Ask HN: Would a universal basic income lead to inflation?

https://news.ycombinator.com/item?id=30943530

by Overtonwindow • 4 years ago

19 105 4 years ago

news.ycombinator.com

I’ve seen quite a bit of discussion on inflation, as a result of an increased supply of money in the system. Some have suggested that the stimulus checks increased the supply of money which may have, in part, led to inflation. I’m curious, if the government instituted a universal basic income, would this lead to inflation?

arrakis2021• 4 years ago

One of the arguments I’ve heard is that if you give $1,000 to everyone who has zero dollars, you’ve just raised the value of zero.

xnorswap• 4 years ago

That's not an argument. At best it's reductio ad absurdum, but where's the argument? It wouldn't change the value of zero, because even if it devalued the dollar heavily everyone still has something.

There's no attempt in that argument to say why it would change the "value of zero".

globular-toast6• 4 years ago

Essentially if everyone had $1000 extra then everything would cost $1000 extra. So if you went from 0 to $1000, you'd just be left with $1000 and nothing to spend it on. You can't eat money.

Workaccount23• 4 years ago

It wouldn't change the value of zero, because even if it devalued the dollar heavily everyone still has something.

Yes, the value of some ink and paper.

aceazzameen• 4 years ago

Random thought, what if that $1000 UBI was instead a percentage of something else? I'm not sure what though. The GDP Deflator? Total stock market cap? Something to keep it on a level playing field with everything else.

leothecool• 4 years ago

But its not the position of zero, its the derivative.

The car analogy would be something like

"If you raise the speed limit by 1 mph, you've just moved everyone's houses exactly one mile."

nabla9• 4 years ago

No, unless the implementation is completely braindead.

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.

dbingham2• 4 years ago

It's an important question.

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.

pharke3• 4 years ago

Where would new money even go in a system with both fiat currency and wealth caps? Do you have to constantly increase the wealth caps with inflation? How do you perfectly manage that rate? As we can see governments are not capable of doing that now. Do you cap the profits of businesses as well and if so why do they continue to innovate or expand once they've reached the same level as all of their competitors? You're really just proposing a centrally planned economy where all wages and prices will be set by the government, that never works and never will work since no small group of people will ever be able to plan the lives of a much larger group without producing a lot of misery. Not to mention all the usual human failings and corruption that creep into every system over time.

dbingham2• 4 years ago

All of those questions have pretty straight forward answers. But your first question has really just floored me. Really? If money can't go into the pockets of the very wealthy it has nowhere else to go?

The money would spread out through out the rest of the economy. We don't have a scarcity problem right now, we have a distribution problem. We have plenty of resources to go around, but we have a problem where a very few people are hoarding the vast majority of those resources. So a wealth and income cap is designed to stop that hoarding and force a wider distribution of those resources.

As for the rest of your questions.

Do you have to constantly increase the wealth caps with inflation?

Yep. Just as we really should be (but aren't) linking minimum wage to inflation currently. And linking our progressive income tax brackets to inflation. And linking our property taxes to inflation.

How do you perfectly manage that rate?

You don't have to. We don't manage it it now in all of our existing taxation systems (both wealth based and income based). We only have to do good enough to keep inflation broadly in check.

Do you cap the profits of businesses as well and if so why do they continue to innovate or expand once they've reached the same level as all of their competitors?

No. These are individual income and wealth caps. Business profits are business profits. The idea is that if individuals are limited in how much they can take out of the business, the businesses profits will be more widely distributed among those who contributed to the business. And the business will have less incentive to price gouge.

You're really just proposing a centrally planned economy where all wages and prices will be set by the government

No I am not. I'm not proposing anything much different than we have now. We have a minimum wage, we're adding a UBI to put a floor under people. We already have a wealth tax for the 90% of people who's wealth is entirely in their real property (their houses), we just leave the 10% of people who's wealth is primarily stocks, commodities or other assets out of it. We already have a progressive income tax, and we've had a progressive income tax that got very close to 100% above a certain level in the past (in the 50s in the US it was ~90% above ~$4 million).

The only thing new I'm proposing is putting a hard cap on overall wealth.

onion2k2• 4 years ago

Whenever someone suggests a central bank creating money will lead to inflation I suggest they read this report - https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

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.

chii• 4 years ago

It's not money creation that causes inflation, it's _excess_ money creation.

Banks only loan money to people who have good credit, and can pay it back. Those people with good credit will work to pay it back. This work is often worth more than the loan + interest, and thus, wealth is created by this process. E.g., you borrow money to build a business. And for consumer loans, the consumer would have to work harder to pay it back in the future, or sacrifice future consumption to pay it back.

Money "printing" by banks are unlikely to cause inflation, unless they lent so much that productivity increases cannot keep up.

Money printing by governments, however, will cause inflation. Venezuela and Zimbabwe both printed to solve their debt problems and spending obligations. But these aren't loans, and spending these money does not increase productivity. Therefore, they cause inflation.

globular-toast6• 4 years ago

It's not money creation that causes inflation, it's _excess_ money creation.

No, it's just money creation. Money creation and inflation are essentially synonymous.

Banks only loan money to people who have good credit, and can pay it back.

Well, that's clearly been far from the truth if we look back at recent events. But apart from that, the majority of bank loans nowadays go into housing and house prices are forever rising. So a bank might lend out $100k today but in 10 years when it's paid back they'll be lending out $200k to someone else for the same house.

onion2k2• 4 years ago

Banks only loan money to people who have good credit, and can pay it back.

2008 called. Not sure what it was saying because it was laughing too much.

etempleton• 4 years ago

I think the question is what happens when that money goes to the lowest income individuals and not the wealthiest, corporations, and the Military?

If everyone has more money and there is constrained supply of a desired thing the price will go up. Housing prices, for example, would almost certainly rise with a UBI.

Not saying a UBI would be a bad idea, but it would almost certainly cause massive inflation because the lowest income individual of society would have the largest increase in spending power—supply and demand and all that.

pharke3• 4 years ago

Isn't it more important who gets the money and how the money is spent? Like if you create a trillion dollars but it goes to a single person who is incapable of spending it all so most of it winds up in high priced assets or investments vs. creating a trillion dollars and splitting it evenly among the entire population where it would wind up being spent on a wide variety of goods and services. In my mind, inflation is like bidding at an auction, the more people that participate and the more money they each have, the higher the prices will trend since they will attempt to outbid each other for the limited supply of goods. We saw this effect during the pandemic when spending shifted away from restaurants, entertainment and vacations to home improvements and home gyms for example. The prices at hardware and fitness stores went through the roof because there were suddenly more dollars and a big pool of people buying the same things.

globular-toast6• 4 years ago

This was one of the most mind-blowing things I learnt about money. So many people assume the government prints money, but in fact government printed money is about 2% of the money in the economy. The vast majority of it is created by banks when they make loans, which are predominantly mortgages. Banks have been consistently creating money via mortgages at a higher rate than people are paying them back for decades. This is possible because house prices are constantly rising.

jesterman81• 4 years ago

Depends on implementation and what your definition of inflation means. If inflation means increase of money supply (printing and giving) and UBI uses that mechanism than Yes, I think inflation goes up. If UBI is implemented by a Tax than giving, then No because it is not an increase in the money supply. This does not mean prices will not fluctuate. Its a complex system after all and the altering flows will affect it.

If I save a dollar and tomorrow you print 10 more dollars out of thin air is my dollar worth the same amount?

sharemywin2• 4 years ago

The problem is with taxes not all prices are equal. if the price of wheat doubles but the price of all the sports teams go down in prices by an equal amount. I wouldn't count as inflation but it sure would suck.

globular-toast6• 4 years ago

Inflation happens due to more money appearing in the economy. Universal basic income doesn't mean creating money. It just means redistributing existing money. So no, there is no connection between UBI and inflation.

dagw2• 4 years ago

It's more complex than that. Poor people spend very differently than rich people. So assuming you just taxed everybody who was 'rich' (define any way you want) to a level where you could fund UBI, then there would be no new money being introduced in the system. However what that money gets used for will change drastically. The 'rich' people would have used that extra money to either buy luxury goods or for saving/investing, the 'poor' people will mostly use that money to pay for food and housing. This change of can have effects on prices even without increasing the money supply.

globular-toast6• 4 years ago

So there will be a one time correction of prices on essential goods and services. Inflation means a sustained increase in prices over time, though.

throw93232• 4 years ago

$1 per month no. But if we give everyone money for housing gas etc, similar way we gave everyone money for student loans, then yes.

t-3• 4 years ago

It depends on what you believe about how prices are set. Many opponents of UBI claim that a UBI will cause inflation and reduce the value of money because the supply increased. Proponents reject this, pointing to MMT and the concept of fiat currency. The truth is probably in between - opportunists and highly sought-after items will raise prices to offset UBI gains, while most commodities should be relatively unaffected. There will definitely be more opportunity for tiered services so that rich types can avoid UBI peasants sharing their activities.

anonymouse008• 4 years ago

The 'how' both can be true is by increasing the supply and fuzzing around with the economic 'utility' of goods.

Sure, today's goods and services are extremely mobile - economically viable cross country shipping is basically the norm. This enables your butcher, baker and brewer to be thousands of miles away. By increasing this supply radius, the total number of goods drastically increase, decreasing the price.

A question becomes when do we 'use up' the cost savings of technology and transportation efficiencies through inflationary practices. I'd argue we just ran the greatest real world experiment with Covid, but do not even begin to have a gauge on this metric -- which would allow one to thoughtfully apply 'fiat practices'

But lurking in the background is the 'utility' of the goods and services we use. Many times my well respected economist professor would say that Great Value Butter is as economically equal as any other in terms of sustenance -- which pains me. In a simple function, sautéing vegetables - there's a marked quality difference between GV and 'higher priced' brands, but I'm forced to reckon that, yes, there is buttery flavor in a dish with vegetables, so at base... they are equal.

This is just a long winded way to say that people who have a diverse set of preferences will find inflation to be very real - while those who can live starkly monotone in their utility will have their inflation padded by economically efficient institutions fuzzing and redefining 'unnoticed properties' of goods and services.

gruez2• 4 years ago

Many opponents of UBI claim that a UBI will cause inflation and reduce the value of money because the supply increased. Proponents reject this, pointing to MMT and the concept of fiat currency.

To be clear, MMT doesn't say you can print money and hand it out without causing inflation. It only says that if the money printing is offset somehow (eg. taxes), there won't be inflation.

dagw2• 4 years ago

Most 'serious' UBI implementations I've read about have a mechanism for clawing back some to all of UBI from higher earners via raised income tax on those people. I guess that is what is being hinted at.

dragonwriter4• 4 years ago

Many opponents of UBI claim that a UBI will cause inflation and reduce the value of money because the supply increased.

So do sane proponents, the disagreement is over whether that inflation necessary negates the gains from transfers on the lower end or not.

Proponents reject this, pointing to MMT and the concept of fiat currency.

MMT says that government spending causes inflation (and taxes causes deflation) and, moreover, that those monetary concerns, and not fiscal concerns like a need for artificial balance between revenues + debt and spending when currency is a government creation, is the only real constraint on government taxing and spending policy.

MMT is not a basis for rejecting inflation concerns about UBI; it’s a basis for rejecting deficit-based concerns.

major5052• 4 years ago

Dependes on how is the plan to achieve it. If enough people keeps on working to produce enough stuff for everyone who want to buy it.

EricE• 4 years ago

Exactly. With the ongoing disaster of COVID Bucks, I can't believe people aren't embarrassed enough that they still want to bring UBI up.

sascha_sl• 4 years ago

The disaster of employers having to raise their standards (and wages) to actually attract workers?

major5052• 4 years ago

how I see UBI: we are moving to a very automated society that will have most things produced by machines. The only work available probably will be for people who knows to to make and maintain the machines and people who work in things that machines still can do, specially service workers.

So most people will not be able to do any job, or jobs that pay enough for them to survive, so, I can't se where UBI would work without inflation, since productivity would be high.

The thing is, if you look around, most people in the world problably already do a job that could be done by a very simple script, specially office work.

My first job, I got 12 people fired from financial sector in a university because the only thing they did all day was counting checks and money manually.

myshpa2• 4 years ago

We don't need everybody working.

75% of jobs are bullshit jobs. Just 2% of people work in agriculture.

We slave 30-40 years for a priviledge to live in a house.

(Almost) all money in circulation is owned/issued by banks, and the inflation/interest is a way to keep us all in the rat race, all the time consuming, amassing things, never thinking.

Our civilization is a construct, a glass cage, and we're all afraid to break through.

We don't need (more) stuff. We need to become adults.

throwaway4aday2• 4 years ago

I'd rather live in a house that fits my needs and wants and personal style than I would in a mass produced apartment. I'd rather eat the type of food I enjoy rather than some standard rations cooked up by a factory. I want a certain amount of stuff in my life to satisfy my interests rather than living in a bare room and only enjoying communal property. I prefer to live in a world where silly things like mobile phones and video game graphics cards can lead to revolutions in computing rather than playing the same chess games and watching ballet over and over again for hundreds of years. That said, if you do prefer to live a different way then I'm fine with that, just don't try to foist it upon other people. I would like there to be an option for people who don't want to be part of the rat race where they can go live a relatively comfortable subsistence lifestyle and enjoy seasonal vegetables and walks in the park while the outside world rushes past. It'd probably be nice to vacation there occasionally to take a break from things, maybe it could be funded by tourism.

forgotmyolduser• 4 years ago

If we print money to fund it, yes. If we fund with taxes without printing money, then no.

eqvinox• 4 years ago

Was about to comment exactly this. The question makes no sense, whether or not inflation happens has nothing to do with universal basic income itself, it's a question of where the money comes from.

chaostheory• 4 years ago

The question is fine and it makes sense. The issue is that it’s a mistake to ignore reality around it. For example, death penalty proponents tend to ignore the financial cost, which is being increased due to litigation from opponents of the death penalty. They can’t wish away anti-death penalty lawyers doing pro-bono work, or pretend that they don’t exist. In a similar fashion, UBI proponents will ignore the likelihood that the government will likely fund the program by printing more money. The other reality being ignored is that the supply and availability of goods doesn’t change. What happens with more demand for those goods? Prices rise.

trgn• 4 years ago

It might not be that simple. Even if UBI is funded by taxes, UBI would be a wealth redistribution, increasing money on the lower end, generally pushing up demand for goods and services that fulfill basic needs, and lowering the money on the top-end, which is spent differently, like on luxury goods, put on the sideline as savings, or spent chasing assets. This redistribution may cause inflation too, even though the overall money supply is not increased.

freemint2• 4 years ago

If we are talking about an idealized world with spherical consumers and a single product, then yes. However inflation is a scalar measure of the development of the prices given some basket of goods. An UBI will change what stuff people buy hugely. The economy will need to shift around a lot to accomodate that. Any use of a "steady-state" model is really inappropriate and you can't draw any conclusion from that.

RHSeeger• 4 years ago

This answer seems to treat inflation as "the cost of everything". If, rather, we focus only on the items that are needed to survive (food, shelter, etc), I think the answer changes.

The taxes to pay for the UBI will generally come from the middle and higher income households; who are already spending the money they need to on those items. Losing some of their money to taxes won't do much to reduce the amount they spend on those.

However, the lower income segment, where UBI will have a much higher impact, will start spending a lot more on these items. Because, in theory, they were not spending as much as they would want to on them previously (bad housing, cheap food, etc.. could be improved).

As such, the demand for those "survival" items could increase a fair amount, causing the prices for them to increase. If you consider this inflation (which I would, since it's a rise in prices for things that matter), then there would likely be inflation.

ItsMonkk3• 4 years ago

This is exactly why a UBI funded through a Land Value Tax is such a good idea. A land value tax taxes the land such that the market cost of the home is equal to the cost to build the housing on top of the unit.

The land tax will put the land to best use, and that will drive up the supply of housing units, which means the cost to rent will go down. All of this while the average person sees lower tax rates and the person who sits on an empty lot sees much higher tax rates. The money available to collect from NYC and SF land taxes alone could fund a nation-wide UBI.

willnonya7• 4 years ago

If we print money to fund it, yes. If we fund with taxes without printing money, then yes, but by less. FTFY

No matter what you do here you're increasing the demand for goods. Without an increase in the total money supply that would stabilize but there would still be some inflation because of it.

brightball• 4 years ago

If UBI is setup as more of a survival supplement than an amount of money desireable to live on entirely, then no.

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.

willnonya7• 4 years ago

None of that has anything to do with UBI and inflation. Even if you put "only" $700 more dollars in the hands of people then you increase the demand on the market by $700 per person. This will always have some inflationary force. It doesn't matter whether they buy TV's or bread.

The real question is where does the money come from. If it is permanent and comes in lieu of existing spending from money already in circulation then the inflation should be minimal. If this is new money thrown into the money supply then we'll see significant inflation from it.

Terry_Roll• 4 years ago

Humans will always find ways to game a system and buy those that could control their lives in ways they dont want their life controlled.

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.

freemint2• 4 years ago

Inflation is a scalar measure of a vector valued phenomena. It is usually scalarized using a basket of goods. The impact on the basket of goods people will buy if there is a basic income is hard to model and will likely be bigger then whatever monetary effects an UBI causes. Here are some random predictions anyway:

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.

hamilyon2• 4 years ago

As I understand it, basically if it is financed by taxes, or even non-FRS backed debt then probably no. This is simply redistribution of goods, so total number of goods stays unchanged.

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.

willnonya7• 4 years ago

There are two parts to this, the increase in the money supply which devalues it and the increase in demand from a significant number of people having more money to spend in the market. If we eliminate the increases in the money supply then the increase in demand will still apply an inflationary force. Without increases in the total money supply though those forces should stabilize to match the new higher demand.

The problem is that we never eliminate the increase in the money supply and finance an incredible amount of spending through debt.

aww_dang• 4 years ago

There is a distinction between "price inflation" and "inflation". Even the Federal Reserve allows for this distinction.

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.

NumberWangMan• 4 years ago

My intuition says that it would lead to rising prices, as poorer consumers would increase their demand for goods and services. However, I think the rise in prices would only partially offset the increased utility for poor consumers.

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.

imachine1980_• 4 years ago

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.

The ratios of the fed at least some years ago was 2x the money you give end in the economy for poor people 1x media income and 0,5x this doesn't include tricycle ratio of the 100k car of Jeffrey (ratio car Cost over income)

jusssi• 4 years ago

Would everyone getting a paying job lead to inflation?

And if it would, would that mean that we should rig the system in a way that it can never happen?

sparkie2• 4 years ago

Good question. It would depend on whether the newly employed are broadly working "bullshit" (unproductive) jobs, or whether they are adding to productivity.

Inflation occurs when there is an increase in available money (or transiently, in the velocity of money) in excess of any increase in productivity.

Increased productivity (absent of manipulation of the money supply) would suggest that goods get cheaper to produce and are produced in more abundance, leading to decreasing prices.

If the newly employed are not broadly productive, employers would have increased expenditures (wages), without decreasing other expenses. Since the employer doesn't want their own earnings to decrease, the only way they can maintain the standard of living they are used to is to either increase their revenues by increasing prices, or fire the unproductive.

An exception of course, is government, which can simply increase revenues by increasing taxes, which allows them to continually employ unproductive people at the cost of taxpayers.

If you extend this logic to UBI, then every employer now has additional expenses (taxes) to cover the costs of UBI. To maintain the standard of living they are used to, and if they wish to avoid raising prices, they would need to reduce expenses, which would typically mean either: reducing wages, or reducing the number of employees they have.

So the result of UBI would suggest one or more of the following outcomes: 1. Fewer people are employed. 2. Employed people earn less. 3. Prices generally increase.

I would guess at all three occurring simultaneously. Almost like the devil is rubbing his hands in anticipation.

SkyBelow• 4 years ago

How would it be implemented?

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.

incomingpain4• 4 years ago

In Canada during covid we deployed non-universal basic income. It was basic income but not everyone got it. This was not that unlike what the democrats did in the USA.

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.

littlestymaar3• 4 years ago

There's inflation everywhere in the western world, so pointing at a specific Canadian policy for the inflation there is logically flawed.

willnonya7• 4 years ago

Not exactly. Most western economies followed similar policies which increased inflation in their local economies. The part you're missing is that these economies are all linked through both trade and competition over resources.

incomingpain4• 4 years ago

There's inflation everywhere in the western world, so pointing at a specific Canadian policy for the inflation there is logically flawed.

There is inflation everywhere there was basic income. The USA: https://www.investopedia.com/government-stimulus-efforts-to-...

Switzerland is constitutionally obligated to balance their budget.

Where 77% of voters rejected basic income: https://www.bbc.com/news/world-europe-36454060

They went into some painful deflation during covid and is only at 2.4% inflation and their interest rate is -0.75%. I wish I were able to speak one of the official languages of Switzerland.

Just look at that beautiful 2.5% unemployment rate. If you want to say, 'oh they just have lots of people who are off welfare benefits and not participating in the labour market. 84% participation rate! 3rd best in the world. Switzerland is doing great.

How about Australia? They traditionally do a great job; In 2009 they had no government debt. They seem to have their inflation under control around 3.5% with just 0.1% interest rate?

https://tradingeconomics.com/australia/central-bank-balance-...

Ouch, they did move over to the pool of printing money.

They called it the 'Pandemic Leave Disaster Payment', just looked it up.

No wonder their inflation is a bit high. Seems they didn't do as much as Canada or USA.

incomingpain4• 4 years ago

Universal basic income will be that much worse compared to this non-universal basic income.

noworld• 4 years ago

That's called welfare.

bryanlarsen• 4 years ago

We've learned that deficits are inflationary. We already knew that.

It didn't tell us anything about a UBI in a balanced budget.

gruez2• 4 years ago

So where's that inflation at? 5.7% and still climbing. It rose by over 10% in march.

No, it rose "by over 10%" year over year in march. It didn't rise 10% "in march", which suggest a 10% growth in the span of a month.

ejb999• 4 years ago

imo, yes - the easier you make it for people to live 'ok', without working, the more a certain percentage of people will simply choose not to work - like it or not, we need people making entry-level wages to work, to fill jobs that need to be filled.

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.

willnonya7• 4 years ago

It depends on how the UBI is financed. If it is financed through debt or simply printing new money and increasing the amount in circulation then yes, it absolutely will increase inflation. This applies to more than just a UBI though and the reason some point to the stimulus is because it was paid through debt.

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.

em500• 4 years ago

PhD in econometrics speaking, here's my handy guide to macro-economics:

- 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?

mvdwoord• 4 years ago

Thank you. This should be understood by more.

khaki54• 4 years ago

From my perspective, the truism of

we can't make everybody rich by sending everyone a $10M check

isn't so self-evident. A lot of policy and draft legislation is just a watered-down version of this with more steps.

What if we...

- just send unemployed $23.4K check (CARES act $600/wk unemployment kicker)

- just send most people a $3.2K check (stimulus)

- just send everyone an average of $42K check (overall covid relief)

- just send those with unpaid student loans a $20K - $400K check (college debt cancellation idea)

- just send those with distressed mortgages an average of a $150K check (2008 mortgage crisis)

There are many more of these that seems to have no strategic value or incentivize the opposite behavior that we need at the time.

It's also probably a safe assumption that the money generally finds its way to the wrong people considering the $5T in billionaire wealth growth during the pandemic, or record executive bonuses during the mortgage crisis.

bradstewart• 4 years ago

I've had a similar feeling about economists and their writings--that there's absolutely no way to glean "truth" or "fact" from them.

They always seem to have reasons upon reasons why their predictions didn't pan out, and it's never their fault. And yet they still seem to have authority?

But I always think I must be missing something because they're so often cited and discussed and employed and and and. I am a computer person, and did not study econ beyond intro-level micro.

In your mind, do macro-economists provide any actual value? If so, what is it?

sparkie2• 4 years ago

"Why Did Almost Nobody See Inflation Coming?" [https://tinyurl.com/marfwtsm]

"Forecasting inflation is a staple of macroeconomic modeling, yet virtually all economists’ predictions for the United States in 2021 were way off the mark."

I recall reading this headline and laughing, because virtually everyone in the circles I associate with was warning very vocally about what would happen when it was announced in early 2020 that governments and central banks would be greatly increasing the money supply to pay for people to stay at home (and pay for "other" things), with no obvious sign of how productivity would be increasing. All signs were that productivity would also decrease (and it did), due to draconian lockdowns which prevented people from producing.

So why was the Austrian school exactly right about the inflation, and the Keynesians wrong again?

The reason is quite simple. Those who are the beneficiaries of new money have a motive to continue gaslighting you about the causes of price inflation.

throw0101a• 4 years ago

- The root cause of this knowledge deficiency is the inability to run proper controlled experiments.

There have been a number of experiments over the last few years. For example, tax cuts don't pay for themselves (or, in the most positive interpretation: we're on the left-hand side of the Laffer curve):

* https://en.wikipedia.org/wiki/Kansas_experiment

* https://www.npr.org/2019/12/20/789540931/2-years-later-trump...

Expansionary austerity was also tried and found not to work (as predicted by Keynesians):

* https://en.wikipedia.org/wiki/Expansionary_fiscal_contractio...

* https://www.theguardian.com/business/ng-interactive/2015/apr...

Then there's the whole anti-QE thing:

We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.

* https://economics21.org/html/open-letter-ben-bernanke-287.ht...

Most economic ideas put forward by the political right seems to have been found not to work over the last decade.

dragonwriter4• 4 years ago

There have been a number of experiments over the last few years.

Neither laboratory experiments nor even ones with decent statistical controls for confounding factors, and rarely, on any large-scale policy, ones with more than single digit N (and quite often, that's true even in binary, much less decimal, notation.)

thesuitonym• 4 years ago

It's possible. Nobody can say with certainty because we don't have data on a large enough scale to say for sure. But consider this: We don't have UBI, and we have historically high inflation anyway. If we're going to have high inflation anyway, maybe we should just help people.

willnonya7• 4 years ago

So, you're saying that because inflation is bad we should just start printing money, handing it out and making inflation worse?

I guess a $50 loaf of bread is helpful to everyone, eh?

mark_l_watson• 4 years ago

‘Printing’ money leads to inflation. I view the world situation as a control problem: how do political and financial elites control the population and keep most of their privileges.

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.

Apreche• 4 years ago

Nobody knows for sure, but probably not if you combine the UBI with strong progressive taxation.

TeeMassive• 4 years ago

The problem is if the supply of what UBI will be used to buy doesn't increase and the impact it will have on the recipients' productivity (e.g. low wage food workers)

dragonwriter4• 4 years ago

Would a universal basic income lead to inflation?

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.)

raincom2• 4 years ago

It will increase the cost of labor (that is, hourly wages, salaries). In other words, UBI sets a floor to wages. As one transitions from non-UBI regime to that of UBI, in this transitory period cost-push inflation occurs due to the increase in the cost of wages; and this is the first order effect.

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.

gremlinsinc• 4 years ago

A land value tax that is set based on basic income needs actually would curb land-owners from raising rents.

If they're taxed based on say average rents, if that goes up their taxes goes up as much as the difference and it goes down and gives them a bonus drop-off IF they are below averages, then I think it could even out more.

LVT's a great way to fund UBI, many great articles on it.

josephcsible• 4 years ago

Tying taxes to average rents seems like it will cause a Prisoners' Dilemma that will send rent skyrocketing.

raincom2• 4 years ago

The issue is: whether the policy of LVT funding GBI has political support in legislative bodies? I don’t think so since the majority of legislators come from upper classes.

rich_sasha• 4 years ago

Fundamentally, cash is about redistributing work. I do some work, get cash, and swap it for the fruit of some other labour. If I inherit cash, I swap someone else’s work for mine. It’s not a perfect analogy, eg what if I get lucky and find a treasure, but I guess at a global scale this is what happens.

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.

user20984• 4 years ago

I've been curious about questions like this and have tried to read some things on my own. I have a few thoughts that may well have errors or misunderstandings.

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.

Ask HN: Would a universal basic income lead to inflation?

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