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

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

#31

Post by NumberWangMan »

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.

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

#32

Post by globular-toast »

chii wrote: post #12
onion2k wrote: post #5

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…

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 p…

> 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.

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

#34

Post by SkyBelow »

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.

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

#35

Post by freemint »

forgotmyolduser wrote: post #17

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

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.

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

#36

Post by pharke »

dbingham wrote: post #4

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 shrin…

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.

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

#37

Post by sharemywin »

jesterman81 wrote: post #6

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.…

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.

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

#38

Post by globular-toast »

dagss wrote: post #26
globular-toast wrote: post #11

Earlier quoted context omitted.

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.

There is no argument here -- why would everything cost $1000 extra? You just said "then". Where is the argument? So if I earn $500 now, and buy 500 lollipops at $1 each. If everyone gets $1000 as UBI, then those 500 lollipops will cost ... $1001 each and $501000 in total? Isn't that absurd? That is what the sentence "everything will cost $1000 extra" means, and the only way "raising the value of zero" makes mathemati…

> There is no argument here -- why would everything cost $1000 extra?

Because you can't print food, houses, energy etc. Give everyone $1000 and you won't magically create any more food or any more houses or any more energy out of thin air. So the market will adjust the price to account for the increased demand. It's basic supply and demand.

> If everyone gets $1000 as UBI, then those 500 lollipops will cost ... $1001 each and $501000 in total?

> Isn't that absurd?

Yes it is, but you misunderstand. It's not that every individual item would cost $1000 extra, it's that the total cost of living would be $1000 extra.

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

#39

Post by chaostheory »

eqvinox wrote: post #22
forgotmyolduser wrote: post #17

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

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.

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.

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

#40

Post by Finnucane »

globular-toast wrote: post #32
chii wrote: post #12

Earlier quoted context omitted.

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 p…

> 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 fore…

Money creation and inflation are the same, according to an economic view that's like 100 years out of date. Money has to be spent to create inflation. Money that goes nowhere does nothing. What happens in the economy matters.Supply AND demand make inflation.

Also, what is 'excess money'? How do you know what is 'necessary' and what is 'excess'?

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