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Comment by JDiculous | Hacker News Reader

There is nothing inflationary about UBI. It's interesting how people think the onus is on UBI proponents to justify why their policy wouldn't cause inflation. Even if it did cause inflation, ultimately it's just a redistribution of wealth, and it still helps those most at the bottom.

You mention Venezuela which is a totally different scenario. They had an economy overly dependent on imports paid for by the revenue from oil exports, so when the price of oil crashed, so did their economy along with it. With resulting large amounts of foreign denominated debt, their only options were to 1. default 2. print money to pay off those foreign-denominated debts. They went with option #2, and their currency collapsed. Furthermore their country has extremely weak property rights (eg. businesses being seized by the government), enormously high levels of corruption, and ridiculous price controls.

Now what does any of that have to do with UBI?

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There is a large risk of inflation under UBI. You cannot make an honest argument about UBI without accepting this risk.

1. On the margin, UBI reduces employment and production. This contributes to inflation.

2. On the margin, UBI increases consumption of consumer staples. This contributes to inflation.

3. On the margin, UBI increases the velocity of money. This contributes to inflation.

4. Under most assumptions, UBI increases government spending. Either taxes will rise, increasing the real cost of goods and services, or the money supply will increase, contributing to inflation.

UBI advocates should not dismiss these effects outright but should argue that they are small in comparison to the benefits of UBI. The lack of proper consideration of these arguments (and other arguments) by UBI advocates is pretty dang spooky.

1. Early evidence of UBI reducing employment actually shows the opposite.

2. Increased demand for consumer staples, if met with increased supply won't lead to inflation, if suppliers and entrepreneurs see the increase in demand as stable, they will make investments to increase supply. As long as we allow the price seeking mechanism of the market reach equilibrium, inflation will be at most momentary.

3. Velocity of money doesn't, by itself create inflation. Said another way, it's not a sufficient condition to bring about inflation. Sometimes a massive increase in money is just hoarded and doesn't enter the economy in any real sense.

4. Taxes don't necessarily have to rise in a regressive way such as sales tax and instead could be redistribution. I suspect what we would see is less inflation in the luxury art and real estate market if taxes were increased and the proceeds redistributed.

1. Below is a summary of evidence that UBI reduces employment. The reductions of working hours are substantial, even in studies widely spun as "no change". Below that is also HN debate about it.

https://www.chrisstucchio.com/blog/2019/basic_income_reduces...

https://news.ycombinator.com/item?id=22493537

2. Assuming that the equilibrium point remains at the same price level is difficult. It requires assumptions about the elasticity of demand and the elasticity of supply. Generally, if UBI has disincentivized work, you would expect less work, less supply, and a higher equilibrium price.

3. Under a constant money supply, increased velocity of money does create inflation. This is fairly standard economic theory. Increased hoarding is definitively a decrease in the velocity of money.

4. Fair enough, but it requires you to trust the politicians to pass a tax that impacts only the extremely wealthy. This is not guaranteed or even likely.

That first paragraph is a hell of whipsaw. It's not inflationary, you need to prove it is inflationary, and even if it is inflationary it doesn't matter.

UBI as a policy is trivially putting lots of money into circulation, so it's not unreasonable for people to be worried that would be inflationary.

Venezuela is a great example of the problems of inflation, which is a big concern with UBI as a policy, that's what it has to do with UBI.

Seems pretty similar to a tax break though no? I think UBI and taxes need to be intertwined. I could get behind UBI if coupled with a flat tax as a simpler system than progressive taxation (that has the same effect, but without all the loopholes).

Irrespective of UBI, is the US similarly not highly dependent on imports paid for by debt issuance, demand for which is not guaranteed to persist in the future just as Venezuela's oil income was not guaranteed?

Two important points. 1. US debt is denominated in its own currency not the currency of a foreign government. 2. The US economy is not dependent on one volatile commodity. Worse for Venezuela is the price of oil is set for a large part by OPEC so they have little control of the price.

In fact, the crisis in Venezuela was driven by OPEC dropping the price of oil to keep market share and prevent US oil production from fracking and the like from being viable.

Every time you think of Venezuela, think of these issues because any model of economics without this complete picture will yield inaccurate conclusions and fear of inflation being right around the corner when that is not the case.

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