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Comment by snrplfth | Hacker News Reader

Because claiming that UBI will cause inflation is not justified by an understanding of Economics 101. Most basic economic theory will state that inflation is basically a monetary phenomenon. (Now, if you use monetary expansion to pay for the UBI, as the occasional person has suggested, then Econ 101 would suggest inflation, but that's true for any expenditure funded that way.)

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> Most basic economic theory will state that inflation is basically a monetary phenomenon.

Uh, no, that's not true at all. Monetary policy is only one of many factors that can drive inflation.

> Because claiming that UBI will cause inflation is not justified by an understanding of Economics 101

Uh, yes it is. MV = PQ is literally in introductory economics textbooks. Advocates of UBI talk about how it would encourage growth by "stimulating spending". Well, that's literally saying that it would increase both V and Q. And mathematically, we know that a redistributive policy cannot increase Q as fast as it increases V, which means that P increases. Hence, inflation.

You can make an argument that increasing the monetary supply at the correct rate would offset the increase in prices, or that the impact on unemployment rates would factor in, but at that point you're moving way beyond Economics 101 and far off into the realm of contested and unproven research conjectures.

Well, I think advocates of UBI arguing that it would encourage growth by stimulating spending are ignoring the fact that a tax-funded UBI would take money from elsewhere. It doesn't necessarily matter what advocates of UBI say about its suppose growth-boosting effects or what have you - the parent post was saying that Econ 101 understanding affirms that redistributive policies increase inflation, and I disagree. I should definitely qualify that with the caveat that I'm talking about Monetarist Econ 101, where V is stable in the long run, and Q is determined by overall productivity. Therefore P is roughly proportional to M. Sure, there's short-term effects, but over the long run, by Monetarist Econ 101, a UBI, if funded out of tax revenues, shouldn't cause inflation.

The economics suggest UBI is inflationary even if budgets are balanced. For several reasons -- the most 101 is that an increase in the real value of the welfare scheme decreases the labor supply, implying rising wages and therefore rising prices.

Yes, an increase in real value of redistribution should raise the reservation wage and suggests increased wages for those people in the (somewhat smaller) labour force, but it will require higher taxes on those income-earners, reducing their real after-tax income. The money has to come from somewhere. I'm not saying that no prices for particular baskets of goods will go up, I'm just saying that general inflation will not occur if UBI is not funded through monetary expansion.

There is another issue besides the labor/wage effect on price, that aggregate demand is increased and therefore at current prices aggregate supply does not meet demand. Aggregate price levels should increase (keeping it at econ 101 since we could speculate about investment at this point).

edit: consumption increases despite the distribution being balanced since it's assumed that the transfer is from a minority of tax payers with significant income/assets to a majority that sees a substantial increase to their minimum guaranteed cash flow.

Yes, aggregate demand is increased but aggregate savings, which are the source of investment, are decreased. Those assets of the minority, we're assuming, are also productive. So the prices of the assets purchased by those with 'significant income' go down. So this might manifest as increased prices on low-end staple goods and decreased prices on durable assets. Still doesn't imply general inflation. (Of course, this is a major bone of contention of the whole Monetarist vs Keynesian debate, so if you think the Keynesian account is more convincing, then that's a sticking point.)

Many if not most Americans have investments, so the effect is not exactly balanced. Households that could do so would adjust their portfolios taking into account the additional guaranteed cash flow.

Investment also reacts positively to the expectation of inflation, though that's getting more speculative. I think I've reached the limit of what I can do with Econ 101, but I hope to have shown that there's at least a principled claim to UBI being inflationary. Rising consumer price levels alone is inflationary under some definitions, and the effect on investment is not straightforward.

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