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Inflation comes from increasing the money supply faster than the size of the economy increases. This is a strange Austrian definition and is not widely accepte

Inflation comes from increasing the money supply faster than the size of the economy increases. This is a strange Austrian definition and is not widely accepted. The normal definition of inflation is increases in the value of a basket of consumption. CPI is a good proxy for this over the short term (in the long term CPI becomes useless for this purpose since the basket changes). If BI increases demand for consumption (as most of it's proponents claim it will), then the price of consumption will increase - hence, inflation.

sheepmullet 12y ago
"If BI increases demand for consumption (as most of it's proponents claim it will), then the price of consumption will increase - hence, inflation." Increased consumption does not necessarily lead to a long term price increase. Often it results in lower prices due to ability to invest in projects with larger upfront/fixed costs. The only goods that would necessarily increase in price are ones where the supply is currently at, or close to, capacity, and it is difficult/expensive to increase the supply. This isn't the case for most goods.
- yummyfajitas 12y ago
  This makes no sense. If we shift resources from investment to consumption, we will have fewer projects that increase production in the long term.
  - sheepmullet 12y ago
    You are assuming too much. 1) Many people are currently in jobs producing very low multiples of their cost when they have the ability to produce much higher multiples. E.g. If JK Rowling spent 10 years writing Harry Potter and spent the next 50 years in total consumption mode she would have still produced far more value than if she had worked in a basic office job for 60 years. How many Rowlings are stuck in low value producing roles? 2) Medium-Large companies are incredibly risk averse to the detriment of the overall market. As such the money they tie up gets very low returns. Forcing a shift in this money into either individuals or into automation attempts would provide far greater returns at an increased risk to a few companies but not an increased systematic risk for the economy.
mrow84 12y ago
Inflation is measured by an increase in the price of a basket of consumption, not the value, which is almost unmeasureable. If the size of the economy increases faster than the increase in the money supply then there is a greater demand for money to buy all the new stuff being produced, so money is more valuable, therefore you can buy more with your money, ergo prices fall; all taken with the same amount of handwaving bullshit that applies to any economic argument, of course. Also, the increase in consumption, from basic income, and hence any direct inflationary effect, is bounded by the level of basic income. For basic income to be worthless the level of inflation on the goods bought by those who are the prime targets of basic income (i.e. the poor) would have to match or exceed the additional cash obtained through the basic income. Inflation in goods and services mostly bought by the rich, due to increased wage pressures, are basically (ho ho) irrelevant. What is required is an argument as to why the inflation on the price of the relevant goods would be higher than the level of the basic income being used to pay for those goods.
- yummyfajitas 12y ago
  You are correct, I should have said "price" instead of "value". Everything you say about the boundedness of the consumption increase is correct. So we'll get a one time inflation spike. The main issue I take with your post is this: If the size of the economy increases faster than the increase in the money supply... With more consumption and less investment, we expect the economy to increase more slowly than in the counterfactual (no BI). So holding money supply constant (which is of course ridiculous), we'd expect more inflation in the BI scenario than the no BI scenario. The real question here, which is more or less unrelated to inflation: why do we want to shift resources from investment to consumption? Do we have a high discount rate and basically not care about the future? (If we do have a high discount rate, we should probably shift resources away from long term issues like climate change, education, scientific research.)
  - mrow84 12y ago
    > With more consumption and less investment, we expect the economy to increase more slowly than in the counterfactual (no BI). So holding money supply constant (which is of course ridiculous), we'd expect more inflation in the BI scenario than the no BI scenario. Yes, I agree that it seems like there would be more inflation with BI than without it, though, as I said, that will be irrelevant in policy terms as long as the inflation doesn't exceed the BI cash injection. Presumably the level of BI would be tailored to compensate for projected inflation. > The real question here, which is more or less unrelated to inflation: why do we want to shift resources from investment to consumption? Do we have a high discount rate and basically not care about the future? I think the answer to this question comes from the fact that BI is a policy designed to alter the distribution of wealth, rather than the overall level of wealth. You might be keeping the same overall discount rate, but adjusting the distribution of rates across society: increasing it for the poorest in society, and decreasing it for the richest, for no net change. There would, therefore, be no change in the handling of long-term issues.
AnthonyMouse 12y ago
> If BI increases demand for consumption (as most of it's proponents claim it will), then the price of consumption will increase - hence, inflation. This is a very bizarre argument against BI. You can clearly see how silly it is by applying it to reducing the unemployment rate (or for that matter anything that provides income to the poor) -- if more people have income then consumption will increase and cause inflation. The reason the argument is silly is that it's way more complicated than that. Even the assumption that BI will cause increased consumption is based on other assumptions about what people want at different income levels. It could be that members of the lower middle class are hungry for an opportunity to start a business and will use the money to invest rather than consume. It depends entirely on the contours of the economy at a specific time and place and is constantly in flux. Investment vs. consumption is also a false dichotomy, because investments just turn into the consumption of the entity selling the investment, and businesses obtain capital by selling products as well as by soliciting investors. So it's really the difference between consumption of consumer goods and services like food and entertainment vs. of business goods and services like commercial equipment and marketing services, and even that distinction is as clear as mud. On top of that, whether an increase in demand causes an increase in price depends on the supply of the goods in question. There are many products for which this relationship is negative. Where there is no practical limit on the number of units suppliers can produce, having more demand will give sellers more units over which to amortize fixed costs and can thereby reduce the unit price. This makes the statement "basic income will cause inflation" completely meaningless. What it will do is cause the price of some goods and services to increase and others to decrease, much as any economic change will do. Whether this change will on net cause prices to increase more than decrease (and to what degree) depends entirely on the contours of the economy and on which specific goods and services you're measuring. But perhaps most importantly, even assuming it would cause inflation in a particular economy, the amount of inflation is necessarily less than the amount of the basic income because of the existence (and likely preponderance) of products with less than perfectly inelastic supply.
- yummyfajitas 12y ago
  You can clearly see how silly it is by applying it to reducing the unemployment rate... Reducing unemployment will increase demand but will also increase supply. So no. It could be that members of the lower middle class are hungry for an opportunity to start a business and will us the money to invest rather than consume...There are many products for which this relationship is negative. Where there is no practical limit on the number of units suppliers can produce... So if I'm understanding you right, BI will work because the rich have a higher marginal propensity for consumption, Giffen goods are common and scarcity isn't real? Ok. It depends entirely on the contours of the economy at a specific time and place and is constantly in flux. If that is the case then the usefulness of a BI will also constantly be in flux. I guess your opinions on the topic are also constantly in flux? If not, why not?

sheepmullet 12y ago

"If BI increases demand for consumption (as most of it's proponents claim it will), then the price of consumption will increase - hence, inflation." Increased consumption does not necessarily lead to a long term price increase. Often it results in lower prices due to ability to invest in projects with larger upfront/fixed costs. The only goods that would necessarily increase in price are ones where the supply is currently at, or close to, capacity, and it is difficult/expensive to increase the supply. This isn't the case for most goods.

yummyfajitas 12y ago
This makes no sense. If we shift resources from investment to consumption, we will have fewer projects that increase production in the long term.
- sheepmullet 12y ago
  You are assuming too much. 1) Many people are currently in jobs producing very low multiples of their cost when they have the ability to produce much higher multiples. E.g. If JK Rowling spent 10 years writing Harry Potter and spent the next 50 years in total consumption mode she would have still produced far more value than if she had worked in a basic office job for 60 years. How many Rowlings are stuck in low value producing roles? 2) Medium-Large companies are incredibly risk averse to the detriment of the overall market. As such the money they tie up gets very low returns. Forcing a shift in this money into either individuals or into automation attempts would provide far greater returns at an increased risk to a few companies but not an increased systematic risk for the economy.

mrow84 12y ago

Inflation is measured by an increase in the price of a basket of consumption, not the value, which is almost unmeasureable. If the size of the economy increases faster than the increase in the money supply then there is a greater demand for money to buy all the new stuff being produced, so money is more valuable, therefore you can buy more with your money, ergo prices fall; all taken with the same amount of handwaving bullshit that applies to any economic argument, of course. Also, the increase in consumption, from basic income, and hence any direct inflationary effect, is bounded by the level of basic income. For basic income to be worthless the level of inflation on the goods bought by those who are the prime targets of basic income (i.e. the poor) would have to match or exceed the additional cash obtained through the basic income. Inflation in goods and services mostly bought by the rich, due to increased wage pressures, are basically (ho ho) irrelevant. What is required is an argument as to why the inflation on the price of the relevant goods would be higher than the level of the basic income being used to pay for those goods.

yummyfajitas 12y ago
You are correct, I should have said "price" instead of "value". Everything you say about the boundedness of the consumption increase is correct. So we'll get a one time inflation spike. The main issue I take with your post is this: If the size of the economy increases faster than the increase in the money supply... With more consumption and less investment, we expect the economy to increase more slowly than in the counterfactual (no BI). So holding money supply constant (which is of course ridiculous), we'd expect more inflation in the BI scenario than the no BI scenario. The real question here, which is more or less unrelated to inflation: why do we want to shift resources from investment to consumption? Do we have a high discount rate and basically not care about the future? (If we do have a high discount rate, we should probably shift resources away from long term issues like climate change, education, scientific research.)
- mrow84 12y ago
  > With more consumption and less investment, we expect the economy to increase more slowly than in the counterfactual (no BI). So holding money supply constant (which is of course ridiculous), we'd expect more inflation in the BI scenario than the no BI scenario. Yes, I agree that it seems like there would be more inflation with BI than without it, though, as I said, that will be irrelevant in policy terms as long as the inflation doesn't exceed the BI cash injection. Presumably the level of BI would be tailored to compensate for projected inflation. > The real question here, which is more or less unrelated to inflation: why do we want to shift resources from investment to consumption? Do we have a high discount rate and basically not care about the future? I think the answer to this question comes from the fact that BI is a policy designed to alter the distribution of wealth, rather than the overall level of wealth. You might be keeping the same overall discount rate, but adjusting the distribution of rates across society: increasing it for the poorest in society, and decreasing it for the richest, for no net change. There would, therefore, be no change in the handling of long-term issues.

AnthonyMouse 12y ago

> If BI increases demand for consumption (as most of it's proponents claim it will), then the price of consumption will increase - hence, inflation. This is a very bizarre argument against BI. You can clearly see how silly it is by applying it to reducing the unemployment rate (or for that matter anything that provides income to the poor) -- if more people have income then consumption will increase and cause inflation. The reason the argument is silly is that it's way more complicated than that. Even the assumption that BI will cause increased consumption is based on other assumptions about what people want at different income levels. It could be that members of the lower middle class are hungry for an opportunity to start a business and will use the money to invest rather than consume. It depends entirely on the contours of the economy at a specific time and place and is constantly in flux. Investment vs. consumption is also a false dichotomy, because investments just turn into the consumption of the entity selling the investment, and businesses obtain capital by selling products as well as by soliciting investors. So it's really the difference between consumption of consumer goods and services like food and entertainment vs. of business goods and services like commercial equipment and marketing services, and even that distinction is as clear as mud. On top of that, whether an increase in demand causes an increase in price depends on the supply of the goods in question. There are many products for which this relationship is negative. Where there is no practical limit on the number of units suppliers can produce, having more demand will give sellers more units over which to amortize fixed costs and can thereby reduce the unit price. This makes the statement "basic income will cause inflation" completely meaningless. What it will do is cause the price of some goods and services to increase and others to decrease, much as any economic change will do. Whether this change will on net cause prices to increase more than decrease (and to what degree) depends entirely on the contours of the economy and on which specific goods and services you're measuring. But perhaps most importantly, even assuming it would cause inflation in a particular economy, the amount of inflation is necessarily less than the amount of the basic income because of the existence (and likely preponderance) of products with less than perfectly inelastic supply.

yummyfajitas 12y ago
You can clearly see how silly it is by applying it to reducing the unemployment rate... Reducing unemployment will increase demand but will also increase supply. So no. It could be that members of the lower middle class are hungry for an opportunity to start a business and will us the money to invest rather than consume...There are many products for which this relationship is negative. Where there is no practical limit on the number of units suppliers can produce... So if I'm understanding you right, BI will work because the rich have a higher marginal propensity for consumption, Giffen goods are common and scarcity isn't real? Ok. It depends entirely on the contours of the economy at a specific time and place and is constantly in flux. If that is the case then the usefulness of a BI will also constantly be in flux. I guess your opinions on the topic are also constantly in flux? If not, why not?