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Comment by austinjp | Hacker News Reader

What's to stop UBI from "cancelling itself out" due to inflationary effects?

Prior to UBI, the lowest possible income is zero. After UBI, the lowest income is X. The poorest people in the nation will have an income of X, so X becomes the new relative zero, the new baseline. Prices of everything (food, housing, whatever) will reset relative to X. So uni will become worthless shortly after it's introduced.... but only if it is truly universal.

Someone feel free to tell me if I'm missing something.

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This only true if there is no competition and demand for the good is completely inelastic. What stops grocery stores from doubling the price of food? The other stores will make a killing by undercutting them. I think food is pretty safe here.

I am concerned about housing though. In some places, the supply is extremely inelastic, limiting competition, and the demand is also inelastic due to the difficulty of moving. Although UBI could make moving to a cheaper area easier.

This is why a Land Value Tax is the clearly logical way to fund a UBI-- by collecting land rents in this fashion, you remove the ability for landlords to effectively confiscate the UBI.

Alas same effect, the TAX by owners will be passed onto renters with rents going up. Now if excess of housing that will eventually catch up and if a shortage then this will only exacerbate the divide.

So much that can go wrong and equally right, hence they are testing this. Though a small test will be isolated from all global country impact and bias towards a false positive due to small impact. If that is projected to the entire country then and only then will the impact be truly seen.

But be interesting how this works out, I'm sure the initial trial/test will work out but once you scale that across a country then you start to see the true impact and outcome.

One question to ask yourself, when mortgages and taxes increase the costs of owning a property - have rents ever gone down! I'll say no upon that.

That's not how Land Value Tax (LVT) works, at least under the economic theories I'm familiar with. And there's this quote[1]:

"Because the supply of land is essentially fixed, land rents depend on what tenants are prepared to pay, rather than on landlord expenses, preventing landlords from passing LVT to tenants."

Unlike property tax, LVT only taxes based on the land itself, and so doesn't disincentivize more productive (i.e. costlier) use of the land.

[1] https://en.wikipedia.org/wiki/Land_value_tax#Economic_effect...

Rents go down when demand goes down. I've lived in the bay area through two booms and busts now and rent was higher in 2000 than it was in 2003, and higher in 2007 than it was in 2009.

When you project a local experiment to an entire country, don't forget that a concept similar to UBI known as "communism" has been tried before in the USSR, China, Cuba, and a few other countries, with limited success and many downsides.

Yes rents can go down if demand drops, but if you scale over a period longer the trend is always upwards. So short term drops and spikes will happen due to population shifts. When demand low, building new places stops until it catches up again.

But excellent comparison with communism and indeed that is comparable upon many levels. Though more niche in this aspect it still falls within that stable of thought. As an aside the only example most people aware of in which communism style approach works would be the Star trek universe. Which only add's fuel to the old saying "money is the root of all evil".

Certainly be interesting how this pans out and I'm mindful that if this was a whole country taking part that the true effect would take a few decades to get a true picture of the impact. With many aspects coming into play and let us not forget economic migration and with Finland part of the EU Schengen project then that aspect might be more impacting than envisioned. After all look at Spain and the UK free access to health care and how that is impacted by free movement, certainly not inconsequential.

Well in fact there is no clear ressemblance with communism. Communism primary principle is that all the means of production are state owned, and everyone is therefore salaried by the state, earning as much as everyone else with no oncentive to work more and or better. Basic income aims to the contrary, by helping businesses to offer more flexible work contracts (part-time, temporary work, ...) and potentially lower wages (if the UBI is 1000€/month someone who currently earns 1500€ each month could take a 500€/month position and keep the same life level). It is in fact a completely capitalist idea

"earn more for producing less economic output" is not capitalist. you can't simply change the meaning of words to fit your agenda and convince anyone but the extremely gullible.

There are several different ways to implement UBI (look up "negative income tax" for one example). None of them actually result in someone earning more by working less, the marginal income seen given marginal nominal income still has a positive slope.

Won't the cost of hiring staff increase if no one is willing to work for low wages, thereby increasing the cost of any good or service that relies on those UBI adjusted wages?

I believe that to be true. However, I think the reason why we are trying this form of gateway communism now is because labor is becoming less valuable and owning the means of production is becoming more valuable due to automation. At least that's the theory. Because of this the resulting increase in minimum salary for any service to be provided by humans should be less impactful as it would have been in the past. If this wasn't the case we wouldn't need UBI. I think UBI is becoming important because there is an increasing number of people whose participation in the workforce is not needed anymore.

Don't most countries already have welfare systems that keep the lowest possible income at X already? UBI is just supposed to simplify those systems by replacing them with a single non-means-tested system.

It's my suspicion that the means-testing, or other hurdles, prevent the benefit from being universal, thereby preventing the inflationary effect.

Incidentally, I'm not declaring a belief in either means-tested benefits nor UBI, just exploring the territory.

Money is not being created from thin air so why would you think there was inflation?

Actually, it is. States/Central Banks can print money as they wish. Go be more exact: printing isn't even necessary, money nowadays is barely more than a replicated database entry.

But that has nothing to do with UBI. All the UBI schemes proposed get the money through general taxation of some kind.

Yeah, the effect of a windfall on everyone who already had their basic needs covered would cause one-time inflation, but at least it shouldn't be an inflation treadmill of "people get UBI, prices raised to meet that UBI, raise UBI again, prices rise again" any worse than we have already with welfare.

You're confusing the distribution of money with the supply of money. The distribution of money affects economic priorities. The supply of money (as total income per unit time) affects the overall inflation. While the priorities of an economy will certainly affect prices, it's that some prices will go up and others go down.

Unless money is redistributed then new money will indeed have to be introduced under UBI.

If it is redistributed, then taxes seem an obvious method. And clearly the richer should be taxed more, since we're attempting redistribution.

Unfortunately we all know that trickle-down economics fail, and corporate/elite lobbyists work hard to restrain corporate/elite taxes, to keep worker wages low, and to engage in practices such as zero-hours contacts.... and so on.

So... introducing new money risks inflation. Redistributing money risks perpetuating the existing broken system.

My understanding is that most UBI proposals see the UBI as a replacement for more traditional welfare with some amount of raising taxes to keep it debt-neutral. As for the rest of what you're saying, I have no idea what you are actually trying to communicate.

If there's a big influx in the supply of money bit it only flows into one sector of the economy then the average inflation might be higher, but won't necessarily mean a constant rise in all prices. So I would argue distribution matters also. Likewise, all that new money being spent inside a certain market might raise the average price level if it's supply constrained, but it might also grow the numbers of players in the market leading to higher supply and price competition.

Typically, prices go down as a product becomes commoditized - which is the common trend after a couple years of high demand.

Say you have $0 income. A new policy comes into force that gives you $500 a month basic income. Even if prices increased 10x you would still be better off than before. Prices would have to increase an infinite amount for you to be able to afford the same amount of goods as before (zero). Even if you had $500/month before, you'd still be better off as long as prices don't increase more than 2x.

I don't know enough to advocate for or against basic income, but I'm pretty sure that it doesn't amount to a no-op. Whether it's done through printing money or taxation, it ends up redistributing wealth from wealthier people to poorer people.

In the case of printing money, the resulting inflation would cause everyone's money to be worth less: rich people, having more money, would end up losing more. In the case of taxation, the redistribution is more direct.

> Say you have $0 income.

It is assumed that someone without a job will still get some money in the form of unemployment benefits, so their buying power won't be $0. Therefore, your premise is wrong.

Sure, but if hyper-inflation results in that USD 500 buying me a loaf of bread each month, I think 'better off than before' is kindof irrelevant. There have to be tangible benefits to the recipient over and above, say income from finding pennies in the street...

If it's paid for by taxes or borrowing there won't be any net inflationary effect because the money going to the recipients comes from elsewhere in the economy. The new stuff that poorer people are now buying is payed for by the creation of less stuff for rich people. Economies aren't perfectly flexible so there will be some increase in the price of good used by poor people in relation to the goods used by rich people but that effect won't be huge. Of course, if an UBI drastically reduces employment that's a whole 'nother story but people are doing these pilots to figure that out.

Inflation is a result of increases or decreases in the money supply, wealth transfers like this have minimal impact.

Consider in these terms. % of economy going to the bottom may raise from say A% to B% but it's that does not push inflation. Because X% of the population has slightly less money to pay for the wealth transfer ~B-A.

Consider supply and demand. Say there are 100 people and they all need 1 of resource Z and 100 of resource Z are available. People who have only the UBI can afford the lowest quality of Z but those who have UBI + income will all try to get a higher quality of Z. Net result is that earlier it wasn't possible for low income / no income people to get resource Z, now they can. The rich however will have to start paying a slight premium for finer things in life.

"Multiplicative" basic income (i.e. government gives you x * what you'd get otherwise) would do that, but basic income is additive.

The inflation would probably not be homogenous, different markets have different pricing mechanics and characteristics. Another variable is percentage going to debt financing, which will have a stimulating effect. One in increased gdp because the percentage of gdp going to repayments would likely drop, and secondly one in higher degrees of business leverage are likely, leading to bubbles in certain markets. Inflation probably won't be a general issue while the economy is not approaching max capacity, but there might be inflation in some markets, much like QE is acting like a basic income for the top percentiles through financial asset inflation. Employers in certain sectors will probably lose a lot of leverage over low schooled workers, might increase prices through cost and demand, finance will probably try to siphon off as much as possible of the extra income. Assumptions assumptions, probably way off base :)

Sure, that's correct if everyone pays the same amount of tax. But that's not true.

Because it's a set amount not a %

Poor people get 1000% more money rich people get 1% more.

Or a poor persons income goes from 1% of a rich persons to 2%

https://en.wikipedia.org/wiki/Parable_of_the_broken_window

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