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A classmate asked me this and I have no idea how to approach the question. How would I even describe the effects of the universal basic income on the labour market from a Keynesian point of view?

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    $\begingroup$ Clarify whether you mean Keynesianism, or Keynes. Also what is the "liberal"? Do you mean "liberal" as in politics? Or neo-liberalism economy? $\endgroup$ – mootmoot Jun 21 '17 at 9:40
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'Universal basic income' has largely been in the public dialogue, to counter the negative consequences of automation - or some other reasons for mass unemployment. In such a context, it is proposed as a last resort if there is an extreme decline in Labour demand. It can however, be used as an alternative to basic unemployment benefits, or to simply combat poverty. I will try to address both.

Keynesian Economics, suggests that spending drives consumption of goods and services. This increase in consumption results in an increased requirement for labour, and thus an increase in employment.

So the answer really depends on the underlying factors, that have caused the implementation of a 'Universal Basic Income' and if it underpins drastic changes in the economy.

If we hypothetically assume that UBI is adopted because of automation, this simply means there is no requirement for mass labour. So any increase in spending, through Quantitative Easing or lowering or rates, will barely have any effect on labour demand. It will still be cheaper for a corporation to automate the job, and gradually depreciate the asset performing the automation.

If you think about it, UBI (in this context) basically implies keeping the economy stagnant - very low growth. Most people will get a standard level of income, and only the standard needs will be met. Since they do not have the opportunity to "prove themselves" and demand a higher salary - because of most jobs being automated. But business owners and start-ups will be the ones benefiting; they will get profits and Basic Income. Here, unless you have a great business idea you will not be able to indulge in excess.

On the contrary, if UBI is adopted as a welfare program for the poor - basically no drastic changes in the economy. It would be very Keynesian in that, UBI would drive spending, which drives a growth in production, which drives the demand for labour. But the key here is the "short-term". If the consumption, from UBI, is so large that the existing labour force cannot match demand, then employment will increase. But this underlines a few assumptions: there should be no development in technology to match demand, the UBI amount should be large enough to cause a massive requirement for an increase in supply, and the poor should have the skills required for production.

The answer to this question depends on the assumptions you hold, and under what circumstances UBI is adopted. Based on the variation of these two factors, you will get a wide range of consequences thinking about UBI under Keynesian economics.

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