2
$\begingroup$

There are several version and denomination for a basic income. In this question, I will call unconditional basic income the situation were all citizens of a country receive regularly a lump-sum of money, independently of their age, their employment status and job,etc. I will assume that, at the moment the basic income is instituted, it is larger than the poverty threshold. I am also assuming that the basic income is not a substitute of other welfare subsidies.

The concept is gaining popularity these days, and for many reasons, economical or philosophical.

My understanding of offer and demand is that, if people can pay more for a product and are willing to do so, then prices will increase. So, it seems that, after the introduction of the basic income, there will be mechanically a large inflation. In a short time, people with no job and that relied mostly on the welfare system will be poor again. Worse, people with low income will be closer to the new poverty threshold.

My questions:
1) What natural mechanical effects prevent an over-inflation after the introduction of a substantial basic income? By natural, I mean any direct or indirect effects of the sole introduction of the basic income.

2) If an inflation cannot naturally be avoided, what measures are usually suggested together with the introduction of the basic income?

Edit: my question is close but not an exact duplicate of this question. In the example of the other question, $A$ would receive $30$ and $B$ would receive $90$ for an unconditional basic income of $30$. If the two questions are equivalent, please explain.

$\endgroup$

marked as duplicate by Giskard, Alecos Papadopoulos, EnergyNumbers, BKay, Kitsune Cavalry Dec 2 '16 at 23:21

This question has been asked before and already has an answer. If those answers do not fully address your question, please ask a new question.

  • $\begingroup$ The example you point out is in the answer, not the question. Your question is a duplicate of the other question. If you disagree, please point out why? $\endgroup$ – Giskard Nov 28 '16 at 12:05
  • $\begingroup$ In the example $B$ does not receive anything from the government as his income is above the UBI level. Please reread the answer more thoroughly. If you have further comments consider posting them under the answer they adress. $\endgroup$ – Giskard Nov 28 '16 at 12:07
2
$\begingroup$

Theoretically basic income might have a tendency to increase inflation. But that largely depends on how much is the basic income provided. Usually, the idea of basic income itself means that it is 'basic' and is just sufficient for a subsistence. With such an income level, the problem of inflation does not crop up really. However, basic income might have other serious problems with crowding out due to large government spending and the disincentive to work and hence loss of productivity.

Even if we suppose, there is a large basic money disbursement which can cause inflation, then I think it should not be unconditional. Usually, such plans are in the form of guaranteed employment programs, buying of ration from designated stores and many more measures. However, I still feel these measures are not for tackling inflation rather the disincentive to work.

$\endgroup$
2
$\begingroup$

In short, inflation affects a basic income guarantee exactly the same as any other cashflow in the affected currency.

It is possible to create a connection by funding a basic income benefit with inflationary measures. However, the resulting inflation will be spread throughout the economy, and would apply even if those measures were taken to fund some unrelated program.

A more tenuous connection relates to managing incentives. If the amount guaranteed is too high, then there are reduced incentives to produce. This reduced production affects government revenues (which are typically tied to production through income or sales taxes). When government revenues are falling, there is always the temptation to make up the difference with inflationary measures.

$\endgroup$
1
$\begingroup$

Another name for basic income is citizens dividend, the idea being that the income is a dividend from the nation's earnings from natural resources like land and oil. In most countries only a select few of the population will be deemed as owning these resources outright with the rest of the population having to pay for access to what by rights they should be owning already - it is a kind of theft. Just think about how anyone ever gets to own any land in the first place - who do they buy it from? The answer is that it is taken by force from everyone else. If you want a system of distributing land without any theft then you have to have people paying rent for that land, and that rent will go to everyone else in society - this is the "dividend".

So in summary, citizens dividend is a natural consequence of enforcing a no theft policy on natural resources. The money for the dividend payments will come from new rents for using land / natural resources. The money does not need to be printed and therefore the policy is not inflationary at all.

$\endgroup$
  • 2
    $\begingroup$ This seems more like a political rant than an answer. $\endgroup$ – Giskard Nov 27 '16 at 13:03
  • $\begingroup$ It is also wrong on its main point: Inflation is not always the result of money printing. Price levels can increase due to other macroeconomic factors. $\endgroup$ – Giskard Nov 27 '16 at 13:04
  • $\begingroup$ re: "rant" - well maybe its a rant, but I believe it fully contains the answer too. re: "Inflation is not always the result of money printing" - I don't dispute that, but I never said it. I'm just saying the a citizens dividend does not necessitate money printing. $\endgroup$ – Mick Nov 27 '16 at 13:13
  • $\begingroup$ "The money does not need to be printed and therefore the policy is not inflationary at all." This sentence implies there is no inflation precisely because there is no money printing. $\endgroup$ – Giskard Nov 27 '16 at 14:12
  • $\begingroup$ other inflationary / deflationary things may be going on, so there may be inflation/deflation in the economy but the citizen's dividend / land rent system won't be causing it. $\endgroup$ – Mick Nov 27 '16 at 16:51

Not the answer you're looking for? Browse other questions tagged or ask your own question.