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Comment by rothbardrand | Hacker News Reader

One of the things about UBI is that these pilot programs aren't UBI, because they aren't universal. Giving a segment of the population free money is going to benefit that segment, no question. Welfare and Quantitative Easing are both examples of that. But when you make it universal, my economics intuition says that the effect will be washed out by a commensurate rise in prices.

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.

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If I am understanding your argument, it is a sort of 'thermodynamics' argument against UBI. It argues that there exists a fixed supply of capital and that transfer payments funded by taxes are always counter balanced by an increases in prices to keep capital supplies in balance.

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.

I think an easier way to think about the OP's point is that if you offer every person $1,000 a month (UBI), prices to live their exact same life style will increase by $1,000/month.

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.

If the justification for this is rising housing costs, then giving people free money to pay the high rents is just going to cause housing to be even more expensive.

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.

That's why rent-producing goods are subject to rents taxation. See the land taxes suggested by Smith, Ricardo, and George.

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.

Taxes don't solve the problem, they increase it. If costs are too high, adding taxes only increases the cost more.

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.

Not in the case of rents.

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.

https://www.mises.org/library/economics-one-lesson

No, it's an inflation argument against UBI. If everyone has more money, everyone becomes less sensitive to increases in prices, and therefore prices rise into the new equilibrium. (Increase in demand without a corresponding increase in supply leads to an increase in the price level, in intro microeconomics-ese). Now, the price level may not rise to the exact level where it cancels out the entire UBI, but that's based on various factors that are effectively unobservable.

It's not quite thermodynamics, because it's not as strict of a 'law', but it's close.

But that suggest prices are set by the available cash flow. Which means without other factors if we just lower everyone’s wages to zero everything will be free. Obviously this isn’t the case. Also it completely ignores supply and demand. Under UBI someone will raise their price to take more profit... but then no one will step in and compete because they see an ability to offer the product/service more efficiently.

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.

>But that suggest prices are set by the available cash flow. Which means without other factors if we just lower everyone’s wages to zero everything will be free. Obviously this isn’t the case.

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.

Prices aren't set by one thing and one thing only, though.

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.

The ski lodge and state college operate with a monopoly, once youre there you have no other choice of coco vendors. Cash flow has nothing to do with monopoly pricing.

I think you should think of UBI not as "everyone gets $X more" but rather a redistribution of income. The lower half of income earners will in sum receive more than currently while the upper half will have less due to higher taxes.

Sure, but generally the top income earners aren't really in the same market as people with lower incomes. Sure there's indirect impacts, but the housing stock that they pursue is different, they eat at different places, probably shop at different grocery stores... the impact that this will have on their spending will be substantially more muted and difficult to measure in a model as compared to the impact of everyone at (lower income bracket) receiving an increase to their income.

Alt-Bob will still be on min wage and still anxious and fearful due to inflation.

And why do you think Govts will do better job at identifying/investing in potential productivity than rest of the market ?

I know this isn't the whole picture, but doesn't a spike in inflation imply some kind of dilution of value? It's not as though the govt would be creating currency to fund this, it was collected from somewhere. Doesn't the idea that the price of everything will go up because some guy in a suit noticed that everyone has more money to spend, fall apart the second a competitor decides to keep their prices low?

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.

>you can't subsidize the many at their own expense and have it result in a positive effect.

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.

Sorry to be annoying on this topic, but:

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?

part of our high healthcare costs are from not using a universal system. Other Western countries are achieving same or better outcomes with far less costs. I do agree that UBI will not work if we leave some of the things we consider basics now, such as food, housing, or(in my opinion) basic healthcare to be provided by competitive corporations, then we are essentially just going to be putting the money in their pockets

I really wish critiques would go birdseye. We're talking about radically restructuring our economy. Don't hold back.

UBI burden assumes current costs. That's short sighted.

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.

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.

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.

No serious plan for UBI comes without progressive tax increases, so that at some income threshold you start paying more in additional taxes than you receive in UBI.

3 trillion isn't anywhere close to the actual cost when you consider this.

What do you mean by safety nets? If you mean economic need-based programs, so something like "if you earn less than X, you get Y for free", UBI generally assumes the elimination of all such programs, so yes, it does assume cutting other programs. In fact one of the goals of UBI is to replace many complicated welfare trap-generating programs with a single non-welfare-trap one, with the advantage of also eliminating the bureaucracy that those need-based programs require.

What I mean is it is no way those targeted programs can be replaced with UBI. If someone is getting 30k of value from an existing or existing welfare programs, cutting it back to 12k removes their social safety net, regardless of the straight cash they get. Worse, if they run out of that, they really have no safety net remaining.

How does UBI take into account mental incompetence, addictions, poor decision-making, bad luck, and bad investments, and where do you draw the line?

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)?

Same way Social Security works - with the exception of federal taxes and criminal judgements, SS payments are largely exempt from garnishment or other actions to seize assets to repay debts. You can't lose your UBI by taking a loan and gambling the proceeds away, because the debtor cannot force you to use UBI to repay the loan.

That makes sense for debts, but how do you handle people who immediately blow their monthly UBI payment and don't have anything left over for food or rent? At least with food stamps, you kind of have to use it on food.

Weekly or even daily payments would cover part of that. You know the amount that should be added to an account each day pretty easily, since it's the same for everyone. If they waste it and still can't afford food or rent, well, at some point you have to make that their problem.

What is the difference between that and me gambling away my salary? It's not like I will get welfare because I gambled away all my money.

Why do you assume people will get less under UBI than they do now?

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.

It's pretty simple the way I see it: the military and associated agencies are ripe for a budget cut.

Sure, if you simply gave everyone $1 for every dollar they already have, all you do is double prices and change nothing of substance.

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.

How is UBI any different from welfare if it is what you describe?

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)).

I disagree with your premise that doubling the number of dollars everyone has would simply double prices. If you take someone that has $1 million in the bank, and magically make that $2 million, they almost certainly won't double all of their expenditures (they probably wouldn't change what they spend at all on a wide variety of categories - food or clothing, for instance). Rising inequality means that lack of demand is actually a big issue, since we're transferring income from people that would readily increase consumption, given more income, to people that will largely sit on that money. Globally speaking, our factories could easily produce more goods without raising prices much, if any. I believe a UBI would effectively be a transfer of wealth from people that have lots of money (but don't spend it) to people that don't have lots of money (but would readily spend more if they had it), but it wouldn't be the zero-sum game that people often assume it would, just by virtue of our productive capacity not being nearly maxed out.

While the now $2 millionaire would not be likely to spend that extra million on food and clothing they would be extremely likely to invest that money in a variety of financial instruments, making that capital available in the market so it can be put to good use. Investing does help inject value into the economy and drive growth - "sitting on it" would require literally keeping it in cash in a bank, which no sane person would do due to inflation.

> they would be extremely likely to invest that money in a variety of financial instruments, making that capital available in the market so it can be put to good use

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.

Juicero and their ilk prove that there's too much capital looking for somewhere to go. We don't need this much capital floating around, we need peoples' lives to improve so they stop killing themselves with heroin.

"sitting on it" would require literally keeping it in cash in your safe. If put "in a bank", unless you mean a safety deposit box, is (to some approximation, in theory, in the not to distant past, maybe) reinvested by the bank. That is how the bank makes money.

But that wasn't covered in the macro 101 class all this HN comment logic is based on!

The rich corporations and people are used to having wealth transfer "up" to them. That's why it has gotten so out of hand (the gap keeps increasing). By flipping the UBI switch, they aren't going to all the sudden say, "Well, it was a good ride while it lasted." Those tax increases will be funded by syphoning everyone's UBI back to the rich in the forms of price increases.

So, then the poor will be left with decreased Social Security, Medicare, Medicaid, etc. But hey! At least they get 12K a year!

Why would UBI reduce Medicare and Medicaid?

You would have to pay for UBI by:

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)

Also by increased efficiency through reducing the administration costs of means-tested social programmes.

I'm not an advocate of replacing all means-based programmes with UBI, but it should see a significant improvement over many such.

The math doesn't work out. Just giving everyone $10k annually will dwarf what we're currently spending on benefits. And Social Security is the third rail of politics; it won't be reduced, ever.

You can raise taxes to pay for most of it because everyone has an extra $10k. You might need to do it in a sneaky way so people don't just see it as a wash for them personally. But still, I agree with you, UBI ain't happening in the US any time soon.

Are you going to eat more food with UBI? Probably not.

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 "commensurate rise in prices" is the tricky part. I think what you would see would be a percentage increase in prices corresponding to the average percentage increase in income. Since UBI is a flat amount, not tied to income, that average percentage is going to be so close to 0 as to be completely irrelevant. Even if it's not close to 0, for low-income (or UBI-only income) households especially, the marginal increase in income should be significantly higher than the marginal increase in prices.

https://medium.com/basic-income/why-land-value-tax-and-unive... is a great article on how to do basic income.

The problem is not so much general price rises, as rises in rent.

Exactly. If I had an idea that countrywide UBI was coming at a meaningful level, I'd buy as much cheap housing stock as I could get my hands on as I believe UBI would result in net household formation and net demand for low-end rental housing.

If you think it through with a simple model, you might challenge your intuition.

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.

I thought the idea was that, firstly, current welfare already does this and UBI just gets rid of most of the harmful distortionary effects, and secondly, that UBI inherently must change the distribution of spending, and therefore while it will result in a long term increase in demand for the items poor people buy, that demand will eventually be followed by some increase in supply as the economy retools to take advantage of the new flow of money.

Would anyone be able to explain why this just-so story is wrong? My econ isn't great.

UBI is giving a segment an increase in income (unless you are just printing money for it, which no one has proposed), since money comes from increased taxes or decreased existing spending somewhere else; there are, compared to the status quo ante, a segment of net gainers and one of net losers (with, most likely, a smooth continuum between.)

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.)

Money is transferred from taxed earners to nontaxed people (unemployed, entrepreneur, retired, etc)

I agree that these studies need to use the area's whole population to be complete.

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.

net result being an increase in taxes on many (or at least mid-to-high earners) with zero benefits to society, only a built-in voting block for those who enable this

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 :(

Being able to eschew shitty soul-sucking jobs in favor of real personal development is "zero benefit"?

They are arguing that access to the economy without the exchange of productivity will not create the opportunity for personal development, that the cost of basic goods and housing will rise to absorb any universal payment.

How many people will engage in real personal development, and how many people will just spend more time on Netflix and Facebook?

There will be some of each, but either one results in more jobs for everybody else.

who lives on $500 a month? and the economy will simply adjust to absorb this increase anyway, so hence my comment about zero benefits. also, for young people at least, "shitty" jobs build character, which seems ever more critical these days. after working a "shitty" job for a little while, a person may be motivated to better themselves, or at least get a better job.

9.8% of the USA lives on $6,000 a year or less, according to the IRS. So, about 10% of the population lives on $500 a month. This isn't targeted to young people, though it will benefit them. This is also targeted at displaced workers, low-skill workers, and the upcoming tens of thousands marginalized out of the workforce by increasing automation.

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.

B.S. They may "earn" $6k or less per year, but they're not living on that. There's EITC, welfare, disability, etc etc. When I was a student, I "lived" on $500/month, but that was because I was a damn student working part time waiting tables. Had I been fully employed, my annual income would have been much higher.

You actually can subsidize the many at the expense of the few.

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.

Well, you're not giving UBI to everyone. Just the people who don't earn more than UBI level. For everyone else, UBI becomes like the standard deduction under the current US system.

No. You give UBI to everyone. And you also tax everyone’s income, usually with a flat tax.

s/flat/progressive/

Ok. So think about what that actually means. You get a payment from the government for $1000 once a month. Then they take $2000 in taxes from your paycheck once a month. Net, you paid $1000 in taxes. For you, it is indistinghuisable from a system where you paid $1000 less in taxes because of lower rates. UBI functions like the standard deduction for your purposes, except insofar as it is refundable if your income and thus taxes owed drops below the UBI level, whereas a traditional refundable tax credit is refundable only after the return is filed, once per year.

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.

I'm glad this is the top comment, because I don't often see common sense critiques of UBI that acknowledge price adjustment.

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.

Of course you don’t print money. You tax everyone more. And you give everyone a share of that tax.

> 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.

Again, the math simply doesn't work out. The tax increases will be huge, and since most of the real tax revenue is in the middle class, you'll have to bump their tax rates up dramatically.

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

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