- The main variables of interest are (aggregate) real production / income (GDP/GDI), unemployment and inflation (arguably in that order)
- Nobody knows much wrt the causes, effects and future trajectories of any of these. Not professional Ivy League economists who publish in journals like AER, QJE, JPE or Econometrica, nor traders getting paid millions at hedge funds or prop trading desks, nor fringe bloggers, gold/crypto-bugs or neophytes from different fields (traditionally from physics, but probably increasingly from CS/AI/ML). Especially beware when they sound very sure of themselves, often using correct wonky economic jargon or details like the plumbing of money flows. Top academic economist are at least (usually) somewhat honest that they know very very little.
- Even if someone did know anything, 3rd parties like you or I can't distinguish the Real Truth from quackery.
- The root cause of this knowledge deficiency is the inability to run proper controlled experiments. Pretty much no theory about macro-economics is convincingly testable/falsifiable, except banal trivialities like we can't make everybody rich by sending everyone a $10M check. This will not change in our lifetime, if ever.
- All the writing on macro-economics is story-telling and catering to their specific audiences. Academics write foremost for other academics to gain a position at a prestigious faculty (and incidentally to influence politics). Crypto-bugs write to sell you crypto-coins. Fringe bloggers like Shadowstats write to get newsletter signups and ad-dollars. Most of them employ the effective mechanism that the reader is initiated to advanced/semi-hidden knowledge, which makes the reader feel better about themselves.
Given this, the answer to your question is: maybe, maybe not, who knows?
My assumption is that the wealthy do not consume in proportion to their income -- so someone who makes 10x as much money as a poorer person likely only consumes, say, twice as much. Redistributing some money to the poor would not cause the wealthy person to decrease their demand for goods as much as it would make the poor person to increase their demand.
Everything that is consumed must first be produced. If you're not producing more, a rise in demand will mean a rise in prices until demand matches supply. I think the end result would be that prices would rise, but it would still be a good thing for the poorest citizens to have the ability to buy what they really need, and to have the flexibility to leave toxic work environments without immediately suffering huge consequences in terms of losing a place to live, etc. So while price inflation should be considered, it doesn't mean we should immediately throw out the idea of basic income.
And eventually supply of certain goods would probably increase a bit to match demand better, but it wouldn't completely cancel out the rise in prices.
During a pandemic I would hope the government would help people through it. Was it the right call? I have the benefit of hindsight. https://tradingeconomics.com/canada/central-bank-balance-she...
We must now deal with the consequences.
https://tradingeconomics.com/canada/money-supply-m0
Paper money was increased 400%.
https://tradingeconomics.com/canada/government-debt
The government, who had already promised to balance the budget and reduce debt, increased it by historic record breaking amounts. The current prime minister increased debt by more than all previous PM combined. After spending that much money to buy votes. He called a snap election spending even more money expecting to get a majority government and he received weakest minority government in history. Technically even lost the election by popular vote.
So where's that inflation at? 5.7% and still climbing. It rose by over 10% in march.
https://tradingeconomics.com/canada/inflation-cpi
The government is tabling a budget today. I will literally die of laughter if universal basic income is included. I don't expect it will be, but there is a live bill to make it happen.
The budget today I eagerly await the opportunity to read. What do I expect? There's no doubt going to be some crypto regulation. If the budget is as bad as I expect... people will fly to crypto with their savings. They need to hinder that.
Now a universal basic income is like a tax rebate without having to do any work in the first place. If one is introduced, taxes will go up, inflation will go up and society might or might not become more cohesive. It really depends on how the media decide to manipulate society.
If there were no deficit and this UBI is paid through taxes or other direct revenue then there will likely be some inflationary forces but they should stabilize as the markets adjust. What we do instead of letting the markets stabilize is constantly increase the amount of money available so that the stabilization we're chasing is a moving target based on an increasingly more available, and less valuable, dollar.
It also has to offset benefits received from other programs like welfare, unemployment to help cover the cost.
IMO $700 / month is about the right number where it helps with basic needs and dry spells but isn’t so much that you’re incentivized to withdraw from the job market entirely.
At the same time, minimum wage can go away entirely if UBI is in place since the UBI doesn’t go away like unemployment the moment you have a paycheck. You work to earn more, not trade income sources.
If we issue more money, it could lead to inflation, but not necessary. This is unrelated to if we spend it on UBI or not.
>A historical look at the origin and uses of the word inflation, arguing that although the term has become nearly synonymous with "price increase," its original meaning—a rise in the general price level caused by an imbalance between the quantity of money and trade needs—is the definition driving many of those who advocate an anti-inflation policy for the Federal Reserve.
https://www.clevelandfed.org/en/newsroom-and-events/publicat...
That said, even if the actual supply of money (literally inflation) is not increased, if there is more money available for spending by lower income individuals, it stands to reason that price inflation would follow in the sectors of the economy which they participate.
UBI well done would be essentially just transfer and removal/reduction of means testing and lowering effective marginal tax rates for low income people. It would replace many social security benefits at the lower end and it would be taxed away from the higher end.
In Finland we have had UBI proposals that are completely budget neutral.
ps. Increasing money supply (monetary policy) is different subject from fiscal policy (government spending and tax policies). You can increase government spending without increasing money supply.
If I save a dollar and tomorrow you print 10 more dollars out of thin air is my dollar worth the same amount?
Immediately adopting a non-trivial UBI, alongside any reasonable deficit-neutral funding stream, with no other accompanying policy changes, would be a transfer of net income from those currently reviewing more to those currently receiving less; it would lead to some inflation in things with greater proportional demand among the net beneficiaries and some deflation among things in greater demand among those seeing lower income after taxes and transfers as a direct result of the policy before considering any effect the change in spending patterns had on domestic velocity of money. As it would probably also slightly increase domestic velocity (increasing after taxes and transfers income across the board), one would probably expect some additional overall inflation on top of the inflation/deflation from demand shifts.
The question of whether it would lead to levels of inflation, overall or in any subsector, large enough to make it a net undesirable policy is hard to answer because:
(1) it involves subjective questions of priorities,
(2) except under the most extreme sets of priorities, it involves complex factual questions whose actual answers are very different for different formulations of the exact UBI and funding policy, and where the actual answers even given the precise policy inputs, even assuming we could isolate all other future situation changes that confound the issue, are very uncertain given the very large degree of uncertainty in predictive economic models (modern economics has some fair ideas of the direction of first order effects of some changes, and seems to in some areas provide generally useful quantitative guidance on small variations well within the historical range of experience, but beyond that... there are very good reasons to gently phase in new policies, continuously assess, and be prepared to alter course.)
The question would thus be, if people get basic income, what happens to the total amount of work done? Would 1/3rd of the society stop working, or work less? Fruit of labour like food or entertainment would become more scarce and thus more valuable in cash terms, ie inflation would go up.
Or would BI enable people to be more creative, productive etc and actually we would become more productive as a society? Leading to deflation in fact.
I’d imagine more the former but what do I know. Certainly that scenario I find quite scary: creating a large group of people who are unproductive, depending on BI for sustenance then facing inflation, wiping out their now-only source of sustenance.
Second order effects: upper class (not super wealthy) owns rental properties, and jack up the rents in order to suck out whatever wage increases due to the UBI floor. This vicious cycle will continue.
UBI is good, if healthcare and housing don't steal whatever wage increase one sees. UBI can be implemented in the developed countries, whose currencies (nominal assets) are swapped with real goods (raw materials, commodities). A country like US, UK, EU, Japan can run UBI; however, India, South Africa, etc can't run such schemes due to the balance of payments constraints, despite whatever MMT folks sell.
If you gave everyone $1k a month by printing more money, then that creates a different scenario that giving everyone $1k a month that's fully funded by taxes.
A UBI that replaces existing benefits which attempts to provide more to people by reducing the administrative costs of providing benefits and which looks to remove any benefit traps will be quite different than UBI that is only added on top of existing benefits.
Without these details I don't think we can give a concrete answer to the question.
If less people are willing to take those entry level jobs, the more those companies need to pay people to entice someone to do that job - so they inevitably need to raise prices to cover those higher costs.
And if it would, would that mean that we should rig the system in a way that it can never happen?
Subpar food prices will fall until that industry dies. Value items will become more expensive until the demands of everyone being able to afford them is satisfied. Prices for luxury goods will fall, some luxury industries might die. Automation will become more prevalent and cheaper. Car and gas prices will fall as people are less reliant to drive to far away work places. Consumer electronic prices will rise for entertainment related things and fall for things like dish washers. Culture will become cheaper. Land value will fall while houses become more expensive.
While I don’t agree with their objectives (usually) I am a digital member of the World Economic Forum because I think that reading their material is a valid signal for what may happen in the future.
I am not sure how it will happen, but I think most common people will be “liberated” from owning property and assets via media enhanced drama like wars, pandemics, dollar crashing, etc. a combination of absolute control of news media and taking advantage of crisis as they occur either naturally or planned will be sufficient for elites to hold on to most of their power while keeping society functioning.
tl;dr Private banks create far more money than central banks. If you're worried about inflation from UBI, stimulus checks, bailouts, etc then your brain will explode when you learn about how much money banks put into the economy in the name of profit every year.
1. Of all the various schools of economics post-keynesian economics (PKE) made the most sense to me. "Monetary Economics" by Godley and Lavoie is a good reference. A few claims: the money supply inflates and contracts based on the credible demand for loans and the bank money multiplier does not exist in almost all modern economies for the past 20 years. https://www.exploring-economics.org/en/orientation/post-keyn...
2. In section 10.7.3 of Monetary Economics they do an experiment where government expenditures have a sudden and permanent increase (in this setup the government borrows money for the expenditures instead of simply printing money). The experiment uses a simulator with watertight accounting and models various interdependencies between consumer behavior, consumption, banks, interest rates, etc. My reading of the results is that in the steady state inflation is higher, households have more disposable income (good) but their assets depreciate at a faster rate due to increased inflation (bad). The steady state output, consumption and income are all higher for households. Interestingly the debt to GDP ratio initially increases and then comes back down when inflation increases (inflation is helpful for borrowers).
3. I am not familiar enough with this book as I should be but I believe there's some assumption here that new deficit spending actually leads to new economic output. Meaning the well of new investment opportunities and capacity of existing businesses has not been tapped out. It seems like as long as this assumption holds this simulation is saying that increasing the deficit will in the steady state lead to increased inflation and a loss of savings from depreciated assets in exchange for more consumption and output.
I'm possibly more interested in the case where the government uses deficit spending over a limited period of time to combat a recession or high unemployment.
4. This may be straying from PKE but a common rules is that inflation is positive if the money supply increases faster than GDP increases (you've produced more currency than goods). I believe this assumes that human behavior of consumption is relatively stable (the velocity of money and the propensity to consume/save do not change). Following my own thinking, if the government uses deficit spending to send $100M in covid checks, and there is some slack in the economy where businesses are ready to produce more goods and services at roughly the same price levels, then this could reasonably lead to an additional $150M worth of economic output (someone spends $70 of their covid check, the recipient turns around and spends $50, etc). In this example we have increased the money supply by $100M and increased output (GDP) by $150M. Does this cause inflation or deflation? Have we increased the money supply faster than GDP? That depends on the existing ratio of money supply relative to GDP. And to get that ratio we have to decide which money supply (M1, M2, M3, M4) or weighted average we are considering.
5. The point of the above is that I believe there is a case where government spending could unlock an economy that is not at full labor and production capacity and actually cause deflation (more goods are produced relative to the increased money supply than the existing GDP/MoneySupply ratio). If in the other extreme no businesses has any spare capacity to produce more and there are no investment opportunities than nothing is added to the GDP and the money supply is increased so there must be inflation.
To answer your question is: given a leading simulation with reasonable assumptions and an economy that can increase production a UBI program would cause the steady state of inflation to be higher. Over a shorter horizon given my amateurish assumptions the answer is maybe.
A lot of the discussion around basic income takes place in the context of Modern Monetary Theory. I mean, it kind of has too, because otherwise basic income is pretty unaffordable. I've done the math, it is possible but really hard.
To significantly oversimplify one stream of thought in Modern Monetary Theory, the idea is that you grow the money supply through government programs and shrink it through taxation and that's how you keep inflation in check. (That's also why you don't have to worry about the cost of government programs. The government can print and spend as much money as it wants, because doing so is just growing the money supply. And if inflation starts to go up, you just raise taxes in response.)
If you look at what's happening with inflation right now, some of it is wage growth pressure. You could argue that some of it was growth in the money supply - although I would give serious side eye to that argument because not very much was given out in those stimulus checks. But if you really look at what's driving price increases, you have to look at what's happening internally to companies. Wages are growing, yes, but prices are growing faster than wages. Why? Because corporate profits are growing even faster.
So one of the primary factors driving inflation isn't the increase in the money supply, or workers wage increases - it's companies taking advantage of the inflation to raise their prices even more. If you look at the numbers, if worker wage increases would require a 5% increase in prices, companies are taking that and then raises their prices 10% and taking the difference as profits. Corporate profits were already at all time highs, so they absolutely do not have to do that. It's effectively price gouging.
So if we look at a basic income, if we implement it in isolation, it's reasonable to believe the same thing will happen. Companies will simply raise their prices so that the top 10% (who own the majority of the stock), walk away with all that new money added to the supply.
If we really want basic income to have the impact we all hope it will have, we have to implement it alongside income and wealth caps. Basically, if you actually want a more equitable (and healthier for everyone) distribution of wealth, then you have to put hard limits on hoarding. And that's how you manage the money supply to manage inflation. You implement basic income alongside 100% wealth and income taxes above a certain level.