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

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

>Cherry picking a few countries is a good way to confirm your bias, but not a good one to make a good argument with.

True, flipside I'm not writing a doctoral thesis over here.

>Many places in Europe didn't have a “basic income” equivalent as part of their pandemic response (for instance, France's response has been exclusively targeted at companies, to avoid layoffs and bankruptcy), and it didn't prevent inflation ramping up here too.

Lets take a look. France is one that I have been specifically following more about human rights and not economics. France was very interesting, amnesty international wrote up a good article on human right violations in france that have been increasingly problematic. I couldn't even tell you how many protests have been made illegal and crushed. That was before covid even hit.

So France is at 4.5% inflation and rising and 0% interest rate.

https://tradingeconomics.com/france/unemployment-rate

Wow very high unemployment rate. 26.5 corporate tax is dropping. 45% personal. 20% sales. So tax burden went from 98% to 91%. No wonder they are dropping a bit... you work for the government most of the year.

https://tradingeconomics.com/france/government-debt-to-gdp

Doesn't the EU demand this number be much lower?

https://tradingeconomics.com/france/money-supply-m3

They didnt print money any significant money.

But they did? https://tradingeconomics.com/france/central-bank-balance-she...

Where did a trillion euros go?

https://www.nytimes.com/2020/04/01/business/france-coronavir...

I cant find where that money went. I suspect France's inflation won't be bad and while it does appear not under control at the moment, it probably will level off soon.

If I were a journalist in France I would be looking for that trillion euros.

I think the first question is a very valid one. You say that newly created money will simply go to people who aren't at the wealth cap but my question is how exactly would that happen? I don't see a direct connection between the creation of new money and the supposedly underpaid people you think should be the recipients. You seem to think the only thing standing in the way is so called wealth hoarding, fine lets eliminate that with a wealth cap but then what? Give me a few extra steps here so it make sense.

> France is one that I have been specifically following more about human rights and not economics. France was very interesting, amnesty international wrote up a good article on human right violations in France that have been increasingly problematic.

Yep, and I'm a bit baffled that international media talks really little about it. Macron looks a lot more like Erdoğan than to Bidden or Trudeau, but for some reason international media don't talk about him in that terms.

> I couldn't even tell you how many protests have been made illegal and crushed.

I was part of the third Yellow-vest Saturday protest, and the police reactions was a bit surreal. It got even nastier afterwards, as the government really decided to crack the protest down by police brutality (and mass arrests: up to 2000 in one day, such a figure sounds like Putin's Russia)

> So tax burden went from 98% to 91%. No wonder they are dropping a bit... you work for the government most of the year.

You've just completely misread the figures… 45% is the total “tax burden”, but even calling it “tax” is not right since the majority of it (25 of those 45%) are in fact payments for pensions and health insurance.

> https://tradingeconomics.com/france/money-supply-m3

> They didnt print money any significant money.

> But they did? https://tradingeconomics.com/france/central-bank-balance-she...

> Where did a trillion euros go?

> https://www.nytimes.com/2020/04/01/business/france-coronavir...

> I cant find where that money went. I suspect France's inflation won't be bad and while it does appear not under control at the moment, it probably will level off soon.

We know since the subprime crisis and the subsequent quantitative easing, that this doesn't cause inflation. Some people have been very vocal for years in the 2010 - 2015 era about how “while it does appear not under control at the moment, it probably will level off soon”. then they eventually became quiet because they where tired embarrassing themselves.

Money doesn't work the way you think it does, and inflation is never a monetary phenomenon no matter what uncle Friedman repeated.

Now we have a significant supply and demand issue at global scale and things like this drive price high, unless you're Switzerland and you've got FX rates going in your favor (almost 10% this year), which drive price down.

Covid also have had an unexpected effect on inflation: price increases are usually not reflected faithfully by CPI because of this thing called “hedonic adjustment”, but if you disrupt the regular product release, then you've got nothing to “adjust” against and CPI starts reflecting real price and not adjusted ones.

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.