Basic income could be implemented by NOT raising taxes. So it would NOT cause inflation. Eliminate current social services (and all the financial overhead associated to it: entire government departments who sole job is to administer these services, etc), and just redistribute the funds that would have gone to these services to be, instead, redistributed as basic income. There. All you are doing is shuffling money around to change its distribution while reducing financial overhead. You are not raising taxes or creating new money. Money is just better distributed and hence spent on different areas of the economy.
(I don't know why, in the article, James Manzi says tax increases would be required. Maybe he has a certain opinion that in order to be effective, basic income should be greater than a minimum level that would not be met by my description above? I think my basic income would be sufficient. The US spends $1.5 trillion per year on welfare and pensions. If you take that money, one could redistribute it as a basic income of $1070 per month per household. That's significant enough to very helpful for society IMHO.)
That doesn't mean prices won't change because of it.
As a simplified example, let's say poor person A is renting an apartment from rich person B for $500/month. The new system gives everyone $500/month basic income, but to pay for this rich person B has to pay $1000/month more in tax (of which he gets back half as basic income), while poor person A doesn't pay more tax. So essentially poor person A is getting $500/month from rich person B. Obviously it wouldn't be that simple in reality, but roughly speaking that's what a universal basic income covered by taxes would mean - money flows from rich to poor, in varying degrees.
Now sticking to the simplified two-person version, rich person A thinks "well poor person B could afford my $500/month rent before, now their income has gone up $500/month, so if I charge them $1000/month rent I know they can still afford it". The end result would be wasting time on behalf of the government and indeed the individuals to update everything while money split would remain identical, the only difference being that $500 now flows from B to A (via tax and basic income) then back to B (via rent increase).
Obviously in the non-simplified world it wouldn't be as easy as saying "that person is now getting some money from my taxes so I can charge them that much more", and numbers wouldn't be exact... but as a rough theory, pricing definitely could alter at least to some extent.
All that said: I'm not an economist, I don't know if that would happen, or to what extent. And my personal non-educated opinion is that basic income would be a good thing anyway.
I would doubt that that would happen. If I was person A, and person B raised my rent by $500/mo, I would find a person C to rent from for much less than $1000/mo, rather than continuing to rent from person B.
Prices might go up a bit, but not by that much. The poverty rate in the United States is about 15%. That means that, assuming that the cost of that $500/mo will be spread (unevenly) across the other 85% of the population, or a bit under $100 per taxpayer. That also assumes that the mincome program would exist alongside existing welfare programs, where in reality it would most likely replace them.
Your example doesn't work because it's a monopoly situation. That is, in your world there's only one landlord, so given that housing is a fundamental need and he controls 100% of the supply of housing, he can always raise his prices.
Now, that's not to say that a guaranteed income wouldn't necessarily cause inflation in some goods and services. It probably would! But the standard answer to "why doesn't the provider of a good or service just increase the cost of their service to the maximum disposable income of the buyer" is competition.
Sure competition is one of the many reasons it's way more complicated than my simple version, but it doesn't mean prices won't change to counter basic income. It's possible competition will force prices to remain where they are, but it's also possible that everyone raises prices, step by step in line with competition. Housing is one area I would assume would definitely go up in price, though not to 100% of the basic income. My biggest reason for thinking this is that housing costs in many (most?) areas are driven not by material costs but by demand. Give everyone basic income and the demand alone (i.e. competition between buyers/renters) would raise prices. This would happen if you, for example, gave everyone in NYC $1000/month and didn't tax anyone for it. Then add in motivation from owners who rent to make more money to balance out their tax losses..
But yes, my comment was a very, very simplified example, to counter "prices won't change, we're not printing more cash" arguments - not a direct tale of what could happen in the real world.
You haven't given any reason to believe that demand would go up. Demand doesn't increase because wealth increases.
Now, you MIGHT see increased demand in some areas! For example, some people who previously lived at home might look for an apartment if they had a higher income. Or people who are currently homeless might move into the housing market.
At the same time, some people would presumably graduate out the top of the lowest-income housing market, and put increased demand on the middle-income market. Or whatever. And of course we might say that it's a huge victory if a bunch of homeless people got out of the vicious cycle of homelessness, even if it does increase housing demand for the working poor.
The problem was not that your example was simplified, it was that it introduced a brand new element (monopoly) to the matter under discussion. If you want to make a simple example that actually shows some kind of demand-increase, rather than illustrating monopoly power, you should do so.
Cities like NYC and SF are a bit of an exception in the US - they're very desirable cities, and their housing stock is more or less filled. Getting a place to live, even with sufficient income, is a bit of a chore.
In other markets, there are houses that sit vacant. Bringing the minimum income up helps narrow the gap between the price floor on these properties, and the amount people are able to pay. That is, a basic income would help more efficiently distribute housing in less desirable areas.
If someone on basic income wants to move to NYC, they'll still need to work hard, and get enough money to compete with all the other people who want to live in NYC.
That was my initial response when I first heard this concept a few years ago, and the answer is somewhat surprising (Note: I'm not an economist, so please someone correct me if I get anything wrong here):
3 things can alter those prices: A change in supply, a change in demand, or general inflation/deflation.
The supply doesn't inherently change in this plan, nor does demand (*assuming everyone is getting these goods today.) And there's no inflation, as this is just redistribution, not printing new money.
You're right in general, but there are second order effects. The poor are more likely to spend all of their income than the rich. Also, even if there isn't a general increase in prices (i.e. inflation) there can still be a change in the relative prices. So for example, luxury housing might come down slightly in price as a consequence of the increased taxes, but entry level housing might come up to reflect new household formation enabled by the universal stipend.
If you think inflation's only source is 'printing money', you may not be qualified to speak on economic issues. Liquidity, the monetary supply, and the cost of exchange are quite a bit more complex than that, and far more prone to being manipulated and falling over, as both the Housing Crisis and Libor Scandal taught us.
I'm sorry but you are wrong. Inflation is nothing but the increase of money supply without an equivalent increase in production.
What you are doing is being a good Keynesian and trying to make people believe that this stuff is too complicated for them to even start having an opinion on it. That strategy is condescending and not productive, and encourages helplessness in people.
The view that inflation is not solely driven by money supply is hardly limited to Keynesians. Especially since the 1990s, neoclassical economists also typically include other factors in their models, in part because a single-variable model doesn't appear to be empirically correct.
And increase demand for labour by increasing consumption.
People who were previously homeless and living on handouts could end up participating in the economy significantly more.
People who were extremely miserly might spend a little more on better quality food, different forms of entertainment, or taking holidays further from home than the local park.
Nothing is in place to stop basic income from causing housing prices to raise, and is one of the reasons we have food stamps and medicare instead of basic income.
Housing is a good/service with a price that is set by income-elastic demand. If you push up the income across the entire market (as true basic income would), then the price of housing and cars and other goods with income-elastic demand will increase. People who couldn't afford housing before wouldn't be able to afford housing still.
There are plenty of income-elastic affected goods that will increase increase in price to match or even exceed the amount of basic income per individual. Once you dissect the problem that basic income is trying to solve, you can address those needs individually without raising income for the entire population.
Raising the income for the entire population would indeed just inflate the currency.
But a basic income would not in fact raise the income of the entire population. It would lower the income of the rich and raise the income of the poor. Because it would be paid for with taxes, not deficit spending.
The rich would GET basic income, yes -- but their taxes would increase by an amount that would more-than-compensate for the higher influx of money. Their after-tax income would be lower.
But it's not. There are different segments by quality, location, etc. What percentage of the housing market is only for "the rich"? What extra tax percentage is middle-income going to pay?
Lower income isn't going to be taxed more, so lower income housing prices are going to raise, as their market segment gets a boost in income.
And now you're back at people who couldn't afford housing before still being unable to afford it - which was part of the problem that basic income was trying to solve.
It is certainly possible that some goods or services that are inelastic in supply will experience cost inflation if they are goods or services that are mostly or entirely consumed by a market segment that becomes richer from basic income. I'm not convinced that housing is generally an example of such a good, but some housing may well be.
However, the same is true of targeted assistance to only the poor for only housing -- it increases their effective wealth for the purposes of competing only for housing, and, if anything, it will make it worse than a more general guaranteed income would.
That was my point - Basic Income doesn't provide any additional benefits to targeted assistance, and would actually be a detriment in markets with income-elastic demand.
I know what your point is, but if you imagined that I repeated your point, you're wrong. What I said was that targeted assistance was MORE likely to cause price inflation in areas like, say, housing than guaranteed income was, precisely because it generates "income" that can only be spent in competition for this particular housing category.
The benefit of basic income over targeted assistance is that basic income is relatively low-administration cost to flexibly meet the needs of people who don't have housing needs, and in that it is a relatively non-market-distorting intervention.
Bureaucracy has overhead, I'll give you that, but I assume you're saying that UBI is a replacement for assistance programs, rather than being used alongside them?
That's the only way for cost administrative cost savings. What about when UBI isn't enough for something as trivial as Medicaid?
Would UBI cover the cost of health insurance for everyone, since it's replacing the "expensively adminsitrative" medicaid? Even if you took away employer insurance today, many people with steady income can't even afford their own health insurance.
I don't think that basic income could replace healthcare programs. It might replace section 8 housing and food stamps and at least some kinds of disability and unemployment insurance and some kinds of child credits and so forth.
I actually don't think it would successfully replace any of those things, which is one of the reasons I don't really support it. But it's an intriguing idea that should be debated on its merits.
For sure. I think that switching healthcare over to being a public utility would open the door to debating a lot of different programs, including basic income. Maybe then someone will figure out a way to handle the housing issue.
Basic income reduces the administrative overhead of providing assistance. Also it could create increased mobility in the job market compared the current system. (You could leave your current job without waiting weeks or months for unemployment/disability/EBT) Basic income would create an elastic supply of labor potentially reducing the prices of many goods that is not considered in the above analysis. (When one has a basic income provided already you don't have to charge as much for services. More people would be competing to provide the same services)
>reduces the administrative overhead of providing assistance.
Only if UBI replaces all other programs, and i'm guessing it won't be enough for people to afford a Medicaid replacement.
Typically you only qualify for unemployement, disability, etc. when you're been let go, not when you're quiting voluntarily (and it usually only takes a week to get).
Even then, it's certain percentage of your current income, so as to not disrupt your lifestyle. I doubt many people will voluntarily quit to be on a much lower UBI just so they can look for a new job. But then again maybe there are studies on this...?
> Lower income isn't going to be taxed more, so lower income housing prices are going to raise, as their market segment gets a boost in income.
Predictably, it will raise less proportionately than the increase in income in that segment, so housing will become more affordable, though not as much more affordable as it would be considering only the income increase and not the effect on price levels.
Its the consequence of assuming no change in supply and assuming that there are other competing goods (e.g., food) which will compete for the marginal dollars for the same population of buyers (and hence that demand is not perfectly inelastic.)
Engel's law (the food example) doesn't really impact it that much because the income elasticity of food is between 0 and 1. By your logic nothing has an income elasticity of demand greater than 1 because of competing with food.
> But a basic income would not in fact raise the income of the entire population. It would lower the income of the rich and raise the income of the poor. Because it would be paid for with taxes, not deficit spending.
Realistically, it would be paid for with both. Marginal increases in spending might be paid for purely with tax increases, but that rarely actually happens.
This assumes that a UBI would be funded by redistributive income taxation. Many formulations of a UBI actually fund it through a land value tax. Connecting the two concepts basically amounts to land owners paying rent to society.
Your overall point stands, I just want to point out the LVT aspect as UBI is increasingly discussed as a topic separated from that original context.
> Nothing is in place to stop basic income from causing housing prices to raise, and is one of the reasons we have food stamps and medicare instead of basic income.
Aside from any concerns about your basic premise, I think you've confused Medicare (the old-age/disability medical insurance system funded by payroll taxes) with Medicaid (the medical insurance system for the poor funded by general funds).
