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Basic Income: Unintended Consequences

jonthewang.com

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Re: Basic Income: Unintended Consequences

#31

Post by icebraining »

jjxw wrote: post #23
desireco42 wrote: post #2

I think this is an exceptionally stupid idea and I think part of basic income should be stipulation that it can't be used to get loans ie. make this illegal. Because first thing financial industry would use it against the poor, get them lump sum and eliminate benefits of basic income. I am sure this can be made in a way that wouldn't be limiting too much, yet prevent obvious abuses you are bringing.

In general, I agree, but there is a cost to such regulation in the sense that it would make banks more wary to lend to legitimate borrowers on the promise of future basic income payments. Making it illegal to seize basic income assets in the event of default creates a classic adverse selection problem where bad actors will have incentives to attempt to take a loan. That being said, the point of a basic income in the…

Adverse selection happens when the borrower knows more than the loaner, no? Why would that happen here? Banks and other credit institutions already force you to prove that you have assets and/or income; here they would do the exact same thing, just disregarding the BI.

Re: Basic Income: Unintended Consequences

#32

Post by jjxw »

bsbechtel wrote: post #18
jjxw wrote: post #12

Earlier quoted context omitted.

The EITC has got you covered: https://en.wikipedia.org/wiki/Earned_income_tax_credit

Not the same thing. The tax credit I'm talking about goes to the employer. Right now, we just tax the employer (or the wealthy owners of the business) and redistribute. Let's cut out the middleman that's the government, and not tax employers who pay their employees up to the poverty level.

Ah, I misunderstood. It looks like a version of this exists which provides tax incentives to hire veterans, food stamp recipients, and other disadvantaged groups.

https://www.doleta.gov/business/incentives/opptax/wotcEmploy...

Re: Basic Income: Unintended Consequences

#33

Post by icebraining »

drcode wrote: post #7

The main unintended consequence is that nobody is going to want to be a grocery store clerk for minimum wage if they get BI. Hence, salaries for menial jobs will go through the roof... All of a sudden a gallon of milk will have to cost $20 to pay grocery store salaries... Now salaries will need to go even higher so that employees can afford food, themselves... And now you've got hyperinflation.

Bad jobs will be forced to pay more, while jobs that people actually enjoy will have an easier time hiring cheaply.

Sounds great to me.

Re: Basic Income: Unintended Consequences

#34

Post by emp_zealoth »

phaer wrote: post #21
bsbechtel wrote: post #13

Earlier quoted context omitted.

So in addition to $12,000 a year from the government, someone could borrow from lenders and never pay it back?

No, because almost nobody would be lending money to people who have nothing to secure the loan beside their basic income.

Which would be a good thing because those people can not afford the credit anyway

Re: Basic Income: Unintended Consequences

#35

Post by jmspring »

The individual is pretty flawed in his reasoning and examples...

"Since the lifetime of the average person is roughly 78 years, net present valuing a lifetime of $12,000 yearly basic income payments works out to roughly $287,000 assuming that yearly payments total $10,000 and applying a 4% yearly discount factor. That is enough to purchase a median priced single family home"

While factually true, in total, $12k a year isn't going to buy you a house anywhere near the median in your life time. Too much hyperbole in the read.

Re: Basic Income: Unintended Consequences

#36

Post by erispoe »

Basic Income is designed to replace welfare benefits, and get rid the many adverse effects that a complicated welfare system creates. Therefore it should benefit from the same type of protection. It's not complicated, many countries have this system in place already: welfare benefits cannot be financial collaterals and they are not seizable.

Re: Basic Income: Unintended Consequences

#37

Post by markvdb »

drcode wrote: post #7

The main unintended consequence is that nobody is going to want to be a grocery store clerk for minimum wage if they get BI. Hence, salaries for menial jobs will go through the roof... All of a sudden a gallon of milk will have to cost $20 to pay grocery store salaries... Now salaries will need to go even higher so that employees can afford food, themselves... And now you've got hyperinflation.

Look at countries like .be or .no to see how this future looks like. I wouldn't worry too much...

Re: Basic Income: Unintended Consequences

#38

Post by askvictor »

drcode wrote: post #7

The main unintended consequence is that nobody is going to want to be a grocery store clerk for minimum wage if they get BI. Hence, salaries for menial jobs will go through the roof... All of a sudden a gallon of milk will have to cost $20 to pay grocery store salaries... Now salaries will need to go even higher so that employees can afford food, themselves... And now you've got hyperinflation.

Part of the growing interest in BI is the likelihood/possibility that increasing amounts of menial jobs will be replaced by robots/computers. If the amount of work available/necessary for a well-function society is massively lower than the population, then some alternatives to the current system/expectations need to start to be considered. BI is one such alternative.

Re: Basic Income: Unintended Consequences

#39

Post by jjxw »

icebraining wrote: post #31
jjxw wrote: post #23

Earlier quoted context omitted.

In general, I agree, but there is a cost to such regulation in the sense that it would make banks more wary to lend to legitimate borrowers on the promise of future basic income payments. Making it illegal to seize basic income assets in the event of default creates a classic adverse selection problem where bad actors will have incentives to attempt to take a loan. That being said, the point of a basic income in the…

Adverse selection happens when the borrower knows more than the loaner, no? Why would that happen here? Banks and other credit institutions already force you to prove that you have assets and/or income; here they would do the exact same thing, just disregarding the BI.

Ah, you are correct. The term I was actually looking for is moral hazard.

The reason why banks require evidence of ability to repay the loan is because, without them, there would be a huge incentive for borrowers to take loans without paying them back. This is where the adverse selection comes in - the information asymmetry results from the borrowers knowing what their intent for the loan is and the incentive to mislead the lender. This leads to lenders being more wary (and implementing requirements) when issuing loans.

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