The latest experiment in basic income will be coming to Stockton, California
theatlantic.com
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Or put another way, you can subsidize the few at the expense of the many, but you can't subsidize the many at their own expense and have it result in a positive effect.
If that isn't a correct interpretation of your argument, then the rest of this won't make a lot of sense.
The reason this sort of thermodynamics arguments fails for me is that the economy isn't really the amount of cash flowing through it, rather cash is a proxy for GDP not the economy itself. GDP is a function of productivity and effort. In simpler terms we can have our fictional worker 'Bob' who is anxious and fearful so he scrapes along with a minimum wage job that he hates, versus 'Alt-Bob' who is engaged and excited about his career and is building a future retirement nest egg. With the same 'worker population' of '1' we get two very different GDPs.
One theory is that UBI will make the anxious Bob less anxious and fearful and able to make better choices about their future. If you look at some of the work on how people who are anxious about the amount of money they have a hard time making good choices I refer you to the book 'Scarcity: Why having so little means so much.' it is a good read in general because it applies to anything, even 'free time' as a resource.
We've already tried this experiment. It's called financial aid for college. Tuition prices just keep tracking federal aid increases.
http://college.usatoday.com/2015/08/20/report-federal-aid-ri...
If they gave the money as credits to developers to build more housing, then they might have a chance at accomplishing their goal.
Colleges and other shared-expense systems (see also: healthcare, military spending, public spending generally) present and pose other challenges, but they are not the same as the situation as applies to housing, specifically.
You don't give builders credits to build houses. You tax them for the potential revenues of a given quantity of land. Since land is nonfungible, the consequence is to both develop undeveloped lots, and to increase the density of utilisation of developed losts.
One can argue that taxation in all its forms, including inflation, is the singular cause of all poverty in the USA-- it is the largest most massive wealth transfer fro the masses to the rich ever. And I don't mean "rich don't pay enough taxes" I mean taxes are stealing from the poor and giving to the rich.
That's a key reason they're so markedly different from other goods.
Incidentally, your username and curiosity prompted me to check to see if Hazlitt's infamous little book makes any mention at all of either rents or monopoly. It doesn't.
I find that quite interesting.
It's not quite thermodynamics, because it's not as strict of a 'law', but it's close.
Seems this inflation argument against UBI has obvious limits. Maybe it could cause some but it can’t be a linear relationship as people like the parent argue.
Available cash flow definitely plays into the equation, and we can see this at work in a multitude of areas, from the skyrocketing cost of a university education, to the fact that ski resorts charge two or three times the going rate for a cup of hot chocolate (because if you have the money to go skiing, you have the money to pay extra for a hot beverage).
Costs also play a factor, of course. Dropping everybody's wages to zero doesn't mitigate the fact that raw materials, fuel, and even time are all finite resources.
Personally, while once a fan, I'm highly skeptical of UBI.
I would rather see something more like a universal assistance program: safe, government-run housing, dormitory style, with a cafeteria, available to all.
And I do mean "all". If Warren Buffet wants to bunk with Hobo Joe, that's his business. Buffet pays taxes that support the system, and shouldn't be barred from making use of it.
The people that live there are responsible for working to maintain the space: cleaning, cooking, etc. Put them near libraries and community centers, with ready access to whatever public transportation is available.
Unfortunately, given the current political climate, I doubt that this would go over well with either party.
Prices can rise above cost, as long as someone will keep paying for it, But prices can only drop until the seller loses their incentive to sell, at which point the product/service will be withdrawn from sale.
And why do you think Govts will do better job at identifying/investing in potential productivity than rest of the market ?
Things like rent and certain utilities I can understand this might happen to but a mass devaluing of a currency just because the flow of money is routed a little different doesn't smell right to me.
The net change will be zero.
There is an argument that while costs go up $1,000, if a true life changing event occurs, let's say sickness or entrepurship happen, maybe the person can scale down their life style from ramen to unflavored ramen and not be as bad off as with no UBI.
You can if it changes local incentives to cause a better overall outcome. For example, a tragedy-of-the-commons situation can be improved by having each over-user give up their share of use to a monopolist whose subsidies replace the lost income.
This is explicitly one of the goals of replacing the current social safety nets with UBI. The social safety net as it stands has some extraordinarily shitty incentives. The effective marginal rate on income can exceed 100% in some situations, where income-based phase-outs of benefits are higher than the extra money you make. When I worked pizza delivery, my boss at one time had to scramble to figure out how to decline a pay raise that made her ineligible for childcare subsidies that cost more than the increase in take-home pay.
>But when you make it universal, my economics intuition says that the effect will be washed out by a commensurate rise in prices.
This is why a university degree isn't what it used to be, IMO, and why I oppose the college subsidies people are talking about. The net effect is that an undergraduate degree basically becomes what a high school degree is right now.
This is explicitly one of the goals of replacing the current social safety nets with UBI.
UBI can't replace social safety nets. It's impossible. 12k for every adult is 3 trillion dollars, which almost always assumes cutting other programs. What about healthcare? I bet most would rather have comprehensive health coverage instead of 12k every year, but you can't have both. In the US we have neither.
You'd have to lose safety nets to make UBI work, financially. If you can show otherwise, do you mind explaining it?
Don't a lot of welfare payments have strings attached, with regard to what you can spend it on? UBI explicitly does not, so you can use it for anything you want. If UBI did completely replace the social safety net, and someone gambles/fritters away their basic income and can't get a job to make more, are they allowed to starve (or depend completely on private charity)?
As everyone gets UBI, at first glance it might seem that the poor will get a smaller piece of the cake, but in reality a person with a good income will just give it back through taxes.
Of course, some specific people might end up being worse off (like a person who gets $30k of welfare), but on average poor people should be better off under UBI. Mainly because they can work and not lose anything.
UBI burden assumes current costs. That's short sighted.
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Transitioning to single payer (medicare for all) would 1/2 our costs, at least. This is a no brainer, comparing Canada & USA's per capita spending.
I believe, but cannot prove, that adopting capitation model (incentivize wellness vs fee for service, treating disease) would knockoff another 1/2.
I think we'll still pay more than other countries, because we fund so much research, use some much more new tech. Which I wholeheartedly support.
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Food costs can be brought way down thru better logistics, incentives, thereby reducing food waste. Ending subsidies for corn, wheat, soya, diary would reduce food waste and improve public health. A double win.
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The USA has more housing than people. If people didn't need to relocate for jobs, allowing people to go to the available housing, per capita spending would also plummet.
3 trillion isn't anywhere close to the actual cost when you consider this.
But I think the pro-UBI argument would be that you don't need to increase the money supply to do it. About 60% of Federal spending is on Social Security, Medicare and Medicaid. Reducing the spending on these programs, and other inefficient transfers such as welfare and disability will pay for much of UBI, and the rest is paid for by raising taxes. The net outcome is that rich people will pay a bit more to the government than they do now, poor people get a bit more than they do now, but the major effects are 1) inefficient bureaucracy is eliminated, 2) bad incentives are eliminated (such as disability payments forbidding any gainful employment, and 3) the stigma of welfare payments is removed when everyone gets them.
I don't think this will work in the US because 1) there's no political will to reduce existing entitlement programs and 2) there's a lot of resentment in the working class against recipients of entitlements, and 3) racism. However, the argument that UBI will fail because it requires printing money is probably wrong.
This improves the supply-side of the economy, but doesn't do anything to stimulate demand for products. Today, lack of demand is a larger problem than increased output. The labor share of GDP has been decreasing since the 70s, and its starting to hit levels where people are having trouble affording as many goods. Although investing is a good use of funds, arguably redistribution (a type of demand-side stimulus) would be more helpful today.
So, then the poor will be left with decreased Social Security, Medicare, Medicaid, etc. But hey! At least they get 12K a year!
From your description, it actually sounds worse. As I read it, it sounds sort of like this.
1) Reduce Social Security (so steal people's retirement money that they paid in...)
2) Reduce Medicare / Medicaid (The group of people that receive these are often the one's least likely to be able to afford medical care (the poor & the eldery) while simultaneously being the one's most likely to need such care (at least the elderly)).
1) Cutting spending elsewhere.
2) Raising taxes. (Or collecting more from a growing economy.)
3) Printing money.
Probably it would be a combination of all 3, but since UBI can offset entitlement cuts it makes sense to me that that's where the government would find a lot of the money. Raising taxes is unpopular and can be counterproductive if done to the extreme, and printing money is inflationary and also counterproductive unless there are other deflationary forces at work. (Which there are currently, I agree with Ray Dalio that printing money makes sense during a deleveraging spiral https://www.youtube.com/watch?v=PHe0bXAIuk0)
I'm not an advocate of replacing all means-based programmes with UBI, but it should see a significant improvement over many such.
Are food prices going to rise if others eat more food? No, we have spare capacity for food production.
Also, a bigger topic, but supply and demand is not linear like they teach in school. Food prices are fairly cheap and stable in America because of excess capacity plus the fact that producers face thin margins plus spoilage. It will take a lot before prices move "commensurately".
This is just one example.
The problem is not so much general price rises, as rises in rent.
Let's say the entire economy consists of three people: #1, #10 and #100. #1 earns $1,000 per month, #10 earns $10,000 a month, and #100 earns $100,000 a month.
Raising #1's salary to $1,500 a month might have a small effect on prices in the economy at large, but prices certainly wouldn't go up 50%.
That's because #1's share of the entire economy is very small.
In the US, 14.5% of the population are #1s, and 85.5% are #2s and #3s. And that 14.5% of people represents a minuscule portion of the economy, maybe something like 5% or less, since their incomes are so low.
Would anyone be able to explain why this just-so story is wrong? My econ isn't great.
So it's not actually different from the limited implementations in the way you paint it (it's different in other important ways, but not that one.)
They should give these a try in a more insular area, like a big town the middle of nowhere in Wyoming, for these studies. They would have a more isolated economy.
edit: if I wanted upvotes I'd jump on the socialism/communism bandwagon. I feel sorry for the future if this is the prevailing thought :(
There's not really a PATH for people to move from shitty job to non-shitty job anymore. There simply aren't enough good jobs for every adult.
This is because wealth is becoming more and more centralized. So those "few" people are becoming bigger and bigger pots of gold that can be taken from.
You can relabel the account balances however you want, but the underlying economic reality is the same for people earning income taxable above the UBI amount. You are paying more to the government than you are receiving. For people near or right on that level, they simply have an accelerated refund schedule.
We can't just print money, that is obviously going to fail as it always does. So... Will we try to implement UBI with wealth transfers? Taxing the rich and giving to the poor?
That seems to be the only alternative to printing money, meaning that UBI is not an innovative idea whatsoever. It's just wealth redistribution.
> UBI is not an innovative idea whatsoever.
It’s not claimed to be. The idea is literally hundreds of years old and is pretty well understood. There seem to be a lot who are just coming across it and applying lazy thinking and biases to it and mostly getting it wrong.
Giving UBI of $10K/year to every citizen of the US is $3.25T. That's more than all the Federal revenues in 2017 (0). And $10K isn't enough. So you'll end up needing confiscatory tax rates on everyone, and possible a wealth tax (not just income). The distorting effect of this level of taxation would be incredible, just from an economic viewpoint. From a political view, it would lead to revolution.
[0] - http://federal-budget.insidegov.com/l/120/2017-Estimate
It's crazy to me in the UK that we have free healthcare, where you can get free water food and shelter if you're ill but if you're healthy you can go back on the street with potentially no food water shelter
Basic income guarantees that the gaps are filled. It even makes markets more likely to try to fill them. But basic income can't get basic services to people who can't control their own money. Getting food to children of alcoholics requires that the system doesn't pass through an intermediate step that can be exchanged for alcohol.
So both a thorough network of social services and basic income are required for a society that aims to raise the standard of living for everyone. Both individually have blind spots.
Basic income can serve as a substitution for other services though, so if you're going to add things one at a time instead of magically willing it all into existence, it makes sense to start there.
Ensuring income adequate for access to these necessities is a fundamental and long-established principle of economics. "A man must always live by his work" comes straight from Adam Smith.
The problems are multiple.
Wages tend to (or below) subsistence. Rents (economic) eat up excess consumer value, not just producer costs. Not all people can (or should) work. And there are cases where risk components and externalities can lead to both over- and under-consumption (famously: healthcare, both ways).
In a pure capitalist system wages [for jobs where there are a surfeit of capable people] should surely tend to zero until enough proles have died to introduce scarcity and buoy the labour price.
The basic problem is that labour (as with several other inputs) can for a time operate below its long-term subsistence costs, by effectively drawing down its accrued capital. Doing so results in a net degredation of total productive output.
In conditions in which there is a ready supply of replacement labour, this is not a concern of the employer, unless those costs are somehow internalised.
Gregory Clarke (and many others) note that in the 19th century, cities such as London had natural reproduction rates below the replacement rate. Cities sustained (and indeed increased) their populations through net in-migration. Excpected life expectancy of a newly-arrived labourer was often only a few years, but wages were higher than could be commanded in the surrounding countryside.
See also: Backward-S bending supply curves.
I mean, you'd work for a lump of food if there were no other opportunities to acquire it, it's that or die in a few days. You'll last longer but not indefinitely.
We have a situation like this in the UK: large companies paying below subsistence wages, the welfare state (and food banks, and other charities) then makes sure those people keep housed and fed meaning the wages can be kept down. Those same companies then are avoiding paying tax; draining the welfare money with their wage tactics and not paying in to the exchequer.
The producer of commodities can, provided the opportunity to do so, seek other employment. So long as there is anything that may be produced and sold, they will cease producing some good X at a loss and start producing some good Y for profit. Or move elsewhere, or cease production at all.
If labour generally fails to command a sufficient wage to ensure its long-term survival (or, in extreme cases, short term), there is no alternative employment to living.
You live, or you die.
At best, at the individual level, you can die more slowly. But you'll die all the same.
The problem with living, as opposed to producing or exchanging merchandise, is that it has an irreducible cost, and you've got to meet that no matter what. If businesses take advantage of this, then what is being operated is not a profitable business, but quite literally a charity based on the transfer of wealth from the life-force of the workers (and perhaps the State through various welfare programmes) to the business owners. As you describe.
The key difference between the formulation I prefer (though I don't claim origination, I just don't know its origin) and the more familiar versions associated with Ricardo, Malthus, Marx, etc., is that I see the concept of an accrued labour capital -- health, fitness, skills, etc. -- as well as personal capital of the worker (housing, clothing, vehicles, tools, etc.) which do not have to be be replenlished on an absolutely continuous basis, but which, if not tended will over time degrade.
Moving from the individual to the market level, if there is a constant source of fresh labour then it's possible to "burn out" individuals and simply replace them with fresh young blood. As has been and is practiced throughout history and presently, around the world.
Again, the key is distinguishing various types of economic goods, and their behaviour in the face of market prices, and who it is that does (or doesn't) bear the full costs. I'm not saying this in defence of markets (I believe they allocate prices exceedingly inaccurately much of the time), but in acknowledgement of the observable behaviour. This isn't seeing the behaviour as desireable but as extant.
Again: labour at best returns its costs and those alone. Rents return profit in excess of costs. That is a fundamental inequality of any market economic system.
(The issues of other types of goods and the prices they experience extends the set of problems yet further.)
That is, bad news (famine, war, plauge, natural disaster) ultimately reduces populations and increases living standards. Good news (peace, prosperity, plenty) increases populations and pushes them up against carrying capacity.
Cf, Gregory Clark, A Farewell to Alms, though I believe it's pretty common.
Either way, it is one of the basic premises of UBI: People can spend their money more efficiently at helping themselves than bureaucracies can.
Thus, in theory with UBI, giving money is better than attempting to give another limited set of items based on the value the bureaucracy places on them.
If you give people money, they can decide what they need most and go do that. Maybe I don't need housing because I can live with relatives and use my money for education. If you insist on free housing instead, you take that option away from me.
More specifically: I'm 0% worried about sending money overseas, since I expect that the few people who do so that will be making the world a better place on net.
State sponsored destruction of property.
The freedom to make your money work for what you personally deem best is the creative, and personally empowering, juice that promotes the most productive behaviour.
Providing water, food, and shelter affects each of these markets in often deleterious ways. For example, consider the oft-cited criticism against foreign aid.
This is a "land tax", but writ large and applying across all (or most) rent-seeking goods, including especially productive (as distinguished from strictly financial) asset classes.
In the case of Stockton, and most other West Coast cities, this would mean land taxes to incentivise further development and housing supply, as well as updating zoning and building codes to allow denser and mixed-use development.
The wildfire situation in the already housing-constrained SF North Bay strikes me as a tremendous opportunity to reconsider housing, rents, asset taxes, and zoning.
That understanding is incorrect.
Most particularly, landlords themselves are paying rent in the form of interest. Property values would tend to fall.
Charity is not a legitimate role for government.
A person working for a paycheck doesn't provide value to a community, only to their employer. Chronic unemployment, however, does harm a community. The explicit physical need for food, shelter and access to medical care outweighs the implicit value in the dignity of labor.
> Charity is not a legitimate role for government.
Don't consider it charity, then, consider it insurance, or just another public service like the police or fire department.
What property does UBI destroy, and why don't increases in consumption through other means also destroy property?
10 people make widgets. Annual production is 10 widgets. Mean annual standard of living is 1 widget.
9 people make widgets, 1 person is on UBI. Annual production is 9 widgets. Mean annual standard of living is 0.9 widgets.
In the second example one widget was destroyed, and everyone was affected.
We are all counting on one another to to create value. At my business, in my community, and our country as a whole, I'm counting on you to take a job and work, because if you don't we will both have a lower standard of living.
In reality, that tenth widget still gets produced. They hire someone else to replace the "UBI recipient" or else run the production line slightly faster so nine people make ten widgets, or else automate and fire all ten employees, and make twenty widgets a year. Nothing in a real economy is that zero-sum. Value which only exists in potentia and which may as well be created by other means cannot reasonably be said to be "destroyed." Something which never existed can't be destroyed.
UBI just decouples a person's ability to work with their ability to live at a subsistence level, it doesn't prevent them from working.
Also you're assuming all paid jobs are pro-social. Is coal mining? Advertising? SEO for MLM firms? Lobbying for kleptocratic foreign governments? Some of these may have some positive effects but may be net negative in their effect on society.
Finally, I disagree that charity isn't a legitimate role for government. Since neither of us is the arbiter of government legitimacy I think we can agree to disagree here.
Of course, it's a matter of worldviews. You might think innate human behaviour is laziness and only forceful contracts can get productivity out of them. I can certainly see evidence of that, but I don't think it's innate for everyone. I think many people would be eager for a sense of belonging and purpose that could only come from contributing to society.
Think about all the people that help out in times of crisis without 'reward'. That's also innate. Whether it's the majority, I think that's a matter of culture.
If you define the primary relationship people have to each other in society with forceful contracts, then yes, you might engender also a subculture of rebellion and banditry that results in laziness and exploitation. What if we defined it differently?
I will not remind you that utopian experiments are not new.
UBI isn’t utopian. No one lives large for free. People simply get the basic support.
Charity is the raison d'être of government. A government is there to run your society. That means doing things for people, even if it's just printing passports and employing a police department.
You’re just making up an alternate definition for charity - that isn’t a valid argument.
I am playing a little fast and loose with the definition of charity, yes, but so is the OP. "Charity" isn't "free money for you to play with" (that's "philanthropy"), it's "giving help to those who need help". Governments in the developed world have significant welfare costs, so it is just plain wrong that charity isn't the role of government.
[1] (German source) https://de.statista.com/themen/71/ehrenamt/
Economics rents (not strictly the same as the money paid in rent. It is the return above costs that accrue to the supplier rather than renter of the property. The net problem is the combination of the two phenomena David Ricardo noted:
1. The iron law of wages: wages tend toward subsistence level. https://en.m.wikipedia.org/wiki/Iron_law_of_wages
2. The law of rent: the rent of a land site is equal to the economic advantage obtained by using the site in its most productive use. https://en.m.wikipedia.org/wiki/Law_of_rent
Given the latter, rent is determined by economic benefit, not by the cost of provision. A land tax, set to the difference between the value of utilisation and the cost of using the land, secures that surplus value to the state. (You'd want to leave "normal economic profits" to the landlord.)
The effect of this is to introduce a carrying cost, to the landlord, on the value of the land. The price of the rent itself is bound by the beneficial use (say, 30% of prevailing wages). If someone cannot afford to pay that amount, they will seek alternative accommodations, or move out of the area. Any landlord charging more than that amount will have no takers (rational actors, long term), if the number of units on a property isn't sufficient for the landlord, the alternative is to increase density (build higher, smaller, or occupy more of the land space).
Meantime, the tax revenues go to fund urban services.
In much the same way, raising wages does not increase prices, but rather secures more of the manufacturing profit to labour rather than owners, as prices are established by the overall market (net of imports from elsewhere).
That's the principle of Georgism.
https://en.m.wikipedia.org/wiki/Georgism
More generally: if you go back to the classical economists (Smith, Marx, Ricardo, Malthus, Mill), you find a number of distinct classes of goods being transacted. Generally (and adding a few):
1. Commodities.
2. Labour.
3. Capital.
4. Rents (monopolies).
5. Interest (and risk).
6. Investment assets.
8. Natural resources.
8. Public goods.
(Subject to possible consolidation / reordering, though that's the gist of it.)
Quite significantly, each of these has specific behaviours in terms of pricing, most specifically as to the relationships of the true economic cost of production (cost), the true economic value (value, for which I don't follow Bentham's Utility theory), and exchange price (price).
The ideal, as Smith notes, is for price to approach the long-term true economic cost, but in the case of the goods classes listed, that's frequently not the case (also noted by Smith). Marginal analysis describes this in terms of market function, though that misses critical elements, including market failures and distortions.
Loaded language is loaded!