Basic income: the water room analogy

No, it's not the same. If you have 11 people, one of them has 10 units of money, the rest have 1, then there's 20 units of money ($) in the system. Let's also assume you have 100 units of resources (R) that people can buy. So $1 is convertible to 5R. Now you print money and give everyone $1. There is now $31 in the system, so $1 can buy 3.22R. However, the purchasing power of the people who had $1 now increased from 5R to 6.44R. The purchasing power of the 'rich' guy decreases from 50R to 35R.

Or you can take money away from the 'rich' and redistribute it. That also has some effect on prices because of other reasons (changes the consumer baskets). But as you can see, money printing is basically tax on cash reserves.

Those sorts of prices generally scale up, not increase by a fixed amount. Generally you would be right if everyone all of a sudden had 20% more money. Effectively by giving everyone a fixed amount we give poor people X>50% more money and we give rich people X<10% more money. Which is in principle similar to a progressive tax, except for those who have no money, who now can survive to learn to increase their economic output.

We aren't short of housing for people. We are short of fancy housing for everyone, but almost everyone already has a home. What they need is breathing room. My wife wants to go to Law school, and has been offered a partial scholarship, but we can't afford the difference. That would be enough to just cover it.

Many people would like to have enough surplus to live comfortably, without fear. Buy medical insurance; go to school; replace/repair their car; pay off debts, etc. My personal doubts on Basic Income is that people would use the money any more effectively than they do their present money. But the fact that it wold stop companies such as Walmart from profiteering on the backs of the present welfare system trumps all to me.

Inflation is a function of the quantity of money in the system. Basic income money doesn’t come from “printing” more money but from taxes, so, it’s a redistribution scheme. You could expect to see some price changes but not general inflation.

The minor rise in inflation wont equal anywhere near the $1000 handed out. Sure, there will be more people that can spend a little, but that all is minute compared with general additional income of the vast majority.

I feel like the more general concern for what you are trying to address is that we may have cultural or systemic problems that funnel money away from the people who we hope to benefit, and basic income seems to do little to change this.

What's to stop my landlord from increasing rent by $1000? What's to stop all of the landlords in town from doing the same?

Well, there's the fact that, if my landlord did this, I would start looking to move, and probably look into buying a house. Assuming the housing costs didn't also increase at the same rate.

I just doesn't feel like there's anything to prevent this. I already have to pay what my landlord asks or spend weeks trying to find a suitable alternative, and it feels like the fact that my landlord thinks their time is more valuable than mine is the only thing actually stopping that. If they knew their renters could bear such a rate increase...

Demand won't go up much. There aren't that many homeless people, nor that many starving people.

What will change is how people get a place to live and food to eat. A lot of people who go begging for it now will be able to buy it for themselves (for values of "for themselves" that include being given $1,000/month). They were eating before, and thus somebody was buying that food before, it's just happening more efficiently and less stressfully now.

Since the OP was an analogy, I'll attempt one as well.

Say we both operate hot dog stands on opposite corners of the street, each charging $1 per hot dog. Basic Income goes into effect and suddenly 2X as many people can afford hot dogs. You raise your price to $2 in response. If I have any sense, I'll keep my price at $1 or maybe lower it slightly. More people will buy from me, significantly increasing the amount of money I make despite the fact that I haven't raised my prices.

This concept applies to most sectors of the market. People will still be price conscious, and businesses will benefit as much from more customers as they will from higher prices. Even with housing. If more people can afford apartments, more people will decide to convert existing real estate or rent out rooms which will hopefully increase the price competition. This all assumes that there isn't open collusion between market participants of course, which there very well could be. But the general idea is that prices won't rise uniformly in every sector of the economy at once.

Indeed it's more likely to boost the economy since people living on basic income would almost certainly spend ever penny such money would flow instantly into the economy.

Also it could actually create new business opportunities. If there are large numbers of people who currently have zero purchasing power (eg the homeless) who suddenly have some cash, they will likely want different products than middle class people at a different price.

For positional goods, like spots in elite colleges or homes in upper-class neighborhoods, the price is determined more by demand than supply.

But for things like basic housing, food, and water, our society has gotten efficient and competitive enough that those things are supplied nearly at cost.

The main systemic effect of zeroing out back office workers is they're going to be really pissed off and all of them will be unemployed. They all vote for one political party, BTW, as a block, so guess which party likes this idea and which hates it?

Another way to look at it is if you had a magic oracle to make sure only the "right" people were being helped, you could safely fire all those back office people and cut taxes for everyone by $1000 by relying on the magic oracle to save a grand of back office dough per year. Well, lacking that magical oracle, why not just fire the whole back office and mail out $1K reimbursement checks to everyone? I mean, fundamentally, if the back office isn't providing $1K per resident of value per year, is there any inherent value in keeping them employed other than buying votes or something? So fire them and give the money back to the citizens it was stolen from, by writing a check...

As the author of OP's link, you may be interested in reading what I've written about this question as well, this idea of inflation eroding everything, or what I call "The New Zero Argument":

https://medium.com/basic-income/wouldnt-unconditional-basic-...

Yes, it's not a printing of new money, but a transfer of existing income towards an economically and socially healthier distribution less tilted towards the incredible extremes we have now.

a) I totally agree. b) It can't be that difficult to compare our current costs of welfare redistribution to the amount of welfare we redistribute, right? So what is everybody still talking about?

Depending on your state and district (insert many weasel words here) once the percentage of grade school kids getting free lunch exceeds X% where X is a ridiculously low number (something like 5%), it becomes systemically cheaper to give every kid at the school a free lunch rather than to go all "free lunch cop" on the kids. I kid you not.

So my kids attend a school where everyone who asks for it gets the standard free lunch because its the cheapest overall way to provide service.

It makes mathematical economic sense due to inefficiency. If you figure a meal is like $2 and 100 lunch per semester thats $200 max possible cost. Assuming you go hard core authoritarian bureaucracy you need to verify eligibility each semester, the most you can possibly save the taxpayer by starving a kid is $200. But the total cost of social worker might approach $20/hr (they aren't paid well..) and it takes ten hours to help parents fill out request paperwork, schedule a formal meeting with the parents to discuss eligibility, meet the pediatrician to verify the kids getting proper nutrition, file the paperwork with the state to get funding, then handle acceptance or rejection by either meeting the parents again or otherwise informing them plus or minus appeals process and then submit the approval and funding to the district. Meanwhile the social worker has a boss and a bosses boss etc and office space and travel expenses at 50 cents per mile. Then the school has to hire a cashier to make sure the kids walking away with trays of meatloaf are either paying cash or "on the list". And you can't just hire one person you need a district wide pool to handle sick days or a backup plan. And cash handling ain't cheap despite two dozen smartphone online payment startups claiming it is cheap. And you can't have someone handle cash without at least some minimal oversight so they need a boss. And when the district gets paperwork from the social worker showing the state approved funding, someone needs to distribute that data to the school and handle kids moving to other schools in and out of the district and feed back kids leaving the district to the state so they're not fraudulently claiming a benefit for a kid no longer attending school. And you need to account for every penny for the taxpayer so a kid out sick has to be debited from the state reimbursement account but don't forget kids with tummy aches or at off site class field trips. And all this paperwork and/or web forms aren't going to fill themselves out instantly LOL.

I bet it costs the taxpayer as a whole over $2000 per semester to authorize a kid to eat $200 worth of free lunches. And its complicated as all heck and a failure it utterly disastrous, do you have any idea what the total lifetime cost to society of a starving child is? It aint cheap. And thats before the parents get a lawyer paid a fraction of the benefit to sue for starving their precious snowflake because they're poor or minorities or whatever. And being a giant complicated system its incredibly brittle and prone to failure and accident. Some social worker says F this and quits and ten kids starve. Some cashier steals from the till and now how do you pay for next weeks food shipment if the money isn't there? Another kid got beat up for his lunch money and now the parents are suing the school for creating an unsafe environment.

Its a staggering hell of a lot cheaper to just dump X kids times $200 into the food svcs account per semester and announce "free hot lunches for all". You could spend a lot more trying to make sure only the "correct" people are helped, but why waste taxpayer dollars that way?

Another aspect that helps is frankly meatloaf sucks, so 80% or so of the kids who can afford it, prefer mom's homemade sandwich over the hot lunch anyway, so in practice your food expenses don't really increase much, just the (larger) back office expenses go to zero.

Another good example is it would be possible to contract out for private police and private fire protection, but the paper shuffle would be idiotically expensive to administer, so its cheaper just to give everyone in the city boundaries police and fire protection.

This is a true story BTW. My kids elementary school exceeded some low threshold "around" 5% a couple years ago and they no longer account for hot lunch. You want hot lunch you walk up and eat it no questions asked. Generally my wife packs them a lunch because the kids hate hot lunch and theres some medically diagnosed food allergy issues etc. Also I have "free" "basic income" style police and fire protection when in city boundaries. Someday medical will work the same way.

He does somewhat address his own premise. He is basically saying that figuring out who to exclude is simply not worth it. Maintaining a system for deciding "who is worthy of help" is more costy than just giving everybody help.

It's an effective answer to a question he didn't ask (why is it less fuss and more effective?).

The simplest clear answer to "why give it to the rich?" is: you're giving back part of what you taxed, that's a fairly cheap no-op, it only went through two levels of bureaucracy (tax, distribute).

Really it only looks like generosity to the rich if you ignore tax; otherwise, simply subtract it from their nominal tax bill to get their actual tax bill.

What reacts against giving money to the rich is ape-mind fairness instinct; humans should be able to do basic arithmetic and rise above this.

That's actually one of the arguments for the universal basic income. If everyone gets the basic income, as you make more money, it doesn't decrease your benefits.

Means testing (i.e. reducing benefits as you make more money) is what creates the really high effective marginal tax rate that you describe. The opposite of means testing is giving it to everyone.

> If giving people in poverty money was the fix, we would be done.

No, we wouldn't, because we don't do that.

> The system right now incentivizes people to stay in poverty. The "cliff effect", where government benefits decrease faster than gains in earnings, keeps many people from getting out.

Basic income avoids this utterly.

One might assume/hope that we would rethink and eliminate some of the programs/incentives you mention, should basic income become a reality.

For example, perhaps welfare could be reduced or eliminated. Perhaps certain tax credits to the poor could be eliminated. Perhaps charities and programs could focus more where there is a true need (e.g. drug addicts, or the severely disabled).

One of the benefits of a basic income program is that it doesn't cause a cliff effect. Same with universal health care. Universal benefit programs don't cause cliff effects; the more you try to narrowly distribute benefits to the 'deserving' needy, the more likely you are to cause such an effect.

There is no cliff effect with basic income. You get $1000 because you're alive. If you get a job and are paid $1100 for it, you make a $2100 total. Without basic income your job would be worth only an extra $100 and I understand that it might not be worth the effort. Probably you'd be losing money because of travelling from and back to home.

By the way, the cost for whoever pays those $1000 of basic income is lower because they get back part of them by collecting taxes.

If it doesn't cover the cost of food, clothing, shelter, health care, and education, then by definition the thing you're criticizing is something other than a basic income proposal.

>but strong intuition leads me to believe that neuroeconomics and game theory can prove that this will not work

Strong intuition and game theory can probably prove that theoretically nobody will want to buy an Apple watch edition ... humans are not rational, not at all. Humans are way more complex than our models currently can describe. Preferences can be modelled but how correct are they?

Even though it might not be feasible, I think it's a goal we should strive for. I feel that if every basic need of a human is taken care of. That we can progress as a human race, as one unit. Am I more important because of the decisions my parents made to raise me well and to focus me on my studies? Am I 'worth more' than some kid in Africa who does not have the privilege to go to school, to have a 'normal' life? Would homeless people pick themselves up if they we're given the chance? How much of the homeless would pick themselves up given the chance. How many 'regular people' would 'drop down', 'just quit' if they had the chance?

I feel like basic income (or some sort) should be a moral goal of humanity as a whole.

If you gave everyone an amount of money proportional to how much money they already had (or proportional to how much income they had) then it would, indeed, make no difference because it would not change the wealth distribution, just the denomination of notes. Like a stock split.

But most basic income proposals (aka "citizens' dividend") suggest giving the same amount of money to all people (possibly with less for young children). This would actually change the income distribution. It would not necessarily require the government to print more money or even to increase taxes since (most of) the proposals also suggest eliminating existing spending on food stamps, welfare, social security, and other such expenses.

"pump in free money into the economy and price of everything will rise relatively"

This makes no sense. Runaway inflation is always a worry in any economy, but "free money" does not cause inflation. The government distributes plenty of "free money" as it is right now, and we're not seeing runaway inflation.

Those who support basic income argue that implementing the policy would more likely lead to the so-called "virtuous cycle" where, because people have money to spend, the economy improves etc. and because you're cutting out the current safety net and bureaucracy that surrounds it, you can afford to give people an income that will provide for their basic survival needs.

I think you have a very, very oversimplified and course view of this topic. Nice hook though!

If there are millions of people trying to live on $1000 per month, then there is huge opportunity in pricing a package of goods that fit within that budget.

I agree with your argument. Basic income will never work in our society if we are giving it out in the form of spendable money. Basic income in the form of a free amount of utilities provided by the government such as X amount of water and electricity every month I think could work in our capitalist society. Even 'universal' healthcare falls prey to the same flaws as the $1000/month since the quality of the free healthcare will be reduced and the wait times will increase. The best doctors will continue to have private practices that will charge rates that only the richest can afford. As long as capitalism is an integral part of our society, I do not foresee basic income being a good solution to any of our social issues.

We already have free healthcare and education in Italy. Wouldn't be much of a stretch to think of free food and housing either, no? I agree that perhaps giving money to people isn't the best way to do this, but "being forced to work" is a type of slavery we don't need in a healthy and ethical society.

It just doesn't work that way. Price competition is still a thing. Businesses will be just as happy to have more customers at their current prices. Money from those extra customers will find it's way back into the economy, to lawyers and accountants and programmers. Economists are far from certain as to whether rising wages drive price increases, or rising prices drive wage increases. There's no reason to assume that prices will rise linearly.

Multiple studies have shown that it's better to give people money and let them decide how to use it than it is to create layer upon layer of social programs. We can figure out how much 'basic' housing, food, medical and child care cost and give everyone that amount. They can figure out how best to use it to suit their individual needs.

>So what good is basic income of $1000 if a burger costs $100 or rent costs $3000.

Basic income would only become a reality when the costs to produce goods significantly decreases due to automation. If the price of a hamburger is $100, then the price for a machine to automate production is going to be insane, at which point hiring people would be cheaper, meaning there would be jobs and no need for basic income.

Producing apartments or food or water remains a competitive industry. If the people purchasing them gain more income, I could in theory see the existing suppliers deciding "we will just increase prices," but a new supplier could enter the market using the old players' old model and steal all their market share.

(If the basic income is done just by giving everyone a check, then I could see costs rising, because people refuse to work for current wages. The more sensible way to implement a BI is with a wage subsidy so people still work.)

If you had ever worked in or near government, you would have been disappointed that the analogy was not ridiculous enough.

The aqua-hoverboard is essentially a powerful water pump attached to a fire hose. The single rider stays above water by spraying all the other people in the face with his jet stream.

Actual government is dumber. I didn't see anywhere in the analogy a requirement that some swimmers be required to carry 20-lb rocks. No one had their life jacket taken away because it was either carcinogenic or insufficiently fire-retardant. No one was given a bucket, with which to move the water from one corner of the room to the other. No one was fined for indecency after converting their own pants into a flotation device. None of the life jackets were nailed to the floor, for use by the people who have already drowned and sunk to the bottom.

But on the other side of the coin, no one hired a swim instructor for $20/hr for 10 hours, either. The thing about government is that it simultaneously does useful and efficient things, and also incredibly stupid and wasteful things. That almost makes it worse, to see the one little thing that shows how it could be, and compare that to the way it actually is.

The simpler an idea is, the less likely it is that adding government to it will screw it up. That's why basic income is so simple. Every additional detail is just an additional opportunity for someone to get it wrong, whether that is accidental, due to incompetence, or intentional, for profit.

There are quite a lot of billionaires who have pledged to give away the majority of their money though. http://givingpledge.org/

Would not a life vest have great value to them in that they can trade it to the person who doesn't have one for something the swimmer does want? At the end of the day, a dollar bill does nothing for me. Its only value is in that I can trade it (well I could burn a pile to start warm for a short while, but that is a value below rounding error).

Oh this old tired argument. No, land is not the source of all wealth and justice. Its just dirt. What's on land is far, far more valuable worldwide (improvements, industry).

Do you really think people who get $12,000 a year aren't going to work? It's not about replacing income. It's about supplementing it. Everyone will still work. They'll just have $12,000 more with which to buy food, clothing, pay their car payment and rent, etc.

"Forced to work" isn't an option any more. There aren't enough things to do (due to automation and worker efficiency). Making people do pointless jobs isn't any kind of a solution.

A good question, which needs some good discussion. But far from a condemnation of the BI. More money for families is far from a problem for children; they would benefit first (unemployed parents; homeless families).

In the analogy, people with children would be heavier and need another life vest (if they couldn't find another means to float).

I'm confused by your men vs. women thing. If a woman has a child, a man had one too.

Many European countries already have a form of basic income for children: you get $X per child, unconditionally (or with very few strings). Yes, there are people that complain about welfare moms and immigrants having children just to get the benefit, but the vast majority of Europeans would agree that child benefits are a good idea.

Another proposal is that the BI for children should partially go towards that child's education.

That concept is called "helicopter money", and there is an interesting debate about whether or not it would have worked better than QE. I think it would have, but I also think that it is unreasonable to think that it would be the topline QE number divided by number of citizens.

The QE money wasn't spent directly. It influences interest rates, and interest rates are extremely low right now. You have pretty terrible leverage, so it takes a huge topline number to sway anything.

The previous administration sent out stimulus checks in 2008, I believe. The economy still tanked a few months later.

Its a red herring to inject taxes. Print the money. Not kidding, its a far better solution.

Can you please provide a source for "most benefits systems cost around as much or more to run as they pay out."?

I think people do sometimes poorly raise the efficiency point though, confusing efficiency with cost, and then you get huge digressions where people point out the obvious, that limited programs have a smaller total cost than universal ones.

(of course better efficiency does mean lower administrative costs, but any program should aim to have benefit spending swamp administrative costs)

someone above suggested the welfare aka safety net amounts to 40% of total expenditures, not 50%. Also once you exclude the under 20 population from your basic income you should exclude their welfare aka safety net costs. But in general your calculation has nothing to do with the cost of distributing welfare - the main driver behind basic income - instead you simply want to tax the rich and redistribute the money to the poor. I am not saying it is not a good idea, all I am saying is it has nothing to do with basic income.