Why inflation is a terrible tax

[Lexicus]

I care about downstream consequences very much, but I suspect we have very different idea of what kinds of consequences are acceptable and desirable.

 

[Hygro]

UBI is going to be crazy.

 

[Cutlass]

This is a diversion from the main thread, but that's fine. I want to restate that I am rather worried about Automation-Induced Unemployment (AIU) running away on us, and I see a scaled UBI as part of the solution (along with targeted employment for positive externalities).

You will always need additional welfare. For a large number of poor people, the main thing they need is just more money. They have all the life skills required to make a better life for themselves with a larger paycheque. And there's a smaller segment of poorer people that both need much larger amounts of money and actually targeted assistance. There's just no way to balance that spending with the amount of money everyone else receives. The major problem with much of Western welfare isn't that welfare is given, it's the perverse incentives due to their clawback mechanisms.

The positive reason for UBI isn't solely its ability to create efficiencies in our welfare systems (though it very much would, by large margins), but also to counteract the systemic imbalance we have in our societies with too much wealth having gone to the top. If it wasn't for AIU, an extended period of (high enough) UBI would claw back our societies on track. You don't need to eliminate welfare programs for a UBI system to be of use.

You haven't provided any numbers, you realize. There's only so much insistance that you're correct that's really useful to provide in a discussion. Also, I know it was an interruption of the thread, but what's under discussion is whether we can afford a UBI where people can choose to not work. Inflation isn't really part of that story, except insofar you need some mechanism to make sure everyone has the same (minimum) purchasing power today as next year. But that's easily modeled, even if not implemented.

Lets take this from the top. A UBI that isn't enough to live on isn't really a UBI, now is it? A UBI that isn't, you know, universal, isn't really a UBI either, now is it? The UBI argument isn't, IMO, useful, and we should be approaching the subject in another way.

A universal basic income includes giving a basic income to billionaires. Now maybe that's a selling point, give everyone some skin in the game. But it isn't going to work. They'd rather not pay the taxes than get the taxes back.

The fundamental problem with any transfer payments program is that no one wants to pay for it, and no one wants to receive it. People do not want to work, and have their incomes supplemented by a 'welfare' program. They want to work and have wages high enough to think that they are self sufficient. That's a huge psychological roadblock. So higher wages > transfer programs to the recipients. And because of this support for UBI will always be weak.

OK, that aside let's envision a BI program that is not universal. Lets say $12k/year/person. Can someone live on that? Barely, and not in all places. But with roomates and frugal living, and healthcare costs paid separately, then most people may be able to. Healthcare must be a separate program. Many people talking about UBI want the recipient to pay for their own out of the UBI. What that means is that people living on UBI alone simply would not get healthcare. So BI + Medicare. And some people will need even more than that, if they are disabled, or have some other particular problem.

Now if it is a BI rather than a UBI, then how do you handle the phase out? Many current welfare programs fail because they cut out with income at about a 1 to 1 ratio. This discourages work, and does so in a big way. Rather, a BI should be structured such that it does not discourage work, so for example a BI of $12k and you can earn an additional $12k with no phaseout, and then the phaseout happens at a rate of maybe $1 lost for every $3 or 4 earned. If you do it in this way, then there is no work disincentive. Every dollar earned is a net increase in purchasing power. There are many people now who do no work, for to do so means losing their benefits that they are dependent on. That does not mean that they are not capable of doing any work, only that they cannot do enough work to support themselves, and so cannot afford to lose benefits. But remove the risk of losing benefits, and will they not work the small amount that they are able to? If they do, they improve their material condition. That's a lot of incentive.

The question you have, would a UBI, or a BI, discourage work? And I have to ask, why? What's your thought process on this? To me this is consistent with the extreme conservative-elite mindset that thinks the poor and labor are naturally lazy, and only work because they are forced to work. That doesn't really hold for many people. And, in the cases where people don't work, it's very rarely a case of laziness, more than hopelessness or despondency. People who do not envision themselves as having any hope for a better future don't work towards a better future. But people who do, do. We live in nations with market economies where most people spend most of their adult lives working. And most of those people are working at far above subsistence levels. In fact, only a minority of people are working at subsistence levels. And for most of those people, it's not a choice, but it is the best that they have the ability to accomplish.

What is the lesson from that?

The lesson from that is that very few people chose to live at the point of subsistence. In fact, statistically, it's less than a rounding error. But somehow UBI will take all these people who are not satisfied with living at subsistence levels now, and suddenly subsistence living looks good to them.

I don't buy it.

People will work with a UBI, or BI, because they are on net better off from doing so. And a greater number of people will work, for welfare is no longer discouraging them from doing so.

Now you keep asking for numbers on a program that has not been tried, and is entirely theoretical. Where would you like these numbers to come from?

Before we go into this again, please take the time to read the reddit-economics faq, written by actual economists, one of whom you know from his previous participation in this forum. https://www.reddit.com/r/Economics/wiki/faq_basicincome

 

[Lexicus]

They want to work and have wages high enough to think that they are self sufficient.

This is why I actually favor a job guarantee in addition to a UBI. The job guarantee creates a pool of employed people that acts as the same kind of check on inflation as the unemployed supposedly do now.

 

[El_Machinae]

Cutlass, are you including "by definition, it's enough money to live on" as part of your usage of 'basic'? I tend to see it used interchangabley with 'negative income tax' or 'citizen dividend'. My bad. I would probably have to say "I think UBI is not currently affordable, but we could get there with a proper negative income tax, or citizens dividends or whatever". A quick wiki perusal shows me that I am not using the word the same way other people do. I think my distinction was clear, however.

If so, that's going to be the majority of why our conversation has been so confusing.

I ... kinda ... see why Lexicus is talking about guaranteed employment being a check on inflation. I tend to flip that factor in my equation, and use targeted job creation (even at negative returns) as a way of lifting up where the minimum needs to be at any given time. (We'd rather give 5 people $15k to produce $13k than merely to give one person $10k, when talking real dollars). Intentional job creation will be increasingly important as automation accelerates while we culturally adapt to being the idle rich.

The question you have, would a UBI, or a BI, discourage work? And I have to ask, why? What's your thought process on this? To me this is consistent with the extreme conservative-elite mindset that thinks the poor and labor are naturally lazy, and only work because they are forced to work. That doesn't really hold for many people. And, in the cases where people don't work, it's very rarely a case of laziness, more than hopelessness or despondency. People who do not envision themselves as having any hope for a better future don't work towards a better future. But people who do, do. We live in nations with market economies where most people spend most of their adult lives working. And most of those people are working at far above subsistence levels. In fact, only a minority of people are working at subsistence levels. And for most of those people, it's not a choice, but it is the best that they have the ability to accomplish.

It's a question that is both fair to ask and actually deserves an answer. There's no answer that involves accusing me of bias that actually answers the question. You need numbers. It's not like it's a dumb question. An incredible number of people fail the marshmallow test. All you need is a series of data showing when people choose to produce more than they consume once they have a source of permanent income. That's what will be required for the enterprise to work, since you need it to both pay for the lifestyles of those who work, those who choose not to, and those whose work produces less than their consumption.

The goal is to trade yachts for more hamburgers, we all know that. But unless your motivation for NOT living at the UBI is "it's a crummy life", then the question needs answering. It's not like we're envisioning a world where the non-worker continues to live poorly in perpetuity. We need to very rapidly shift from being forced into unemployment to having a really good life while mainly working in leisurely pursuits.