UBI isn’t likely going to work out in the long-term.
UBI would ‘inflate’ the economy, it wouldn’t grow it. Growth (i.e. ‘productivity’) is more stuff being made. There’s no reasonable argument that the physical quantity of goods/services would increase. In every reasonable scenario, UBI gets inflated away through the supply-side of the production curve.
If your landlord knows you’re getting an extra, say, $5,000 per year in UBI, do you really think your rent isn’t going up? Do you really think AT&T isn’t going to increase the cost of your cell phone bill? Do you really think food is going to magically stay the same price? Gasoline? Clothes? Restaurant prices? And you can continue all the way down the line.
UBI is essentially a transfer mechanism from [insert how it’s funded] to the sector of the economy that produces goods and services to lower income people. In the case of UBI being funded through a VAT, it’s just a closed loop. The people that ‘don’t’ benefit are the lower income people. If you remember Yang’s Presidential bid, even he couldn’t address this. When he was asked directly about it, he just handwaved it away, despite the fact that was a glaring hole in the dead center of his keystone policy piece.
Remember your supply and demand curves from Econ 101? Giving everyone $1,000 a month increases demand for just about everything, with a weight towards the people who spend most all of that $1,000. Whether or not prices go up is a function of the ability of supply to respond. Imagine a world where there are only 2 items: potato chips and your apartment. There are a ‘ton’ of varieties of potato chips, and you can always choose to just not buy potato chips. Your apartment on the other hand, is mandatory and you have to incur a significant cost to move (e.g. it costs money to get a truck, plus you will have to move further from work, and you might have to move to a different apartment, you get the gist).
The potato chip company probably can’t really raise prices you’ll just switch brands costlessly. or you’ll just not buy chips. Your apartment on the other hand is different. I’m not saying your landlord would raise your rent $1,000 instantly, that’s not how that works. Instead, he’d bleed you out. Your rent would go up $250, which you’d be pissed about but you’d pay because you still have $750 from UBI. Next year it’s going up $300, which you’d be pissed about but you’d pay because you still have $400 from UBI and so on until you get pissed enough to actually move. Now you are going to move to a cheaper apartment, but you have to remember that someone else, before UBI started, was paying a lot less than your ‘new’ rent post UBI. In other words, the landlord’s captured it. Notably, this is exactly what we saw with real estate prices as women entered the workforce. It takes about ~10 years or so, but a huge chunk of the extra income went into real estate. Its hard to imagine how UBI would be any different.
Rents in many places have gone up massive amounts in the last few years anyway. Sometimes doubling in a single increase. All without a UBI. Rents increases aren’t tied to an tenants income like you sugest.
Also, your inflation would only be short term. Long term, after prices spike with sudden increased demand, the high prices will incentivize more supply, bringing prices back down into balance.
And there’s nothing to say the UBI needs to be implemented all at once any way. It could start as small as $50/month, then ramp up over the course of a decade or two. That smother transition would allow the markets to adapt without major waves.
There have been wider, longer studies, and what your describing doesn’t actually happen.
Gentrification is extremely local, tied to a specific area. UBI is tied to people. All people. In all locations. No mater where they go. The dynamics are couldn’t be more different.
Would it be all people in all locations or just people in (parts of) the global north? If the global south is included or excluded, how would UBI impact the current unequal transfer of value from the global south to the north? Can the north afford UBI without super-exploiting the south same will a UBI in the south undermine that super-exploitation?
In other words: will the north allow the south to implement any kind of UBI, given the terms and framework of IMF/WTO/World Bank?
The crux of these questions is: what affect will UBI have on global inequality?
Edit: I don’t expect answers to these questions. It would take a book to answer each one. It’s just something to think about.
Gary Stevenson (of Garys
Economics on YouTube) argues that exactly this happend with the Covid money. With watching if you haven’t seen him already.
He suggests the solution to the problem caused by Covid money is a wealth/asset tax. He’s persuasive. My main critique, which leads to a question I have for you, is that it would take quite a shift in public consciousness to get support for that tax: would an asset/wealth tax ‘fix’ the problems that you identify re: e.g. landlords?
Another suggestion (I didn’t hear this from Stevenson but it’s not my idea and I can’t remember the book) is a UBI ‘credit card’ that allows a maximum savings amount. This is to encourage spending and prevent accumulation. After that, the money disappears. I can’t recall if the amount that can be saved is the same throughout each month. It’s government backed, so it’s ‘money’ but it can’t be hoarded in the same way as ‘money’ money. The idea would be to prevent the picture that you paint. Have you heard of this? Any thoughts?
I’ve not heard of him, no. Incidentally I’ll just say, YouTube can be a great catalyst for further exploration or piquing your interest. It is most definitely ‘not’ a substitute for learning about the topic. Here’s a ‘much’ more reputable source that’s worth listening to (though still imperfect IMO):
Keen’s probably the world’s leading Post-Keynesian, heterodox economist. His podcast only became free recently and has since moved the newer episodes here:
But to the point about a wealth tax. A wealth tax would be incredibly destructive to the US economy.
I’m glossing over a ‘lot’ of the structuring aspects, but here are some basic mechanics describing what would happen. Incidentally, several estimates of the wealth tax experiences in Sweden, Spain and a few other countries have been done. What’s notable about all of these wealth taxes were that they were very small and very ‘leaky’ in that the wealth they taxed was very narrow (Switzerland is a great example, they barely have a wealth tax because its so leaky, but people love to hold it up as an example, despite it not working for the longest time).
As far as some of the structuring aspects go, private companies are frequently fully/partially exempted from wealth taxes. Well guess what you see a lot of public companies go private post wealth taxes. Is this classified as avoidance? This biggest point here is that none of the economies that have had wealth taxes have as deeply developed finance markets as the US (and yes, that includes Switzerland). Here’s an example that some people might understand, and this is hugely simplified.
I have a $100M building outright that I rent to tenants (say an office building). It’s illiquid with a thin market and I can’t just move a building. Let’s say I do this: I enter into a terminally settled, non-transferable, future-callable, sale-leaseback with a partial-repo feature, with an overseas bank. The mechanics are this: I ‘sell’ the building to, say, Nomura in Japan. This is the ‘sale’, but I don’t take the cash. Instead, Nomura agrees to a 99-year lease where I can operate the and the rent payments are settled via the sale proceeds I never received (this is the terminally settled part). I rent to tenants and keep the net operating profit. Now depending on the corporate profit rate versus the income tax rate, I’m going to either 1) pay myself a ‘salary’ that zeros the corporate profit or 2) dividend myself, which ever is cheaper. ‘Future-callable’ means I can undo this in the future; ‘repoed’ means that if I need some of the money that Nomura is holding from the proceeds, I can get it back in part.
You say, “but the operating lease has value!,” but does it really? Its non-transferable, so it has no market value, and I can zero the economics of it so it has no model value; you can’t value that using any generally accepted measure. There are some detailed complicating factors in this example, but they can be sorted out; importantly, transactions like this are fairly common for (completely legal) reasons. The main thing I have done is taken the building out of my calculation of ‘wealth’. I would have owed 6% times $100M, but now I don’t ‘have’ a $100M building to tax. Nomura has the building. I will owe either income tax or corp tax, but I would have owed that anyway. At any rate, the wealth tax was brought to zero.
You might say “well just make X illegal!” Fine. But tax cases like that can take 10-20 years to sort out, and the goal here is to $0 the taxes long enough that you get the wealth tax repealed. And it will get repealed. Not because of something like “the evil republicans”, but because it causes ‘massive’ wealth distortions that you will pay for. In the extreme it will cause capital flight that will be similar to the stagflation in the 1970s. This was the exact reason that France and Sweden repealed their wealth taxes. it wasn’t because rich people left the countries (although some of them did), it was because rich people sent their capital overseas, which seriously jacked up interest rates and capital formation.
Your rent would go up $250, which you’d be pissed about but you’d pay because you still have $750 from UBI.
Or, alternately, you’d look around the rental market to find a unit that hadn’t arbitrarily gone up in price.
The scenario you describe only works in a very tightly constrained scenario where supply and demand are highly inelastic. In the real world people build new housing when demand rises, so prices don’t spiral ever upward. Most of the places where there’s currently a housing crisis hare having that problem because they’ve made bad zoning decisions due to NIMBYism and other such miscalculations.
I would expect this to happen if you just give everyone UBI with no changes anywhere else, but that wouldn’t make any sense. Why do we not consider a setup where we set UBI to X, then reduce everyone’s wages by X?
UBI isn’t likely going to work out in the long-term.
UBI would ‘inflate’ the economy, it wouldn’t grow it. Growth (i.e. ‘productivity’) is more stuff being made. There’s no reasonable argument that the physical quantity of goods/services would increase. In every reasonable scenario, UBI gets inflated away through the supply-side of the production curve.
If your landlord knows you’re getting an extra, say, $5,000 per year in UBI, do you really think your rent isn’t going up? Do you really think AT&T isn’t going to increase the cost of your cell phone bill? Do you really think food is going to magically stay the same price? Gasoline? Clothes? Restaurant prices? And you can continue all the way down the line.
UBI is essentially a transfer mechanism from [insert how it’s funded] to the sector of the economy that produces goods and services to lower income people. In the case of UBI being funded through a VAT, it’s just a closed loop. The people that ‘don’t’ benefit are the lower income people. If you remember Yang’s Presidential bid, even he couldn’t address this. When he was asked directly about it, he just handwaved it away, despite the fact that was a glaring hole in the dead center of his keystone policy piece.
Remember your supply and demand curves from Econ 101? Giving everyone $1,000 a month increases demand for just about everything, with a weight towards the people who spend most all of that $1,000. Whether or not prices go up is a function of the ability of supply to respond. Imagine a world where there are only 2 items: potato chips and your apartment. There are a ‘ton’ of varieties of potato chips, and you can always choose to just not buy potato chips. Your apartment on the other hand, is mandatory and you have to incur a significant cost to move (e.g. it costs money to get a truck, plus you will have to move further from work, and you might have to move to a different apartment, you get the gist).
The potato chip company probably can’t really raise prices you’ll just switch brands costlessly. or you’ll just not buy chips. Your apartment on the other hand is different. I’m not saying your landlord would raise your rent $1,000 instantly, that’s not how that works. Instead, he’d bleed you out. Your rent would go up $250, which you’d be pissed about but you’d pay because you still have $750 from UBI. Next year it’s going up $300, which you’d be pissed about but you’d pay because you still have $400 from UBI and so on until you get pissed enough to actually move. Now you are going to move to a cheaper apartment, but you have to remember that someone else, before UBI started, was paying a lot less than your ‘new’ rent post UBI. In other words, the landlord’s captured it. Notably, this is exactly what we saw with real estate prices as women entered the workforce. It takes about ~10 years or so, but a huge chunk of the extra income went into real estate. Its hard to imagine how UBI would be any different.
Rents in many places have gone up massive amounts in the last few years anyway. Sometimes doubling in a single increase. All without a UBI. Rents increases aren’t tied to an tenants income like you sugest.
Also, your inflation would only be short term. Long term, after prices spike with sudden increased demand, the high prices will incentivize more supply, bringing prices back down into balance.
And there’s nothing to say the UBI needs to be implemented all at once any way. It could start as small as $50/month, then ramp up over the course of a decade or two. That smother transition would allow the markets to adapt without major waves.
There have been wider, longer studies, and what your describing doesn’t actually happen.
And I remember people made similar remarks about gentrification. I remain confident that you’ll see it with time.
Gentrification is extremely local, tied to a specific area. UBI is tied to people. All people. In all locations. No mater where they go. The dynamics are couldn’t be more different.
Would it be all people in all locations or just people in (parts of) the global north? If the global south is included or excluded, how would UBI impact the current unequal transfer of value from the global south to the north? Can the north afford UBI without super-exploiting the south same will a UBI in the south undermine that super-exploitation?
In other words: will the north allow the south to implement any kind of UBI, given the terms and framework of IMF/WTO/World Bank?
The crux of these questions is: what affect will UBI have on global inequality?
Edit: I don’t expect answers to these questions. It would take a book to answer each one. It’s just something to think about.
Gary Stevenson (of Garys Economics on YouTube) argues that exactly this happend with the Covid money. With watching if you haven’t seen him already.
He suggests the solution to the problem caused by Covid money is a wealth/asset tax. He’s persuasive. My main critique, which leads to a question I have for you, is that it would take quite a shift in public consciousness to get support for that tax: would an asset/wealth tax ‘fix’ the problems that you identify re: e.g. landlords?
Another suggestion (I didn’t hear this from Stevenson but it’s not my idea and I can’t remember the book) is a UBI ‘credit card’ that allows a maximum savings amount. This is to encourage spending and prevent accumulation. After that, the money disappears. I can’t recall if the amount that can be saved is the same throughout each month. It’s government backed, so it’s ‘money’ but it can’t be hoarded in the same way as ‘money’ money. The idea would be to prevent the picture that you paint. Have you heard of this? Any thoughts?
I’ve not heard of him, no. Incidentally I’ll just say, YouTube can be a great catalyst for further exploration or piquing your interest. It is most definitely ‘not’ a substitute for learning about the topic. Here’s a ‘much’ more reputable source that’s worth listening to (though still imperfect IMO):
https://mega.nz/folder/MYlFwYpC#ZHmrbskzPgKHq9BGuWjvFg
Keen’s probably the world’s leading Post-Keynesian, heterodox economist. His podcast only became free recently and has since moved the newer episodes here:
https://debunkingeconomics.com/
But to the point about a wealth tax. A wealth tax would be incredibly destructive to the US economy.
I’m glossing over a ‘lot’ of the structuring aspects, but here are some basic mechanics describing what would happen. Incidentally, several estimates of the wealth tax experiences in Sweden, Spain and a few other countries have been done. What’s notable about all of these wealth taxes were that they were very small and very ‘leaky’ in that the wealth they taxed was very narrow (Switzerland is a great example, they barely have a wealth tax because its so leaky, but people love to hold it up as an example, despite it not working for the longest time).
As far as some of the structuring aspects go, private companies are frequently fully/partially exempted from wealth taxes. Well guess what you see a lot of public companies go private post wealth taxes. Is this classified as avoidance? This biggest point here is that none of the economies that have had wealth taxes have as deeply developed finance markets as the US (and yes, that includes Switzerland). Here’s an example that some people might understand, and this is hugely simplified.
I have a $100M building outright that I rent to tenants (say an office building). It’s illiquid with a thin market and I can’t just move a building. Let’s say I do this: I enter into a terminally settled, non-transferable, future-callable, sale-leaseback with a partial-repo feature, with an overseas bank. The mechanics are this: I ‘sell’ the building to, say, Nomura in Japan. This is the ‘sale’, but I don’t take the cash. Instead, Nomura agrees to a 99-year lease where I can operate the and the rent payments are settled via the sale proceeds I never received (this is the terminally settled part). I rent to tenants and keep the net operating profit. Now depending on the corporate profit rate versus the income tax rate, I’m going to either 1) pay myself a ‘salary’ that zeros the corporate profit or 2) dividend myself, which ever is cheaper. ‘Future-callable’ means I can undo this in the future; ‘repoed’ means that if I need some of the money that Nomura is holding from the proceeds, I can get it back in part.
You say, “but the operating lease has value!,” but does it really? Its non-transferable, so it has no market value, and I can zero the economics of it so it has no model value; you can’t value that using any generally accepted measure. There are some detailed complicating factors in this example, but they can be sorted out; importantly, transactions like this are fairly common for (completely legal) reasons. The main thing I have done is taken the building out of my calculation of ‘wealth’. I would have owed 6% times $100M, but now I don’t ‘have’ a $100M building to tax. Nomura has the building. I will owe either income tax or corp tax, but I would have owed that anyway. At any rate, the wealth tax was brought to zero.
You might say “well just make X illegal!” Fine. But tax cases like that can take 10-20 years to sort out, and the goal here is to $0 the taxes long enough that you get the wealth tax repealed. And it will get repealed. Not because of something like “the evil republicans”, but because it causes ‘massive’ wealth distortions that you will pay for. In the extreme it will cause capital flight that will be similar to the stagflation in the 1970s. This was the exact reason that France and Sweden repealed their wealth taxes. it wasn’t because rich people left the countries (although some of them did), it was because rich people sent their capital overseas, which seriously jacked up interest rates and capital formation.
Or, alternately, you’d look around the rental market to find a unit that hadn’t arbitrarily gone up in price.
The scenario you describe only works in a very tightly constrained scenario where supply and demand are highly inelastic. In the real world people build new housing when demand rises, so prices don’t spiral ever upward. Most of the places where there’s currently a housing crisis hare having that problem because they’ve made bad zoning decisions due to NIMBYism and other such miscalculations.
I would expect this to happen if you just give everyone UBI with no changes anywhere else, but that wouldn’t make any sense. Why do we not consider a setup where we set UBI to X, then reduce everyone’s wages by X?
Would reducing wages by X be as effective as reducing ‘passive’ income from assets (by a proportion of X) or by imposing a wealth cap?