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Comment by refurb | Hacker News Reader

I'd love for someone to explain how UBI won't just inflate prices. Obviously it comes down to exact implementation.

To me it seems it would be similar to the government intervention into housing - the gov't wanted more people to be able to own homes. So they create 30-year mortgages (for example). This was great because you could spread the payments out over more time, lowering your monthly payment.

Oh wait, the 30-year mortgage is open to everyone. So now everyone has more buying power. Prices rise and you end up in the same spot as before - a big chunk of the population can't afford a house.

Why wouldn't this happen with UBI? If you have everyone in the US $10,000, no strings attached, I would guess prices would generally rise until $10,000 wasn't enough to survive on.

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It won't inflate all prices equally.

Homes might get more expensive. Will they get $10,000 more expensive? Not everywhere.

Potatoes might get more expensive. Will they get $10,000 more expensive? Probably not.

As long as there's a class of products that don't increase in price by as much as the UBI, those products will become more affordable to the people that UBI is intended to help.

No one would say that if you just taxed everyone 10,000 dollars a year that prices would fall in a way such that everything would carry on the same.

The US already has a fairly solid way to transfer money for those in need of food. I'm sure it inflates food prices some but clearly without food stamps more people would be hungry.

I think what’s likely to happen is that the price of the inelastically-supplied products (housing, medical care, services) inflate to the point where there is no money left over to buy more of the elastically-supplied (optional) products. Thus, no net gain from UBI. If there were a net gain, expect UBI to cause service costs to inflate as labor supply is removed from the market, or the labor supply remains constant and the population grows in response to surplus resources which can be used for breeding (which then inflates the costs of inelastic goods, like housing).

Again, in some places this might happen, but not everywhere. For example, do you really think that it won't be possible to rent a room for less than $10k/year ($813 per month), anywhere in the country?

Secondly, if your net income is currently $0, then it's hard to imagine that price inflation alone could be enough to keep your purchasing power from significantly increasing with UBI.

Thirdly, labor supply might not necessarily be removed; there would be less need for a minimum wage, and fewer cases where eg. disability payments or unemployment payments are an active disincentive against working (get a job and get paid less than you earn on unemployment handouts), so there's a reasonable chance the labor supply would increase for many tasks.

> do you really think that it won't be possible to rent a room for less than $10k/year

...that's not what they're saying. The 10k/year wouldn't all go to one cost, it would get split across all costs, distributed by peoples' choices. Certain foods may go up only a couple dollars, while rent could increase a few hundred, until in aggregate across all costs that extra 10k is used up with no net gain to quality of life.

If your current income and expenses are $X and $Y, there's some X and Y for which that will be true. But it's necessarily greater than X = 0. The resulting increase in prices will not compensate for the increase in income, for sufficiently low income.

It seems like UBI either promotes overrunning the planet with more humans (more resources = more reproduction), or else there are restrictions on where humans can spread, creating housing inflation. Or a mix of both.

That's not the way price economics works.

In competitive markets, goods generally fall in price to the baseline level needed to get a competitive return on assets employed. While anti-market people often claim this doesn't happen, it actually does happen for most goods. Food, consumer goods, most computers, household staples, vehicles, etc., are dominated by fairly thin margin goods that are sold at just a bit above the total cost of production. (See grocery financials to see this in action.)

There are exceptions. Some products have constraints on supply. Some are natural constraints, some are government-created supply constraints.

Housing in big cities is mostly government-created supply constraints through zoning regulation implemented on the behalf of wealthy NIMBY landowners. In this case, yes, you could see some housing price increases, because municipalities restrict the ability of builders to respond to price signals. The price of land is a minor factor as well, but usually density can overcome that, and density is what the city NIMBY monopolists oppose.

However, this would be far less true outside of America's biggest cities. Much of the housing stock in the US is not nearly as exposed to tight restrictions in supply. And so an increase in income would result in increased housing supply, without an increase in price, because housing supply in most areas is restricted only by cost of construction.

The cost of production of all those other items - the household staples that is most of what we buy on a day to day basis - does not change if people receive a check from the government. Their price will still stay near the cost of production. Sellers of oranges still compete with each other on price to sell you fruit. Ford still competes on price with Toyota. If prices were to rise, then Ford would run their production line at a higher output to capture the excess profits, supply would increase, and then price would fall back until Ford no longer wants to run that extra shift.

And so the "prices will increase" argument against UBI is largely illusory. It could occur in certain monopolized areas of the economy, mainly expensive real estate in a few big cities. But most of America is not like that, and people who would benefit most from UBI (i.e., people with low income) mostly do not live in the highest priced real estate areas, so their real estate costs would not increase with the introduction of UBI. That inflation effect would be strongest with the wealthiest.

Perhaps that's why we hear the argument so often.

OK, I could see the impact not being consistent across all areas and all products.

However, if, as per your scenario, we only see housing prices go up in big cities, then we end up in the same place as before - people would need to leave in order to afford a place to live (where previously they would have received gov't housing).

UBI would make it easier to exit the big city. Housing would become much more affordable relative to total income in areas outside the most expensive metros. Suddenly you can take on a job that doesn't quite pay as much, in a lower density area, and with the help of UBI you can have a house and disposable income. Before, maybe you couldn't do that because total income would drop too much.

Ideally, SF/Seattle/NYC would reform zoning, which would help reduce inflationary pressure in those specific areas, but that reform wouldn't be necessary for UBI to still have a big helpful impact on housing affordability for most people.

I agree with all that, but in the recent conversations about homelessness in SF, the very idea of leaving for a cheaper city is pretty much a no go politically.

That probably wont change.

Waiting lists for government housing assistance are years long.

...do you write a blog I could subscribe to?

> If you have everyone in the US $10,000, no strings attached

What you are missing is that UBI is supposed to replace all existing entitlement programs, such as unemployment, disability, food stamps, social security, etc.

We already hand out tons of money, UBI is just a different way of handing it out money that is more efficient because there is less bureaucracy involved.

Right, but we don't hand out money to people who don't qualify for it (income > $X), so it's a different situation.

But to your point, I've heard a proposed UBI that gives money to everyone, but effectively claws it back in taxes for higher incomes. Actually it would claw 100% back and more in order to fund UBI.

In that case, I could see the inflationary pressure not being an issue since net-net, you're just giving cash to a set group of people.

No it isn't. That's one possible approach for UBI but hardly the one that everyone agrees on.

Goods with enough supply: no inflation even in case of UBI or printed money. This can be observed in present day measures of inflation which are based on cheap goods oversupplied by China

Goods with not enough supply: massive inflation in case of printed money or UBI. Examples are "good investments" with the only safe ones and available for common folks being real estate.

That's in case cities don't get destroyed by rioters and looters and people don't escape to safety out of the cities.

Prices for scarce resources with high marginal costs (eg: desirable housing) rise. You can’t cheaply make more.

Prices for resources with high plant costs and low unit costs do not, to anything like the same degree - medicine, consumer electronics, food.

Property prices would be lower if they were not much of an asset. If we taxed land so the value of land was close to zero.

If we don't tax land and amenities and jobs remain concentrated in large urban areas, imho there is a risk ubi will be absorbed into land prices, meaning idle rentiers win yet again.

The article gives the impression of UBI as some sort of targetted scheme with the money of putting money in the hands of people who need it. At least in India, it is touted as an alternative to government subsidies. Seen that way, it's a system overhaul rather than a way to help all people at an individual level. Government subsidies will always be inefficient, no matter how well-intentioned a particular set of people are. Instead, a simple UBI scheme will dramatically reduce administration costs and plug all leakages.

I'd love for someone to explain how UBI wouldn't just end up replacing part of people's salaries and turning into a wage subsidy for corporations.

Some see this as a feature, not a bug. It means that companies don't have to pay as much to hire people, because companies don't have to be on the hook for giving people enough money to survive. You wouldn't need a minimum wage, for example.

UBI need to be high enough then.

Wouldn't this create so many jobs? There are many jobs in Canada that can't exist because of how expensive it is to hire people (which coincides with how expensive it is to live in Toronto). Subsidise that, and many people will be able to be delivery drivers for restaurants and avoid paying rent to Uber, or hire help for their homes instead of having to go to specialized firms.

> There are many jobs in Canada that can't exist because of how expensive it is to hire people (which coincides with how expensive it is to live in Toronto).

Couldn't it be said that those jobs are therefore not valuable enough to exist? Many jobs certainly are, and automation will obsolete many others. I guess we should be providing the basics for most people if we only need a fraction of the population for work though.

There will likely be some of that, but it will also put workers into a stronger negotiating position, so they can demand higher wages.

Prices definitely will go up with UBI, particularly for scarce goods like housing. You are absolutely correct. They did not go up in this experiment because it was just one town.

UBI won’t work unless we deregulate zoning, reduce the cost of higher education, and reduce the cost of healthcare.

Well, didn't we just see what happens with UBI basically in the last two months?

I do think the risk of riots and social unrest due to idleness is the main unknown with UBI.

But its such a psychological issue, it’s hard to know how it’ll play out long term.

If government just printed this money, then there would be inflation. But this money is taken away from high earners and given to low earners. System is still balanced, just less fair (some may argue).

If there are 9 widgets and 10 people who want widgets then handing out money will cause inflation. The problem is a lack of widgets, and money shuffling games won't help.

If there are 11 widgets, 10 people who want widgets and one person has 3 widgets then UBI might help. It will definitely help if the biggest problem is an uneven distribution of widgets.

"Inflation" is a largely irrelevant metric that provides an accounting measure of how those situations play out. What matters is the production & distribution of goods.

The problem with 30 years mortgages isn't necessarily that they are given to everyone. It is that they create a situation where to own a home people have to agree to give years of their labour to a bank for essentially no reason.

I'd be inclined to view it more as a social safety net, an investment in society and a means to lubricate the wheels of the economy by facilitating spending.

Competition for the money is what keeps inflation down and also having it be a modest floor. For housing, health care, and higher education, the money floating around is specifically for those sectors. When coupled with limited availability / restricted competition, inflation easily occurs.

But if I can spend my money on a variety of things, then there is a lot more competition for me to figure out the value per dollar of a purchase.

In the specific instance of housing, the increased ability to move helps. What can also help is the ability for banks to be sure that people can pay. In areas with less pricey housing, a $100,000 house can lead to a 30-year mortgage at about $600 a month leaving $400 for other living expenses. This is a guarantee to the lender that the person can pay regardless of employment. And so suddenly a bunch of houses for poor people that are not economically viable because there is no lending for it suddenly become so. Not everyone will support it, but some will and that will ease up on pressures for apartments lowering that rent cost. It also could end the housing blight in many, many places without the truly inflationary process of gentrification.

The UBI is a floor and I would bet that prices would adjust to reflect that. If the floor is set too high, inflation will happen (imagine giving everyone a million dollars a month, it would certainly torpedo the current economy, but, assuming society somehow survived, new prices would probably change so that a minimal lifestyle require a million dollars a month). By setting the UBI at the current poverty threshold, it allows the poor to finally feel secure, it allows for the middle to save a little and feel less anxious/dependent on the good will of their boss, and for the rich, it keeps society stable enough that they won't have a revolution challenging them. All of this without doing too much damage.

Some things could end up with a higher price if the current wages are too low to worth being done by people who can now choose to walk away. This could be the case in industries where there is little profit being made and the workers are being paid very little. If there is a lot of profit, then I would presume the competition pressures would lead to the profits being diverted into wages rather than prices being inflated. Being money that can be used for anything would help keep some competition even in sectors that are monopolized.

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As an alternative approach, think of UBI as a dividend on our prosperity. Imagine that every American had enough ownership of stock to get a dividend pay out per year of $10,000. Would you ban the dividend pay out due to fears of inflation? The argument for the dividend approach is that prosperity comes from all of us contributing and so all of us should get a share of the profits of our society (private ownership is a creation of society and protected by society). And just like investors getting a dividend, the idea is that giving out that money is not only a useful reward for the lending of capital, but it also supports new investments and growth. The Citizen's Dividend does the same allowing each of us to invest in ourselves, and others, in ways to improve all of our lives.

A good narrative is that we are a species willing to be friends with one another and to be helpful to each other if we feel safe, secure, and supported. A CD (UBI) does just that.

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