One thing I don't see addressed here or in research on the topic is the macroeconomic impact. Would a UBI cause inflation or other mechanisms to make up the difference in prices? For example, if everybody received $1000/mo would candybars eventually adjust to be $1001? This seems like something that small-scale experiments would be unable to discern.
Generally competition works to prevent that; if a company raises their candybars to suck more money, the other company will keep them lower to gain market share, forcing the first to come down again.
The problematic markets are the ones where competition is already deficient. Housing is often mentioned, but I actually don't think it'd be such a problem - if you get an UBI, you're actually much more free to move to cheaper places, rather than pushing up prices in places with jobs.
I'm not from the US, but if I was, I'd fear the cost of healthcare. Then again, that's probably unsustainable with or without UBI.
I understand competition can prevent inflation and that lower competition markets will have more inflation. My thinking is that the effect on pricing would be more indirect. Maybe companies have to pay more in taxes to cover the UBI. Their costs go up, so pricing adjusts upward universally. Obviously it's way more complex than just UBI/mo + original price, but UBI _could_ be an upward pressure to prices that doesn't exist today, and that could counter the downward pressure from competition. One argument against that might be that under UBI individuals have more income to start businesses, and so more competition is added that keeps the downward pressure steady. My only points are that it _seems_ like a possible issue, and one that small-scale studies might not be suited to examine.
Uh...of course not. Same as when an across the board tax cut gives every worker some amount of extra money, it doesn't lead to massive inflation.
Besides, it's insane to assume that the price of a -single item- will jump to eat the entire cost of a payment such as UBI, because if that happens for every item, no one will be able to buy anything.
Tax cuts are an interesting analogy I hadn't thought of. The first difference that comes to mind is that a tax cuts are still "earned" money. Less of the money I worked to earn gets taken. So while a tax cut does result in more income, that income is still tied to work done by the individual, and proportional to their gross income. Also, there are generally more strings attached to tax cuts to incentivize the income being spent on certain things (ie child tax credit, retirement, etc). So not apples and oranges, but worth thinking about more and seeing if there are studies linking (or not) inflation to tax cuts as other replies suggest.
The $1001 candybar is just an analogy. I am _wondering_ if prices in general would adjust in a way that negates the UBI in part or whole. If 1000 is the new 0, then would pricing just adjust? I'd love to see data one way or the other on this, but am concerned that small-scale or regional studies might not be able to see this sort of effect.
Across the board tax cuts can certainly lead to inflation. More, if they're large. Or less, depending on the extent to which they're financed by tax increases.
Most of us started getting more money in our paycheck as of earlier this year; CPI held basically steady at ~2.2% (it's actually, at least for the first quarter, been lower than last year's first quarter, https://data.oecd.org/price/inflation-cpi.htm).
Easy, right? Give people more money and money velocity will skyrocket.
Nope - in modern American society the acts of earning money and spending money are no longer coupled. (Which is partially why we didn't see massive consumer spending increases when the price of oil fell precipitously a few years back.)
I wonder about this in the UK, we have a constrained housing supply, people have to live somewhere so would the proceeds of UBI end up making landlords richer?
Comments
One thing I don't see addressed here or in research on the topic is the macroeconomic impact. Would a UBI cause inflation or other mechanisms to make up the difference in prices? For example, if everybody received $1000/mo would candybars eventually adjust to be $1001? This seems like something that small-scale experiments would be unable to discern.
Generally competition works to prevent that; if a company raises their candybars to suck more money, the other company will keep them lower to gain market share, forcing the first to come down again.
The problematic markets are the ones where competition is already deficient. Housing is often mentioned, but I actually don't think it'd be such a problem - if you get an UBI, you're actually much more free to move to cheaper places, rather than pushing up prices in places with jobs.
I'm not from the US, but if I was, I'd fear the cost of healthcare. Then again, that's probably unsustainable with or without UBI.
I understand competition can prevent inflation and that lower competition markets will have more inflation. My thinking is that the effect on pricing would be more indirect. Maybe companies have to pay more in taxes to cover the UBI. Their costs go up, so pricing adjusts upward universally. Obviously it's way more complex than just UBI/mo + original price, but UBI _could_ be an upward pressure to prices that doesn't exist today, and that could counter the downward pressure from competition. One argument against that might be that under UBI individuals have more income to start businesses, and so more competition is added that keeps the downward pressure steady. My only points are that it _seems_ like a possible issue, and one that small-scale studies might not be suited to examine.
Uh...of course not. Same as when an across the board tax cut gives every worker some amount of extra money, it doesn't lead to massive inflation.
Besides, it's insane to assume that the price of a -single item- will jump to eat the entire cost of a payment such as UBI, because if that happens for every item, no one will be able to buy anything.
Tax cuts are an interesting analogy I hadn't thought of. The first difference that comes to mind is that a tax cuts are still "earned" money. Less of the money I worked to earn gets taken. So while a tax cut does result in more income, that income is still tied to work done by the individual, and proportional to their gross income. Also, there are generally more strings attached to tax cuts to incentivize the income being spent on certain things (ie child tax credit, retirement, etc). So not apples and oranges, but worth thinking about more and seeing if there are studies linking (or not) inflation to tax cuts as other replies suggest.
The $1001 candybar is just an analogy. I am _wondering_ if prices in general would adjust in a way that negates the UBI in part or whole. If 1000 is the new 0, then would pricing just adjust? I'd love to see data one way or the other on this, but am concerned that small-scale or regional studies might not be able to see this sort of effect.
Across the board tax cuts can certainly lead to inflation. More, if they're large. Or less, depending on the extent to which they're financed by tax increases.
Most of us started getting more money in our paycheck as of earlier this year; CPI held basically steady at ~2.2% (it's actually, at least for the first quarter, been lower than last year's first quarter, https://data.oecd.org/price/inflation-cpi.htm).
Then what drives inflation, if not for "people have more dollars to spend"?
Sometimes, "people have more dollars to spend" causes inflation.
Sometimes, "reducing the number of things to buy" causes inflation.
Here's an article: https://www.economicshelp.org/macroeconomics/inflation/cause...
Depends on money velocity. Increased money velocity generally encourages inflation, and vice versa https://www.stlouisfed.org/on-the-economy/2014/september/wha...
Easy, right? Give people more money and money velocity will skyrocket.
Nope - in modern American society the acts of earning money and spending money are no longer coupled. (Which is partially why we didn't see massive consumer spending increases when the price of oil fell precipitously a few years back.)
Through credit cards and HELOCs American consumers can accumulate debt on their own schedule (and they frequently do https://www.cnbc.com/2018/02/13/total-us-household-debt-soar...) and wind it down when new cash shows up on the horizon.
Which makes money velocity unpredictable, subject to consumers' general sentiment about the economy.
I wonder about this in the UK, we have a constrained housing supply, people have to live somewhere so would the proceeds of UBI end up making landlords richer?