Your arguments are interesting, but they hold only in systems with artificial inflation controls. UBI increases the amount of money in the economy, which has the same effect as simply printing more, thus the value (scarcity) of the money decreases. A poor mother without UBI will be a poor mother with UBI because costs will simply go up, something you acknowledge.
As costs for services go up, costs of products go up as well. For example, if I'm in the beer business, and the cost for me to bottle a single beer is $.10 per bottle on my assembly line. If labor costs increase under UBI to double that ($.20/per bottle) (because cheap labor is now harder to find), I must increase my sale price by at least the same or go out of business.
Now somebody buying my beer has to pay $.60 more per six-pack, potentially wiping out that fraction of new income UBI was providing them.
The government could come in and say "the price of beer may not increase at all" and set some kind of price control. So now I need to cut $.60 of cost somewhere else in my product.
But wait, it gets worse!
Bottling isn't the only cost for me to make and sell my beer.
- Grain harvest is more expensive - increasing my cost
- Transport costs are more expensive - increasing my cost
- Blank bottles are more expensive - increasing my cost
- Brewing is more expensive - increasing my cost
and so on...
So to prevent inflation I have to cut costs everywhere else. Cheaper glass, worse grain quality, worse brewing methods, worse water supply, and so on. If I can't balance the cost equation I simply go out of business, decreasing the supply of products in the economy and increasing unemployment.
In effect, nobody gets paid more because everybody gets paid more, which drives up prices, which is the definition of inflation. If inflation is artificially capped by price controls, then product quality either goes down, or I go out of business.
Your entire theory is based on the idea that the labor market will decrease AND it will decrease so substantially that all markets will have to increase prices to a 1:1 ratio with the new UBI.
> Why wouldn't labor markets decrease? Isn't that the principle idea floating by UBI advocates entirely throughout this thread?
They will, and I never said they wouldn't. The problem with your "theory" is that they are going to decrease at a 1:1 ratio with increase in labor costs from the UBI resulting in an overall "0 gain" from the UBI.
> No, all money will devalue with the increase in supply and increase in labor costs. That's pretty basic economics.
True, but that's not the argument you are making. You are arguing that nobody will be better off because the decrease in available labor will be entirely offset by the increased costs in goods/services based exclusively off of labor losses from the UBI.
That is a nonsensical argument. There is ZERO evidence to support it. The overwhelming likelihood is that the price goods will increase, but no where near enough to offset the UBI. The remaining difference in the economy will come from wealth redistribution.
> The problem with your "theory" is that they are going to decrease at a 1:1 ratio with increase in labor costs from the UBI
Actually, I never said 1:1 ratio with UBI. I just claimed the labor markets would decrease and monetary supply would increase.
> True, but that's not the argument you are making.
No, that's exactly and precisely the argument I'm making. I'm not an opponent of UBI for wishy washy wealth redistribution reasons, but because of the lousy labor markets it would create and the inflation it would create.
The models for what would happen under UBI are not clear, but there are not positive economic models under a UBI scheme by major economists.
UBI proponents have failed to provide any model whatsoever and fall back on vague handwaivy feelings that seem to always only show extremely positive outcomes with no possible negatives and a reliance on magic automation technology that doesn't exist.
I 100% agree with you, but unfortunately, you're talking to technology people. The amount of ignorance when it comes to economics on HN has led me to almost never even talk about it.
UBI would only cause inflation if 1) it is not covered by taxes, 2) production does not increase in proportion, and 3) debt does not decrease in proportion. It is extremely likely that a combination of 1, 2, and 3 will keep inflation in check. Ideally, 3 would dominate, because that would greatly dampen the business cycle (i.e. the boom and bust cycle).
The potential for number 3 is the reason I think UBI is a macroeconomic necessity. Currently, our monetary system is based almost entirely on debt; only if that debt (private+public) grows is there an incentive to invest and further grow the economy. When the country and its citizens reduce their debt load, the currency deflates, which distinctivises investment and growth---a depression. With UBI, we could potentially replace this system with a much more stable and robust one, while simultaneously eliminating poverty and poor working conditions.
It's currently believed by most economic models that debt would wildly increase in proportion as there's few tax schemes that would tax the wealthy enough (and in the right ways) to make it work. For example, even a WW2 level progressive income tax scheme would not provide enough money because the wealthy have learned how to acquire wealth without it being their personal income.
Capital gains taxes only occur if money is made from investments, and there's lots of wonderful ways to show losses or get around that kind of tax system by reinvesting or working the books over to show losses.
You don't want to tax asset ownership too much, because then you'll be taxing people's stock and bond ownership and their retirement accounts and it produces a disincentive to invest in businesses that would need that money to produce the kind of automation revolution that would make UBI work (your #2). A great many assets also only have value and not intrinsic worth. For example, Donald Trump is on record saying that he believes his personal fortune can vary by billions of dollars on any given day given how he "feels" about his brand image. We all know about VC valuations. Do we tax paper billionaires who are pulling down $100k in real income? How can they possibly pay that?
Consumption taxes have been demonstrated to have an outsized impact on the poor.
and so on.
A notion that "well we'll just close all the tax loopholes to make UBI work" is quite frankly a fantasy.
I agree that UBI would stabilize boom bust cycles, but it's not clear that that's a desired end-state. Boom cycles are often when major innovation happens.
Labor should get substantially cheaper though. As it stands, people will only accept a job if it covers all their living expenses. Even if you offer to pay enough for half their bills, they'll keep looking for a job that can pay all their bills. With most of their expenses covered by the government, they would be willing to work for a lot less money than before - assuming they're willing to work at all.
I am not sure your argument does not suffer from the lump of labor fallacy. But it's not like there is a coherent definition of inflation, much less a working model for it.
There's actually very good models for inflation. They're basically the models the entire global macro economy is run on. They about as good as weather models, and sometimes they don't work well, but they're generally pretty good at this point.
e.g. When the Fed raises and lowers rates, it's using inflationary models to inform that decision. With a desired goal of sustainable and controlled minor inflation.
As costs for services go up, costs of products go up as well. For example, if I'm in the beer business, and the cost for me to bottle a single beer is $.10 per bottle on my assembly line. If labor costs increase under UBI to double that ($.20/per bottle) (because cheap labor is now harder to find), I must increase my sale price by at least the same or go out of business.
Now somebody buying my beer has to pay $.60 more per six-pack, potentially wiping out that fraction of new income UBI was providing them.
The government could come in and say "the price of beer may not increase at all" and set some kind of price control. So now I need to cut $.60 of cost somewhere else in my product.
But wait, it gets worse!
Bottling isn't the only cost for me to make and sell my beer.
- Grain harvest is more expensive - increasing my cost
- Transport costs are more expensive - increasing my cost
- Blank bottles are more expensive - increasing my cost
- Brewing is more expensive - increasing my cost
and so on...
So to prevent inflation I have to cut costs everywhere else. Cheaper glass, worse grain quality, worse brewing methods, worse water supply, and so on. If I can't balance the cost equation I simply go out of business, decreasing the supply of products in the economy and increasing unemployment.
In effect, nobody gets paid more because everybody gets paid more, which drives up prices, which is the definition of inflation. If inflation is artificially capped by price controls, then product quality either goes down, or I go out of business.
It's basic economics.