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Comment by aclimatt | Hacker News Reader

I don't see how inflation would not completely negate the effects of this without some strict fiscal policy in tandem. If you are essentially raising the average wage by X, would prices not rise accordingly? Those who make X plus a salary would not be able to afford the mansions of yesterday, because those who make X plus an even higher salary can afford to outbid them. Likewise, basic necessities like food can easily increase in price to what people can afford to pay.

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Presumably you are taxing income to pay for this. The net result is a transfer of wealth from people who work to people who don't.

As a result the money supply does not increase. If any inflation occurs, it is caused solely by a shift of spending from goods/investments not measured by CPI (or the swiss equivalent) to those that are.

(I.e., if money shifts from investment in electronics research to pizza consumption, the price of pizza will rise and the price of of oscilloscopes will fall. Since CPI includes the price of pizza but not oscilloscopes, inflation will rise.)

I'm going to elaborate on the parent's confusion a bit. Even if, as you suggest, net inflation doesn't increase, price distribution might. That is, yacht prices fall, while food/rent prices rise. Since the poor spend the vast majority of their income on food/rent, much of the basic income would thus be recaptured. In fact, while the equilibrium might be different, it appears to me that the overall impact might be minimal, or at least less than expected.

OTOH, it might help with our aggregate demand problems.

It's quite possible I'm missing something, however.

You're assuming the poor don't eat. I would argue the price of food would not be considerably affected. We all need to eat poor or not so unless their dead their still buying food. Rent on the other hand may rise since there's people sleeping on the streets at the moment.

Not exactly sure what you're suggesting, but I'm not assuming the poor don't eat. On the contrary, I'm saying that the poor spend a greater percentage of their income on food and rent, and that overall price inelasticities of food/rent would result in inflation for that class of goods.

Let me put it this way. If you were the only grocer[1] in the neighborhood and you knew that everyone in the neighborhood just got a 10k raise, would you not consider raising prices? Or, put another way, if you're the only grocer in the neighborhood, and everyone gets 10k/yr of free money, and that induces, say, 10% of your workforce to quit for various reasons, then you have to pay more for labor and pass the costs to customers. Either way, food prices rise.

[1] Note, that's not improbable in many poor areas.

[2] I'm just armchair speculating here... so, like I said, I could be way off base.

He is saying that the actual demand (amount of food people buy) is not going to increase much, so the whole argument rests on you being the only grocer -- and if you decide to increase your prices that much, that would only result in either (i) your former customers now carpooling to go to nearest Walmart, or (ii) more grocers opening nearby (since the grocery business in this neighborhood suddenly became much more attractive).

When everyone, even poor people, have an extra (say) $10k, basic cost of living could go up $10k because that's what the market will bear.

> When everyone, even poor people, have an extra (say) $10k, basic cost of living could go up $10k because that's what the market will bear.

If you assume a totally monopolistic marketplace (so that there is no competition to drive down prices but instead there is unlimited capacity to extract monopoly rents), sure. In a marketplace with any kind of competition you'd expect some increase in each the market clearing price and the market clearing quantity of each of the goods that would be purchased by the people who end up with a greater net income after the policy change.

Are you saying the cost of production doesn't have a say in the price of the product it's how much people are willing to buy it for?

Because if that's done with basic necessitate like food so people are force to starve because corporations want to charge as much as possible they should all be charged with the death penalty.

Cost of production sets a floor on the price of goods, not a ceiling.

True, but competition among sellers sets the ceiling.

In the long run, the price of food and housing should match the marginal cost of producing them. Since a relatively small portion of the (Swiss, at least) population is poor, we should expect that feeding and housing all of them won't move the price much, because the supply curve just isn't that steep. There's no reason to expect an objective material shortage in food or housing - it's relatively easy to make more of both if poor people have the money to pay for them.

Doesn't research tend to put downwards pressure on electronics prices (I guess you've just made a typo...)?

An interesting side effect might be an increase in the ability of people who work to extract the value of their work from people that hold capital.

Won't vendors and landlords charge what the market will bare? If all the people not receiving subsidized housing now have +$10,000 per year, they can all bid up to that much more.

In certain places where there is a limit on the supply of housing this will probably happen.

However, when rent prices go up, it encourages people to build more homes/apartments which in turn drives prices down. There is a feedback loop (granted, many times it's interrupted, and there is a delay)

If the prices of things like food rise that is a good thing. It means more people are buying them than before, it means more people have access to those things. It's a net benefit.

The proposal wouldn't change the average net wage; effectively higher taxes on the well-off will subsidize those on lower income - not so much the unemployed, who already receive quite a lot of public subsidy, but those on minimum-wage/part-time jobs do a lot better under this scheme.

So hopefully this will a) reduce income inequality b) give better incentives for the unemployed, which may improve overall productivity.

I guess you could argue that a higher velocity of money means an increased money supply that has the same practical effects as inflation. IIRC economic thought is divided on this?

Is the price of something determined by how much it costs to make or how much someone is willing to pay for it? I believe the correct answer is "It depends and both".

If you think it's just cost+profit then, prices will rise only by the percentage of which labor is a part of that price. In the restaurant industry, for example, labor costs are about 35% or the total costs. If wages increase 10%, costs increase 3%.

Keep in mind what the background state is. Look at the US for example, where 40% of the GDP is routed through taxation and government spending, and where more than 4 trillion dollars a year is spent on welfare, pension programs (like social security), health care, and education.

Putting in place a minimum income system would merely redirect funds from those particular programs in many cases.

If the spending is funded by taxes rather than printing, why would we expect huge inflation to result?

I would expect price inflation to occur in some areas because people will have more money to spend which will have the effect of less downward pressure on prices.

In my life, if I started receiving $1000 extra dollars each month, I imagine I would first go and try to rent a nicer apartment. Unfortunately, I'd expect others to do the same, giving landlords the ability to charge more because there are more dollars chasing the same number of apartments.

Well, let's admit it: because under a debt-backed fiat currency, the value of currency is a function of income inequality. To reduce inequality is thus to dilute the currency and create inflation.

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