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Warning, highly simplified economics. The basic income is a form of wealth distribution. The poorer people get a larger share of the economy at the cost of the

Warning, highly simplified economics. The basic income is a form of wealth distribution. The poorer people get a larger share of the economy at the cost of the richer people getting a smaller share. Assuming that we have the capacity to produce enough stuff for everyone to live off of, then we could give everyone a livable wage by putting 100% of the money into the basic income. The downside to this is that (for the most part) a basic income mucks with the incentive structure, so it results in us having a lower production capacity [0]. The hope is that our production capacity is sufficiently large that we can have a much smaller percent of money go into basic income where it is still a livable wage, but small enough that it does not shrink our total capacity significantly. Additionally, you also have to look at how elastic the supply of basic necessities are (that is to say, how much prices increase with demand). In the USA (and probably other countries), food is highly elastic, so prices would not raise significantly. Housing is weird (because politics and zoning), but we would expect to see more low cost housing to be built to match the demand, however this would take a while to occur. [0] At a macro level, it can be argued that a basic income could actually increase production capacity, but that is not relevant to your question.

waterlesscloud 12y ago
As I mentioned below, in this small-scale case BI looks like it increased production capacity. But it was really an injection of capital into a community that had almost literally no capital whatsoever. At and sometimes below mere subsistence. Would be interesting to see it play out in a community with a higher baseline.
- gizmo686 12y ago
  Isn't that the proposed mechanism for how BI increases capacity? By injecting capital into low capital communities, you increase their ability to produce. Of course, to see if this is an actual increase in production, we would also need to look at the opportunity cost associated with taking that money in the first place.
  - msandford 12y ago
    Right, that's the kicker. It's really easy for 1st world people to inject trivial (to them) amounts of capital into 3rd world places. But that's microeconomics playing out, not macro. In this case the source of the money was completely decoupled from the people receiving it. If they had to pay themselves a basic income, the story is different. Here in the 1st world any basic income which we try has to be paid by us too. It's doable. But it's not a panacea. http://www.vox.com/2014/10/8/6946565/progressive-taxes-are-not-the-solution-to-inequality http://www.vox.com/2014/10/8/6946565/progressive-taxes-are-n...
ppereira 12y ago
Warning, more highly simplified economics. Another possibility is that the redistribution acts as a true Keynesian stimulus, giving money directly to those who will immediately spend it (rather than banks), increasing demand and bringing us out of a recession. But who knows. The economics are so complex that unless someone tests it at least at a town-wide level, nobody can predict the outcome. This Namibian town and Dauphin, Manitoba are two such sites. Some other experiments have failed because tests were not done with 100% of the local population, which creates an unwanted interaction between the BI and non-BI group. A very simplified view of a basic income is that your new post BI income becomes a percentage of the population's average income plus 1 minus that percentage of your current income: > I_post_bi = aI_ave + (1-a)I_pre_bi If a=0 we have capitalism, a=1 communism. For small 'a', this does change individual incentives a bit, but not much for those with very high income. That is because your incentive to produce is a function of how much more you will make (as a percentage) vs. how much more time you invest (as a percentage). For incomes much larger than the basic income, this ratio remains the same. What is the optimal 'a'? Who knows. Just start with a low one and slowly increase it to find out. If one really wanted incentives to be neutral across the board, one could try: > I_post_bi = a*(I_pre_bi)^p, where 0 < p < 1, a<1 This would be a subsidy for lower incomes and a (pre-Reaganeque) progressive tax for higher incomes. The more important question is what will happen to the group that is around the cusp of working/not-working. Some may choose not to work post-BI. Some may choose to stay home and take care of the kids, elderly parents (which is not necessarily "bad" for the economy when you factor in future earnings of children and reduced health care costs of parents). Some might even choose to start a business.
- vidarh 12y ago
  > If a=0 we have capitalism, a=1 communism. I realise you're intentionally oversimplifying, but it's worth pointing out that Marx wrote page up and page down to complain about simplistic ideas about redistribution, including simplistic ideas put forward by other socialists and communists about the practical politics of redistribution. To Marx, under socialism it seemed reasonable to push individual incomes closer to an equal proportion of their contribution to production (but even then distorted in various way by welfare), while under communism he made the point that distribution would explicitly be unequal not just as a side effect of imperfections, but as a fundamental property of the system, because the goal according Marx would be for distribution to follow need independent of your ability to produce, and peoples needs are wildly divergent. Under no circumstances did he advocate a "flat" equal distribution per person (nor anything similar to that). Instead he explicitly argued for unequal distribution. In the Critique of the Gotha Program, he wrote: "Further, one worker is married, another is not; one has more children than another, and so on and so forth. Thus, with an equal performance of labor, and hence an equal in the social consumption fund, one will in fact receive more than another, one will be richer than another, and so on. To avoid all these defects, right, instead of being equal, would have to be unequal." He then went on to argue the famous "from each according to ability, to each according to his needs!" [as a goal for an advanced communist society] after explicitly pointing out the unequal nature of such redistribution, and went on to write: "Quite apart from the analysis so far given, it was in general a mistake to make a fuss about so-called distribution and put the principal stress on it." Instead, according to Marx "any distribution whatever of the means of consumption is only a consequence of the distribution of the conditions of production themselves" - in other words, it is the working class control of the means of production that is important; redistribution would follow from that - an argument that e.g. the Bolsheviks either learned from or ignored, depending on how cynical you are about their intentions, when they started reigning in their early experiments in worker control in favour of the control of their party.
deleted 12y ago
[deleted]
yummyfajitas 12y ago
Another important fact is that the rich and poor treat resources differently. The poor tend to consume while the rich tend to invest. (This is also the justification of stimulus targeting the poor.) I.e., if you tax the hell out of some rich guy, he has less money to put into Uber or SpaceX.
- yequalsx 12y ago
  This is a very simplistic view. It is also, strictly speaking, incorrect. You can't possibly argue that poor people consume more in absolute terms thus you must mean as a percent of wealth. But this is not a good measure. A person in a given society will feel the need for some base level of consumption and for a poor person this necessarily will be a higher percent of their wealth than for a rich person. Upper middle class to low end rich invest money in stocks, bonds, real estate. They aren't investing in startups or the next big thing. Taxing the "hell out of some rich guy" allows society through its elected representatives to make such investments and to invest in things that society deems useful (at least in theory). It's through this mechanism that one gets the space program in the 1960s. The Hoover dam, the highway system, clean water, etc. Private investments could not possibly have produced the moon landings, etc.
  - yummyfajitas 12y ago
    You can't possibly argue that poor people consume more in absolute terms thus you must mean as a percent of wealth. The relevant measure: http://en.wikipedia.org/wiki/Marginal_propensity_to_consume http://en.wikipedia.org/wiki/Marginal_propensity_to_consume ...allows society through its elected representatives to make such investments and to invest... Which is irrelevant to this conversation since we are discussing taxing people to pay for consumption.
deleted 12y ago
[deleted]
alexqgb 12y ago
The downside to this is that (for the most part) a basic income mucks with the incentive structure. "Mucks with" is not a positive term. And to be sure, there are employers for whom the introduction of UBI would be a very negative thing. But there are people (many more, I suspect) who would see UBI as a positive development. These people would not say "it mucks with the incentive structure". They would say "it improves the incentive structure by making it more humane". Why? Because if you were an employer with a business model that relied on easy access to the bottom end of the labor market, abject fear would cease to be a viable management tool. In a world with lower barriers to quitting you'd no longer be able to pad your margins by exploiting workers in a way that would be inconceivable if they didn't live in constant terror of hunger and homelessness, should they suffer any disruptions in their jobs. To put it more politely, as a manager, you'd have to make more use of carrots and rely less on sticks. This would certainly muck up the game of anyone who relied on nothing but sticks, but again, that would be an improvement in the eyes of many. Consider, for example, the employers that refuse to give people full-time work to avoid paying benefits while simultaneously refusing to give people regular schedules, which bars them from taking seconds jobs. These employers are demanding full time availability for part time returns, and getting the on-call time for free. This is atrocious. While I can only speculate here, I suspect this practice would be far less common in a world where people desperate enough to put up with this abuse were significantly fewer and further between. What opponents of UBI must concede is that the end of labor extracted on highly unfavorable terms from people who fear for their very survival does not mean the end of labor in general. As most people on HN know, there are many reasons besides basic survival that motivate people to expend effort. Taking some of the negative power out of employer's hands would re-focus their efforts on developing non-abusive ways to keep people expending effort on their behalf. That's bad news for managers who lack the ethics to be managers in the first place. It's good news for decent managers who no longer find themselves lumped together with thugs and thieves (and yes, wage-theft is endemic at the lower rungs of the economy). I should point out, too, that only a fraction of the work that people do is also paid employment. Any mother who works full time raising her kids can attest to this. The same could be said of working out regularly. UBI acknowledges that there are all sorts of socially beneficial activities that require considerable effort, but don't require formal employment by staffed organizations. At present, when we say "work" what we really mean "work done directly for someone else in exchange for money". It's important to note that while UBI may, indeed, reduce incentives to work directly for terrible people who pay a pittance, it doesn't mean that people will stop working for the good of themselves or others in general. Indeed, given our intrinsically social nature, freeing people from the monsters may lead to a spike in the output of socially beneficial effort.
omegaworks 12y ago
>The basic income is a form of wealth distribution. The poorer people get a larger share of the economy at the cost of the richer people getting a smaller share. This is much too basic an understanding of the real value of a fixed quantity of dollars to people in different economic classes. $100 to someone making $4,000 a week is a drop in the bucket, $100 to someone making $300 a week is magic.
- notahacker 12y ago
  Sure, the rationale behind all wealth redistribution systems and welfare programmes is that poorer people who are [net] recipients need the money more than richer people who are [net] contributors. BI is no different to any other income redistribution programme in that respect. Of course when assessing the marginal value of a fixed quantity of dollars to different people one also has to take into account their individual preferences, and there's certainly an argument that the net $100 taken out of the income earned in the sixty-first freelance hour worked by a software developer paying for a very expensive condo in San Francisco has more value to them than the extra $100 received by the person who quit their job after BI was introduced because they didn't need an additional income source and found working a bit boring. Obviously there are many people with little or no source of earned income that desperately need that $100 and would happily work longer and harder than the software developer for less money. Non-BI wealth/income redistribution programmes generally try to distinguish - with hugely varying degrees of success - between those who would find the extra $100 magic and those that don't. BI is unique in terms of welfare reforms in assuming that factors such as willingness to work and living costs are essentially meaningless when it comes to determining how much people need handouts.

waterlesscloud 12y ago

As I mentioned below, in this small-scale case BI looks like it increased production capacity. But it was really an injection of capital into a community that had almost literally no capital whatsoever. At and sometimes below mere subsistence. Would be interesting to see it play out in a community with a higher baseline.

gizmo686 12y ago
Isn't that the proposed mechanism for how BI increases capacity? By injecting capital into low capital communities, you increase their ability to produce. Of course, to see if this is an actual increase in production, we would also need to look at the opportunity cost associated with taking that money in the first place.
- msandford 12y ago
  Right, that's the kicker. It's really easy for 1st world people to inject trivial (to them) amounts of capital into 3rd world places. But that's microeconomics playing out, not macro. In this case the source of the money was completely decoupled from the people receiving it. If they had to pay themselves a basic income, the story is different. Here in the 1st world any basic income which we try has to be paid by us too. It's doable. But it's not a panacea. http://www.vox.com/2014/10/8/6946565/progressive-taxes-are-not-the-solution-to-inequality http://www.vox.com/2014/10/8/6946565/progressive-taxes-are-n...

ppereira 12y ago

Warning, more highly simplified economics. Another possibility is that the redistribution acts as a true Keynesian stimulus, giving money directly to those who will immediately spend it (rather than banks), increasing demand and bringing us out of a recession. But who knows. The economics are so complex that unless someone tests it at least at a town-wide level, nobody can predict the outcome. This Namibian town and Dauphin, Manitoba are two such sites. Some other experiments have failed because tests were not done with 100% of the local population, which creates an unwanted interaction between the BI and non-BI group. A very simplified view of a basic income is that your new post BI income becomes a percentage of the population's average income plus 1 minus that percentage of your current income: > I_post_bi = aI_ave + (1-a)I_pre_bi If a=0 we have capitalism, a=1 communism. For small 'a', this does change individual incentives a bit, but not much for those with very high income. That is because your incentive to produce is a function of how much more you will make (as a percentage) vs. how much more time you invest (as a percentage). For incomes much larger than the basic income, this ratio remains the same. What is the optimal 'a'? Who knows. Just start with a low one and slowly increase it to find out. If one really wanted incentives to be neutral across the board, one could try: > I_post_bi = a*(I_pre_bi)^p, where 0 < p < 1, a<1 This would be a subsidy for lower incomes and a (pre-Reaganeque) progressive tax for higher incomes. The more important question is what will happen to the group that is around the cusp of working/not-working. Some may choose not to work post-BI. Some may choose to stay home and take care of the kids, elderly parents (which is not necessarily "bad" for the economy when you factor in future earnings of children and reduced health care costs of parents). Some might even choose to start a business.

vidarh 12y ago
> If a=0 we have capitalism, a=1 communism. I realise you're intentionally oversimplifying, but it's worth pointing out that Marx wrote page up and page down to complain about simplistic ideas about redistribution, including simplistic ideas put forward by other socialists and communists about the practical politics of redistribution. To Marx, under socialism it seemed reasonable to push individual incomes closer to an equal proportion of their contribution to production (but even then distorted in various way by welfare), while under communism he made the point that distribution would explicitly be unequal not just as a side effect of imperfections, but as a fundamental property of the system, because the goal according Marx would be for distribution to follow need independent of your ability to produce, and peoples needs are wildly divergent. Under no circumstances did he advocate a "flat" equal distribution per person (nor anything similar to that). Instead he explicitly argued for unequal distribution. In the Critique of the Gotha Program, he wrote: "Further, one worker is married, another is not; one has more children than another, and so on and so forth. Thus, with an equal performance of labor, and hence an equal in the social consumption fund, one will in fact receive more than another, one will be richer than another, and so on. To avoid all these defects, right, instead of being equal, would have to be unequal." He then went on to argue the famous "from each according to ability, to each according to his needs!" [as a goal for an advanced communist society] after explicitly pointing out the unequal nature of such redistribution, and went on to write: "Quite apart from the analysis so far given, it was in general a mistake to make a fuss about so-called distribution and put the principal stress on it." Instead, according to Marx "any distribution whatever of the means of consumption is only a consequence of the distribution of the conditions of production themselves" - in other words, it is the working class control of the means of production that is important; redistribution would follow from that - an argument that e.g. the Bolsheviks either learned from or ignored, depending on how cynical you are about their intentions, when they started reigning in their early experiments in worker control in favour of the control of their party.

deleted 12y ago

[deleted]

yummyfajitas 12y ago

Another important fact is that the rich and poor treat resources differently. The poor tend to consume while the rich tend to invest. (This is also the justification of stimulus targeting the poor.) I.e., if you tax the hell out of some rich guy, he has less money to put into Uber or SpaceX.

yequalsx 12y ago
This is a very simplistic view. It is also, strictly speaking, incorrect. You can't possibly argue that poor people consume more in absolute terms thus you must mean as a percent of wealth. But this is not a good measure. A person in a given society will feel the need for some base level of consumption and for a poor person this necessarily will be a higher percent of their wealth than for a rich person. Upper middle class to low end rich invest money in stocks, bonds, real estate. They aren't investing in startups or the next big thing. Taxing the "hell out of some rich guy" allows society through its elected representatives to make such investments and to invest in things that society deems useful (at least in theory). It's through this mechanism that one gets the space program in the 1960s. The Hoover dam, the highway system, clean water, etc. Private investments could not possibly have produced the moon landings, etc.
- yummyfajitas 12y ago
  You can't possibly argue that poor people consume more in absolute terms thus you must mean as a percent of wealth. The relevant measure: http://en.wikipedia.org/wiki/Marginal_propensity_to_consume http://en.wikipedia.org/wiki/Marginal_propensity_to_consume ...allows society through its elected representatives to make such investments and to invest... Which is irrelevant to this conversation since we are discussing taxing people to pay for consumption.

deleted 12y ago

[deleted]

alexqgb 12y ago

The downside to this is that (for the most part) a basic income mucks with the incentive structure. "Mucks with" is not a positive term. And to be sure, there are employers for whom the introduction of UBI would be a very negative thing. But there are people (many more, I suspect) who would see UBI as a positive development. These people would not say "it mucks with the incentive structure". They would say "it improves the incentive structure by making it more humane". Why? Because if you were an employer with a business model that relied on easy access to the bottom end of the labor market, abject fear would cease to be a viable management tool. In a world with lower barriers to quitting you'd no longer be able to pad your margins by exploiting workers in a way that would be inconceivable if they didn't live in constant terror of hunger and homelessness, should they suffer any disruptions in their jobs. To put it more politely, as a manager, you'd have to make more use of carrots and rely less on sticks. This would certainly muck up the game of anyone who relied on nothing but sticks, but again, that would be an improvement in the eyes of many. Consider, for example, the employers that refuse to give people full-time work to avoid paying benefits while simultaneously refusing to give people regular schedules, which bars them from taking seconds jobs. These employers are demanding full time availability for part time returns, and getting the on-call time for free. This is atrocious. While I can only speculate here, I suspect this practice would be far less common in a world where people desperate enough to put up with this abuse were significantly fewer and further between. What opponents of UBI must concede is that the end of labor extracted on highly unfavorable terms from people who fear for their very survival does not mean the end of labor in general. As most people on HN know, there are many reasons besides basic survival that motivate people to expend effort. Taking some of the negative power out of employer's hands would re-focus their efforts on developing non-abusive ways to keep people expending effort on their behalf. That's bad news for managers who lack the ethics to be managers in the first place. It's good news for decent managers who no longer find themselves lumped together with thugs and thieves (and yes, wage-theft is endemic at the lower rungs of the economy). I should point out, too, that only a fraction of the work that people do is also paid employment. Any mother who works full time raising her kids can attest to this. The same could be said of working out regularly. UBI acknowledges that there are all sorts of socially beneficial activities that require considerable effort, but don't require formal employment by staffed organizations. At present, when we say "work" what we really mean "work done directly for someone else in exchange for money". It's important to note that while UBI may, indeed, reduce incentives to work directly for terrible people who pay a pittance, it doesn't mean that people will stop working for the good of themselves or others in general. Indeed, given our intrinsically social nature, freeing people from the monsters may lead to a spike in the output of socially beneficial effort.

omegaworks 12y ago

>The basic income is a form of wealth distribution. The poorer people get a larger share of the economy at the cost of the richer people getting a smaller share. This is much too basic an understanding of the real value of a fixed quantity of dollars to people in different economic classes. $100 to someone making $4,000 a week is a drop in the bucket, $100 to someone making $300 a week is magic.

notahacker 12y ago
Sure, the rationale behind all wealth redistribution systems and welfare programmes is that poorer people who are [net] recipients need the money more than richer people who are [net] contributors. BI is no different to any other income redistribution programme in that respect. Of course when assessing the marginal value of a fixed quantity of dollars to different people one also has to take into account their individual preferences, and there's certainly an argument that the net $100 taken out of the income earned in the sixty-first freelance hour worked by a software developer paying for a very expensive condo in San Francisco has more value to them than the extra $100 received by the person who quit their job after BI was introduced because they didn't need an additional income source and found working a bit boring. Obviously there are many people with little or no source of earned income that desperately need that $100 and would happily work longer and harder than the software developer for less money. Non-BI wealth/income redistribution programmes generally try to distinguish - with hugely varying degrees of success - between those who would find the extra $100 magic and those that don't. BI is unique in terms of welfare reforms in assuming that factors such as willingness to work and living costs are essentially meaningless when it comes to determining how much people need handouts.