left to extract extra money from to distribute. For that to be necessarily true, we'd need to already be in a sort of Malthusian crisis, and/or have a resource scarcity. Sure, it might happen, but it is not a certainty. >why would it be different here? People still strive for wealth, why would they stop just because of all-you-can-eat-beans-and-rice buffet and health care?
- cheald 13y ago
  > Of course it would. But there is no reason to think that an equilibrium couldn't / wouldn't be reached. I agree equilibrium would be reached. I guess what I'm asking is "Why wouldn't the equilibrium be Marxist communism?" (and if it is, can we just admit that we're advocating for communism?) > For that to be necessarily true, we'd need to already be in a sort of Malthusian crisis, and/or have a resource scarcity. Sure, it might happen, but it is not a certainty. Can you elaborate on why this is necessary? This ties into my question of "Why wouldn't the equilibrium be Marxist communism?" > People still strive for wealth, why would they stop just because of all-you-can-eat-beans-and-rice buffet and health care? Wealth is a means to an end to achieve a certain quality of life. For most people, it is not the end itself. The caricature of the Scrooge McDuck character who collects money out of a psychopathic addiction to raw wealth so that he can swim around in it is not representative of almost anyone's actual financial goals or motivations. People don't create wealth for the hell of it - they create it to improve their quality of life. If I am producing wealth, but it is not contributing to my quality of life, I have zero incentive or motivation to continue producing wealth.
  - cantankerous 13y ago
    I think the existence of a market equilibrium would require the existence of a market. The existence of a market would preclude the existence of a truly Marxist economy.
hcarvalhoalves 13y ago
Quoting myself from a comment below: >> Can someone please explain to me why a BI wouldn't simply result in higher prices, resulting in the need for a higher BI, resulting in higher prices, resulting in the need for a higher BI, etc? > A basic income guarantee is the same as having a basic (food/healthcare/public services/whatever) guarantee (basically, state welfare already implemented in many countries) - the difference is the government is paying in money instead of trying to provide the services themselves.
- cheald 13y ago
  My understanding of BI is that it's a flat amount paid to every person (adult? working age adult? I'm not sure) without consideration for any other factor. From the Wikipedia article on the topic, "Basic income is entirely unconditional: the only requirement for receiving it is to be a citizen and/or resident of the country." State welfare programs have a long list of conditions for who is and is not eligible for welfare assistance. If you're just talking about liquidating all state welfare and distributing raw cash instead with no net change, then sure, okay, no big loss there except for the elimination of thousands of government jobs. That's not what BI is, though - BI is Oprah. "You get $1000! You get $1000! Everyone gets $1000!" Unless I grossly misunderstand the concept, liquidating existing state welfare services wouldn't even begin to approach the financial needs of BI.
  - dkuntz2 13y ago
    Most of the people commenting are probably urban or suburban residents, and as such, the minimum living wage is considered a lot higher than in a rural area. Basic Income shouldn't provide people the ability to live in an urban or suburban area comfortably, that's a luxury. It should provide sometime the ability to live in a rural community acceptably, not comfortably. It shouldn't replace everyone's desire to work. It should have some built in compelling agent to keep people working m even if it isn't that much work.
    - hobs 13y ago
      I was fairly certain that the point of BI is that you didn't need to work unless you wanted to or had something you decided you wanted above the basic needs. Frankly, we don't need as many people working as much as they do. (speaking about productive work)
Kiro 13y ago
> They recoup their losses by raising prices I thought BI inflation would happen due to people having more money to spend, not because losses had to be recouped for. Am I wrong?
- cheald 13y ago
  Tax-and-distribute BI doesn't cause direct inflation, because it's not changing the amount of money in the economy. If it's taking money from wealthy people that is just sitting and doing literally nothing, then yes, it causes effective inflation since it increases the amount of currency in active circulation, but rich people tend to use their money as capital - I don't have hard stats on this, but I don't think that very much of it at all is genuinely out of circulation which could otherwise be brought into circulation through BI taxes (this is the reason that some inflation is considered a good thing; it incentivizes keeping money in circulation to avoid the inflation tax). If people magically had more money to spend without anyone having to lose money to fund it, that would cause direct inflation (since the total amount of currency in circulation would be higher). The only way that happens is if the government starts printing a few hundred billion each month and handing it out to people.
  - ams6110 13y ago
    Do you actually imagine that wealthy people are like Scrooge McDuck with a vaults full of cash in the basement, just sitting there, "doing nothing"?
    - cheald 13y ago
      Quite the opposite. I was saying that I suspect that most people keep their money in circulation, if for no other reason than to negate the effects of inflation. I was saying that if the Scrooge McDuck model were the case then increased taxes from BI would cause inflation, but I don't believe that's the case. > I don't think that very much of it at all is genuinely out of circulation which could otherwise be brought into circulation through BI taxes
    - vasilipupkin 13y ago
ctl 13y ago
This is an incoherent argument. The people who successfully make money have a larger portion of it taken away by the government and given to people who don't make money. They recoup their losses by raising prices and re-extracting it from the people it has been given to That doesn't happen in the real world -- raising taxes doesn't cause runaway inflation. (How could you possibly think that it does?) BI has to be increased to keep pace with rising prices caused by funding BI [...] The endgame of the second option is Marxist communism Even if raising taxes did cause runaway inflation, this would still be wrong. Say that each year you set aside 20% of the GDP for basic income. Then your basic income plan already automatically increases with inflation. So the percentage of GDP used for basic income would be stable. We would never get communism. The endgame isn't the Soviet Union, it's Denmark.
- cheald 13y ago
  > That doesn't happen in the real world -- raising taxes doesn't cause runaway inflation. (How could you possibly think that it does?) I agree that it doesn't cause runaway inflation (which we can see empirically), but it does cause economic contraction, which has many of the same effects as inflation. There's a good reason that one of a government's first relief measures in a recession is to ease taxes. > Say that each year you set aside 20% of the GDP for basic income. Then your basic income plan already automatically increases with inflation. It's important that we not conflate "inflation" with "consumer price index" here. The GDP is not fixed to the CPI - they have an inverse relationship. This means that if the GDP contracts significantly (reducing BI), the CPI could well expand outside of the bounds of what BI provides, necessitating the need for a greater BI contribution. Setting aside 20% of the GDP works until it doesn't.
- pdonis 13y ago
  The endgame isn't the Soviet Union, it's Denmark. You're assuming that Denmark is a stable endgame. Is it? On what timescale?
- Wingman4l7 13y ago
  Denmark, who is finally recognizing that they are having problems with their welfare system.[1] You know something is broken (and unsustainable) when the people on welfare are getting more income than the people with jobs. [1]: http://www.nytimes.com/2013/04/21/world/europe/danes-rethink-a-welfare-state-ample-to-a-fault.html?pagewanted=all http://www.nytimes.com/2013/04/21/world/europe/danes-rethink...
quinnchr 13y ago
Because the real world isn't Econ 101. Not all goods are perfectly elastic. Take a look at the research surrounding the minimum wage. If we were to increase the minimum wage by $0.50 (~6.7%) we'd only have about a 1% increase in food prices (http://www.ers.usda.gov/media/306735/aib74703_1_.pdf http://www.ers.usda.gov/media/306735/aib74703_1_.pdf). Also take a look at the study regarding fast food prices by Card and Krueger. Increasing the minimum wage in general does not cause a net rise in unemployment (http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2008_14eco.pdf http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/200...). The people who would receive the BI are the in the lowest income brackets. The bottom three income quintiles on average spend more in a year than they earn. This mean redistributing money to the lower income quintiles effectively results in more money being put back into the economy. You can see this by studying the economic effect of various subsidies. Food stamps have the highest return on the dollar, with $1.73 in economic activity generated for every dollar spent on food stamps. And subsidies to the higher tax brackets like the Bush tax cuts have a negative return. http://frac.org/initiatives/american-recovery-and-reinvestment-act/snapfood-stamps-provide-real-stimulus/ http://frac.org/initiatives/american-recovery-and-reinvestme...
- cheald 13y ago
  Thank you! Lots of things for me to chew on and mull over here. One thing stuck out to me, though: > The people who would receive the BI are the in the lowest income brackets. As I understand BI, this is not true. BI is a payment made to every citizen and/or resident of a country, irrespective of any other consideration (including income, wealth, etc). What you seem to be describing is Guaranteed Minimum Income, which is an entirely different ball of wax. I'm now wondering how much of the discussion is people talking past each other because of conflation of these two terms. See http://en.wikipedia.org/wiki/Basic_income http://en.wikipedia.org/wiki/Basic_income and http://en.wikipedia.org/wiki/Minimum_income http://en.wikipedia.org/wiki/Minimum_income
  - Retric 13y ago
    All formes of BI are paid for with a tax, if your making say ~50k the money that tax equals the amount you receive from BI. But if your making 200k you end up receiving far less from BI than you pay in taxes even if there depositing money into your account every month. PS: Of note BI is assumed to replace social security so someone making 50-80k may effectively pay significantly less in taxes prior to retirement but receive far fewer benefits in retirement.
whiddershins 13y ago
this >>> * The people who successfully make money have a larger portion of it taken away by the government and given to people who don't make money. They recoup their losses by raising prices and re-extracting it from the people it has been given to, except now the government gets a cut of it twice. BI has to be increased to keep pace with rising prices caused by funding BI. >>> is rather muddled. 1) FWIW Basic income would be distributed to everyone. 2) What you are describing is the current system, people who make more money are taxed more, and that money is distributed to various things, including giving money to poor people. 3) The phrase "they recoup their losses" has nothing to do with how the market functions right now. Companies set their prices based on a variety of factors, and generally try to be as profitable as they can. The taxation rate of individuals does not directly modulate that. For example, if the CEO of Walmart or Mattel had a marginal tax rate of 99% this would not directly change the price of a Barbie doll.
scarmig 13y ago
I think this is the classical error of false dichotomy. Useful for rhetorical purposes, but it is more just a statement of two possibilities and an assertion that they're the only two, with no backup. I reject completely the idea that either printing money or borrowing money is a viable solution for most economies in the medium or long term. According to you, that must mean I support a Stalinist regime[1]. This is false, to say the least. Other (relative) proponents of a basic income, including such luminaries as Hayek and Milton Friedman, would likely also look at your claim with great skepticism. A basic income is just the redistributionism practiced by current mixed market economies but implemented much more efficiently (in both the Pareto and administrative senses) than what exists now. Price levels would be affected by a basic income, but you've got to specify what and how much. Considering supply effects, the likely first order result of a basic income is an increase in the cost of basic goods and also an overall increase in the consumption of them. Goods that are typically bought with, say, the marginal dollar at twice the basic income level will decrease in price but also be consumed less. The market would reallocate capital to more efficiently produce basic goods (defined as the goods that are typically bought with marginal dollars beneath the basic income level). You might dislike this kind of very limited redistribution. Fair enough, and that is a great debate to have! But you've also got to be thoughtful about the full package. It's not whether you prefer no redistribution to a basic income. It's whether you prefer a basic income to a costly and heavily-administrated redistribution driven by special interest groups. [1]Also, "Marxist communism"? I'd be curious to ask if you've got even a passing acquaintance with the structure of the Soviet economy. It's fine to criticize a basic income on inflationary grounds, but saying it's communism is so off that it qualifies as not even wrong.
- scarmig 13y ago
  I should point out that the structure of the taxes to fund a basic income are a very, very important implementation detail. As a pragmatic matter, I'd want to phase out existing programs like Medicare, Medicaid, Social Security, SSDI, food stamps, educational grants, etc. and simply redirect their funding streams to a basic income--best to pick one battle at a time. But my ideal taxation scheme includes an abolition of corporate, income, and sales taxes, and a replacement of them with aggressive taxation on goods that are highly inelastic and cheaply taxable. Think land taxes, except updated for contemporary times. Yeah, wish me luck with that.
wtallis 13y ago
I don't think you've sufficiently explained how option 2 will progress all the way to communism. It seems to me that option 2 could easily reach a stable endgame that results in a sizeable chunk of the middle class being demoted to BI, but without an unbounded taxation arms race with the rich.
- cheald 13y ago
  That's quite fair. It may just be that I marginalized the mechanism, and there's a middle ground that's less drastic. I'm not an economist, and I don't have the numbers to show it one way or another (and if I did, I'd be doing something with them!), but it seems to me that the mechanism is basic redistribution that has a built in feedback loop. It doesn't seem logical that people would argue for such a system, so I'm trying to figure out where specifically the invalid assumptions lie.
  - wtallis 13y ago
    As long as the basic income implemented is much less than per-capita GDP, there's still opportunity and incentive to work to earn more, especially if the basic income level is set at a realistic poverty level that doesn't allow for much in the way of luxuries. And if the basic income only provides a net income boost to a minority of voters, then there will be electoral pressure to keep it low, rather than to keep increasing it. It's not a slippery slope we're discussing here so much as a slippery mountain with communism on the other side but some significant uphills between here and there. I also don't think that a basic income would have as strong an inflationary effect as you think it would on the items necessary to survive on a basic income. Since the basic income would replace minimum wage, producers would be free to pay cheap labor much closer to fair market value, so the cost of the products of unskilled labor could drop significantly (offset by an increase in the price of luxuries due to higher income taxes).
    - cheald 13y ago
      > As long as the basic income implemented is much less than per-capita GDP, there's still opportunity and incentive to work to earn more, especially if the basic income level is set at a realistic poverty level that doesn't allow for much in the way of luxuries. I'm really trying to avoid arguments about whether BI would encourage or retard laziness, because I can't make an intelligent argument one way or the other. My concern is with the cost of funding, and the negative effects that would have on currently-productive parts of the market. > if the basic income only provides a net income boost to a minority of voters, then there will be electoral pressure to keep it low, rather than to keep increasing it. Can you elaborate on this point? It seems like this same argument could be used to argue that there would be electoral pressure to not implement BI in the first place, if I understand you correctly. What makes BI electorally viable at level X but not at level Y? > Since the basic income would replace minimum wage, producers would be free to pay cheap labor much closer to fair market value, so the cost of the products of unskilled labor could drop significantly (offset by an increase in the price of luxuries due to higher income taxes). I hadn't considered that at all. Interesting variable. This actually changes my view of the whole thing substantially, since the reduced cost of labor could be the variable that employers could tweak to keep prices approximately stable (I get less of each dollar earned, but it costs less to earn that dollar, so it's a wash). I was assuming that labor costs would remain fixed, but if BI permitted for them to be reduced, that might in fact address one of the biggest concerns.
ritchiea 13y ago
I understand your concern but to answer it I think a necessity with a BI would be stricter regulation around credit. If you offer a BI and people can take the BI while simultaneously accepting predatory credit offers, the prices of things will go up, BI acceptors will get duped by banks and credit card companies and the BI money gets funneled back to those large institutions while BI-receivers pay for their financial mistakes.
- cheald 13y ago
  This doesn't quite sit right with me, because it seems like the underlying argument is "those who benefit from BI don't know how to spend their money, so we have to protect them from spending it poorly". The end result of that line of thinking is targeted social programs, which specifically do not permit people the chance to mis-spend money. How would BI + strict regulation and oversight be substantially different from the entitlement programs we have today?
  - ihateloggingin 13y ago
    Actually we could just refuse to enforce contracts in which future BI income is leveraged for debt. That's already done with certain kinds of retirement assets.
vasilipupkin 13y ago
The issue is what is the most efficient way to distribute income, which we already do plenty of. The problem with Basic Income is all the other ways would have to go away, and that is not realistic
nicholas73 13y ago
Basic income is meant for purchasing goods that are essential, which means that those goods are already being purchased in the volume required. Prices are set at the margins (imagine fighting for the last loaf of bread), and if everyone is buying the same amount as before, then prices won't change. What will change however is the prices of discretionary goods as any additional income people make goes towards these.
yason 13y ago
BI isn't so much of a radically new idea because nearly all if not each and every (at least non-developing) country in the world already does provide some sort of welfare and/or unemployment benefits. Currently this is generally done in a highly inefficient manner though dozens or hundreds of different subsidies and benefits, and it costs a lot to process everything through a thick wall of bureaucracy, and it still ends up being unfair and unmotivational to many. The canonical class of problems is that it doesn't make sense to work because your benefits received would drop in direct proportion to what you get paid. Or it's simply forbidden work even a little in order to be eligible to receive benefits. The point of BI is to redistribute the already redistributed money in a fair and simple way: everyone gets something that may or just may not be enough to live on its own, but there are no questions asked and if you work on top of that, you scoop most of the extra money to yourself after taxes. If you're really, really a scrooge you might just make it with the BI only if you're willing to drop your standard of living a couple of decades back. But most people want more money and they'll work for it, if it's five hours a week or 20 hours a week, and they don't lose BI if they do. For any middle-class adult, BI would simply translate into a slightly lower tax rate. They would still get $500 of BI per month or so, but because they would make $5000 per month in salary on top of that the significance of BI would be marginal.

by cheald 13y ago

anoncowherd 13y ago

Nice to see someone capable of independent thought.

jayd16 13y ago

Demand isn't the only thing that sets a price. Competition keeps prices low.

cheald 13y ago
Sure, but if we posit that we have a functioning capitalist system right now, then prices are already at a natural low due to the existence of competition. In markets where competition is actually healthy, prices should have already reached an economically viable minimum. If the government shows up and says "k, we're taking an extra 15% of your income to fund this program", then suddenly your net revenues are lower than you can afford for them to be, and you have to make up the difference somewhere. That means either improving the efficiency of production (which basically means firing workers and working your existing workers harder, barring some technological leap) or raising prices. Competition keeps prices balanced; it doesn't drive them arbitrarily low. Nobody will sell at a price that doesn't allow them to sustain their business.
- dkuntz2 13y ago
  Alternatively, we could find such a system by: 1. Using public pensions. While unlikely to be supported by the people making the laws (it is their pension), if they have basic income, they don't need a pension. 2. Move all funds currently in other welfare programs into the basic income program. This both moves existing funding m and gets rid of those departments, removing people working for those departments from the payroll. While my statement may be crass, it's a valid solution. 3. Take some of our military funding. Also give some of it to NASA. None of those solutions decrease net income, except for people losing their jobs (they can find another one?) or their public pension (they're getting the basic income, and the original idea was that once someone served their term, they'd return to their previous profession, and become contributing members of society).

deleted 13y ago

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ams6110 13y ago
The thing about luxury goods is that they are, well, luxuries. Nobody has to buy them. http://articles.sun-sentinel.com/1993-08-16/news/9301300112_1_luxury-tax-boat-builders-boat-building-industry http://articles.sun-sentinel.com/1993-08-16/news/9301300112_...
- michaelt 13y ago
  It depends on how broad your definition of luxury is. The UK has a sales tax called 'VAT' that applies to almost everything, with a defined list of exceptions. Most types of food are untaxed, as are books, children's clothes, college education, safety boots, gold investment coins, sport activities, tap water, most healthcare services, burials and cremations, museum entry fees, houseboat moorings, charter of military aeroplanes, and so on [1]. OK so the list of things that are exempt or 0% taxed is fairly long. But the vast majority of things are subject to VAT. [1] http://www.hmrc.gov.uk/vat/forms-rates/rates/goods-services.htm http://www.hmrc.gov.uk/vat/forms-rates/rates/goods-services....
cheald 13y ago
Okay, I can accept that. Let's run some numbers: What are we going to set BI at? There are 228 million adults in the US. If we set BI at a nice round number, say $1,000/month (equivalent to a full-time $6.00/hour job with 2 weeks paid vacation per year), we have to come up with $228 billion dollars per month to fund it. How much of that is a luxury tax going to cover?
- deleted 13y ago
  [deleted]
  - cheald 13y ago
    If someone can present an actual spreadsheet showing where the money would come from and how to avoid impacting the prices of things that people requiring BI would be purchasing, then I would be extremely interested in it, but I am willing to flat out say that it's impossible to cough up $2.7 trillion yearly (that's 18% of the US's GDP) without moving the needle in a substantial manner.

fnordfnordfnord 13y ago

>Can someone please explain to me why a BI wouldn't simply result in higher prices, resulting in the need for a higher BI, resulting in higher prices, resulting in the need for a higher BI, etc? Of course it would. But there is no reason to think that an equilibrium couldn't / wouldn't be reached. >The endgame of the first option is Zimbabwe. We can get Zimbabwe or Weimar Germany without BI. > The endgame of the second option is Marxist communism; the point at which the system reaches stability is the point at which there is nobody left to extract extra money from to distribute. For that to be necessarily true, we'd need to already be in a sort of Malthusian crisis, and/or have a resource scarcity. Sure, it might happen, but it is not a certainty. >why would it be different here? People still strive for wealth, why would they stop just because of all-you-can-eat-beans-and-rice buffet and health care?

cheald 13y ago
> Of course it would. But there is no reason to think that an equilibrium couldn't / wouldn't be reached. I agree equilibrium would be reached. I guess what I'm asking is "Why wouldn't the equilibrium be Marxist communism?" (and if it is, can we just admit that we're advocating for communism?) > For that to be necessarily true, we'd need to already be in a sort of Malthusian crisis, and/or have a resource scarcity. Sure, it might happen, but it is not a certainty. Can you elaborate on why this is necessary? This ties into my question of "Why wouldn't the equilibrium be Marxist communism?" > People still strive for wealth, why would they stop just because of all-you-can-eat-beans-and-rice buffet and health care? Wealth is a means to an end to achieve a certain quality of life. For most people, it is not the end itself. The caricature of the Scrooge McDuck character who collects money out of a psychopathic addiction to raw wealth so that he can swim around in it is not representative of almost anyone's actual financial goals or motivations. People don't create wealth for the hell of it - they create it to improve their quality of life. If I am producing wealth, but it is not contributing to my quality of life, I have zero incentive or motivation to continue producing wealth.
- cantankerous 13y ago
  I think the existence of a market equilibrium would require the existence of a market. The existence of a market would preclude the existence of a truly Marxist economy.

hcarvalhoalves 13y ago

Quoting myself from a comment below: >> Can someone please explain to me why a BI wouldn't simply result in higher prices, resulting in the need for a higher BI, resulting in higher prices, resulting in the need for a higher BI, etc? > A basic income guarantee is the same as having a basic (food/healthcare/public services/whatever) guarantee (basically, state welfare already implemented in many countries) - the difference is the government is paying in money instead of trying to provide the services themselves.

cheald 13y ago
My understanding of BI is that it's a flat amount paid to every person (adult? working age adult? I'm not sure) without consideration for any other factor. From the Wikipedia article on the topic, "Basic income is entirely unconditional: the only requirement for receiving it is to be a citizen and/or resident of the country." State welfare programs have a long list of conditions for who is and is not eligible for welfare assistance. If you're just talking about liquidating all state welfare and distributing raw cash instead with no net change, then sure, okay, no big loss there except for the elimination of thousands of government jobs. That's not what BI is, though - BI is Oprah. "You get $1000! You get $1000! Everyone gets $1000!" Unless I grossly misunderstand the concept, liquidating existing state welfare services wouldn't even begin to approach the financial needs of BI.
- dkuntz2 13y ago
  Most of the people commenting are probably urban or suburban residents, and as such, the minimum living wage is considered a lot higher than in a rural area. Basic Income shouldn't provide people the ability to live in an urban or suburban area comfortably, that's a luxury. It should provide sometime the ability to live in a rural community acceptably, not comfortably. It shouldn't replace everyone's desire to work. It should have some built in compelling agent to keep people working m even if it isn't that much work.
  - hobs 13y ago
    I was fairly certain that the point of BI is that you didn't need to work unless you wanted to or had something you decided you wanted above the basic needs. Frankly, we don't need as many people working as much as they do. (speaking about productive work)

Kiro 13y ago

> They recoup their losses by raising prices I thought BI inflation would happen due to people having more money to spend, not because losses had to be recouped for. Am I wrong?

cheald 13y ago
Tax-and-distribute BI doesn't cause direct inflation, because it's not changing the amount of money in the economy. If it's taking money from wealthy people that is just sitting and doing literally nothing, then yes, it causes effective inflation since it increases the amount of currency in active circulation, but rich people tend to use their money as capital - I don't have hard stats on this, but I don't think that very much of it at all is genuinely out of circulation which could otherwise be brought into circulation through BI taxes (this is the reason that some inflation is considered a good thing; it incentivizes keeping money in circulation to avoid the inflation tax). If people magically had more money to spend without anyone having to lose money to fund it, that would cause direct inflation (since the total amount of currency in circulation would be higher). The only way that happens is if the government starts printing a few hundred billion each month and handing it out to people.
- ams6110 13y ago
  Do you actually imagine that wealthy people are like Scrooge McDuck with a vaults full of cash in the basement, just sitting there, "doing nothing"?
  - cheald 13y ago
    Quite the opposite. I was saying that I suspect that most people keep their money in circulation, if for no other reason than to negate the effects of inflation. I was saying that if the Scrooge McDuck model were the case then increased taxes from BI would cause inflation, but I don't believe that's the case. > I don't think that very much of it at all is genuinely out of circulation which could otherwise be brought into circulation through BI taxes
  - vasilipupkin 13y ago

ctl 13y ago

This is an incoherent argument. The people who successfully make money have a larger portion of it taken away by the government and given to people who don't make money. They recoup their losses by raising prices and re-extracting it from the people it has been given to That doesn't happen in the real world -- raising taxes doesn't cause runaway inflation. (How could you possibly think that it does?) BI has to be increased to keep pace with rising prices caused by funding BI [...] The endgame of the second option is Marxist communism Even if raising taxes did cause runaway inflation, this would still be wrong. Say that each year you set aside 20% of the GDP for basic income. Then your basic income plan already automatically increases with inflation. So the percentage of GDP used for basic income would be stable. We would never get communism. The endgame isn't the Soviet Union, it's Denmark.

cheald 13y ago
> That doesn't happen in the real world -- raising taxes doesn't cause runaway inflation. (How could you possibly think that it does?) I agree that it doesn't cause runaway inflation (which we can see empirically), but it does cause economic contraction, which has many of the same effects as inflation. There's a good reason that one of a government's first relief measures in a recession is to ease taxes. > Say that each year you set aside 20% of the GDP for basic income. Then your basic income plan already automatically increases with inflation. It's important that we not conflate "inflation" with "consumer price index" here. The GDP is not fixed to the CPI - they have an inverse relationship. This means that if the GDP contracts significantly (reducing BI), the CPI could well expand outside of the bounds of what BI provides, necessitating the need for a greater BI contribution. Setting aside 20% of the GDP works until it doesn't.
pdonis 13y ago
The endgame isn't the Soviet Union, it's Denmark. You're assuming that Denmark is a stable endgame. Is it? On what timescale?
Wingman4l7 13y ago
Denmark, who is finally recognizing that they are having problems with their welfare system.[1] You know something is broken (and unsustainable) when the people on welfare are getting more income than the people with jobs. [1]: http://www.nytimes.com/2013/04/21/world/europe/danes-rethink-a-welfare-state-ample-to-a-fault.html?pagewanted=all http://www.nytimes.com/2013/04/21/world/europe/danes-rethink...

quinnchr 13y ago

Because the real world isn't Econ 101. Not all goods are perfectly elastic. Take a look at the research surrounding the minimum wage. If we were to increase the minimum wage by $0.50 (~6.7%) we'd only have about a 1% increase in food prices (http://www.ers.usda.gov/media/306735/aib74703_1_.pdf http://www.ers.usda.gov/media/306735/aib74703_1_.pdf). Also take a look at the study regarding fast food prices by Card and Krueger. Increasing the minimum wage in general does not cause a net rise in unemployment (http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2008_14eco.pdf http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/200...). The people who would receive the BI are the in the lowest income brackets. The bottom three income quintiles on average spend more in a year than they earn. This mean redistributing money to the lower income quintiles effectively results in more money being put back into the economy. You can see this by studying the economic effect of various subsidies. Food stamps have the highest return on the dollar, with $1.73 in economic activity generated for every dollar spent on food stamps. And subsidies to the higher tax brackets like the Bush tax cuts have a negative return. http://frac.org/initiatives/american-recovery-and-reinvestment-act/snapfood-stamps-provide-real-stimulus/ http://frac.org/initiatives/american-recovery-and-reinvestme...

cheald 13y ago
Thank you! Lots of things for me to chew on and mull over here. One thing stuck out to me, though: > The people who would receive the BI are the in the lowest income brackets. As I understand BI, this is not true. BI is a payment made to every citizen and/or resident of a country, irrespective of any other consideration (including income, wealth, etc). What you seem to be describing is Guaranteed Minimum Income, which is an entirely different ball of wax. I'm now wondering how much of the discussion is people talking past each other because of conflation of these two terms. See http://en.wikipedia.org/wiki/Basic_income http://en.wikipedia.org/wiki/Basic_income and http://en.wikipedia.org/wiki/Minimum_income http://en.wikipedia.org/wiki/Minimum_income
- Retric 13y ago
  All formes of BI are paid for with a tax, if your making say ~50k the money that tax equals the amount you receive from BI. But if your making 200k you end up receiving far less from BI than you pay in taxes even if there depositing money into your account every month. PS: Of note BI is assumed to replace social security so someone making 50-80k may effectively pay significantly less in taxes prior to retirement but receive far fewer benefits in retirement.

whiddershins 13y ago

this >>> * The people who successfully make money have a larger portion of it taken away by the government and given to people who don't make money. They recoup their losses by raising prices and re-extracting it from the people it has been given to, except now the government gets a cut of it twice. BI has to be increased to keep pace with rising prices caused by funding BI. >>> is rather muddled. 1) FWIW Basic income would be distributed to everyone. 2) What you are describing is the current system, people who make more money are taxed more, and that money is distributed to various things, including giving money to poor people. 3) The phrase "they recoup their losses" has nothing to do with how the market functions right now. Companies set their prices based on a variety of factors, and generally try to be as profitable as they can. The taxation rate of individuals does not directly modulate that. For example, if the CEO of Walmart or Mattel had a marginal tax rate of 99% this would not directly change the price of a Barbie doll.

scarmig 13y ago

I think this is the classical error of false dichotomy. Useful for rhetorical purposes, but it is more just a statement of two possibilities and an assertion that they're the only two, with no backup. I reject completely the idea that either printing money or borrowing money is a viable solution for most economies in the medium or long term. According to you, that must mean I support a Stalinist regime[1]. This is false, to say the least. Other (relative) proponents of a basic income, including such luminaries as Hayek and Milton Friedman, would likely also look at your claim with great skepticism. A basic income is just the redistributionism practiced by current mixed market economies but implemented much more efficiently (in both the Pareto and administrative senses) than what exists now. Price levels would be affected by a basic income, but you've got to specify what and how much. Considering supply effects, the likely first order result of a basic income is an increase in the cost of basic goods and also an overall increase in the consumption of them. Goods that are typically bought with, say, the marginal dollar at twice the basic income level will decrease in price but also be consumed less. The market would reallocate capital to more efficiently produce basic goods (defined as the goods that are typically bought with marginal dollars beneath the basic income level). You might dislike this kind of very limited redistribution. Fair enough, and that is a great debate to have! But you've also got to be thoughtful about the full package. It's not whether you prefer no redistribution to a basic income. It's whether you prefer a basic income to a costly and heavily-administrated redistribution driven by special interest groups. [1]Also, "Marxist communism"? I'd be curious to ask if you've got even a passing acquaintance with the structure of the Soviet economy. It's fine to criticize a basic income on inflationary grounds, but saying it's communism is so off that it qualifies as not even wrong.

scarmig 13y ago
I should point out that the structure of the taxes to fund a basic income are a very, very important implementation detail. As a pragmatic matter, I'd want to phase out existing programs like Medicare, Medicaid, Social Security, SSDI, food stamps, educational grants, etc. and simply redirect their funding streams to a basic income--best to pick one battle at a time. But my ideal taxation scheme includes an abolition of corporate, income, and sales taxes, and a replacement of them with aggressive taxation on goods that are highly inelastic and cheaply taxable. Think land taxes, except updated for contemporary times. Yeah, wish me luck with that.

wtallis 13y ago

I don't think you've sufficiently explained how option 2 will progress all the way to communism. It seems to me that option 2 could easily reach a stable endgame that results in a sizeable chunk of the middle class being demoted to BI, but without an unbounded taxation arms race with the rich.

cheald 13y ago
That's quite fair. It may just be that I marginalized the mechanism, and there's a middle ground that's less drastic. I'm not an economist, and I don't have the numbers to show it one way or another (and if I did, I'd be doing something with them!), but it seems to me that the mechanism is basic redistribution that has a built in feedback loop. It doesn't seem logical that people would argue for such a system, so I'm trying to figure out where specifically the invalid assumptions lie.
- wtallis 13y ago
  As long as the basic income implemented is much less than per-capita GDP, there's still opportunity and incentive to work to earn more, especially if the basic income level is set at a realistic poverty level that doesn't allow for much in the way of luxuries. And if the basic income only provides a net income boost to a minority of voters, then there will be electoral pressure to keep it low, rather than to keep increasing it. It's not a slippery slope we're discussing here so much as a slippery mountain with communism on the other side but some significant uphills between here and there. I also don't think that a basic income would have as strong an inflationary effect as you think it would on the items necessary to survive on a basic income. Since the basic income would replace minimum wage, producers would be free to pay cheap labor much closer to fair market value, so the cost of the products of unskilled labor could drop significantly (offset by an increase in the price of luxuries due to higher income taxes).
  - cheald 13y ago
    > As long as the basic income implemented is much less than per-capita GDP, there's still opportunity and incentive to work to earn more, especially if the basic income level is set at a realistic poverty level that doesn't allow for much in the way of luxuries. I'm really trying to avoid arguments about whether BI would encourage or retard laziness, because I can't make an intelligent argument one way or the other. My concern is with the cost of funding, and the negative effects that would have on currently-productive parts of the market. > if the basic income only provides a net income boost to a minority of voters, then there will be electoral pressure to keep it low, rather than to keep increasing it. Can you elaborate on this point? It seems like this same argument could be used to argue that there would be electoral pressure to not implement BI in the first place, if I understand you correctly. What makes BI electorally viable at level X but not at level Y? > Since the basic income would replace minimum wage, producers would be free to pay cheap labor much closer to fair market value, so the cost of the products of unskilled labor could drop significantly (offset by an increase in the price of luxuries due to higher income taxes). I hadn't considered that at all. Interesting variable. This actually changes my view of the whole thing substantially, since the reduced cost of labor could be the variable that employers could tweak to keep prices approximately stable (I get less of each dollar earned, but it costs less to earn that dollar, so it's a wash). I was assuming that labor costs would remain fixed, but if BI permitted for them to be reduced, that might in fact address one of the biggest concerns.

ritchiea 13y ago

I understand your concern but to answer it I think a necessity with a BI would be stricter regulation around credit. If you offer a BI and people can take the BI while simultaneously accepting predatory credit offers, the prices of things will go up, BI acceptors will get duped by banks and credit card companies and the BI money gets funneled back to those large institutions while BI-receivers pay for their financial mistakes.

cheald 13y ago
This doesn't quite sit right with me, because it seems like the underlying argument is "those who benefit from BI don't know how to spend their money, so we have to protect them from spending it poorly". The end result of that line of thinking is targeted social programs, which specifically do not permit people the chance to mis-spend money. How would BI + strict regulation and oversight be substantially different from the entitlement programs we have today?
- ihateloggingin 13y ago
  Actually we could just refuse to enforce contracts in which future BI income is leveraged for debt. That's already done with certain kinds of retirement assets.

vasilipupkin 13y ago

The issue is what is the most efficient way to distribute income, which we already do plenty of. The problem with Basic Income is all the other ways would have to go away, and that is not realistic

nicholas73 13y ago

Basic income is meant for purchasing goods that are essential, which means that those goods are already being purchased in the volume required. Prices are set at the margins (imagine fighting for the last loaf of bread), and if everyone is buying the same amount as before, then prices won't change. What will change however is the prices of discretionary goods as any additional income people make goes towards these.

yason 13y ago

BI isn't so much of a radically new idea because nearly all if not each and every (at least non-developing) country in the world already does provide some sort of welfare and/or unemployment benefits. Currently this is generally done in a highly inefficient manner though dozens or hundreds of different subsidies and benefits, and it costs a lot to process everything through a thick wall of bureaucracy, and it still ends up being unfair and unmotivational to many. The canonical class of problems is that it doesn't make sense to work because your benefits received would drop in direct proportion to what you get paid. Or it's simply forbidden work even a little in order to be eligible to receive benefits. The point of BI is to redistribute the already redistributed money in a fair and simple way: everyone gets something that may or just may not be enough to live on its own, but there are no questions asked and if you work on top of that, you scoop most of the extra money to yourself after taxes. If you're really, really a scrooge you might just make it with the BI only if you're willing to drop your standard of living a couple of decades back. But most people want more money and they'll work for it, if it's five hours a week or 20 hours a week, and they don't lose BI if they do. For any middle-class adult, BI would simply translate into a slightly lower tax rate. They would still get $500 of BI per month or so, but because they would make $5000 per month in salary on top of that the significance of BI would be marginal.