Whereas, by contrast, increases in the price of food quickly lead to increases in the supply of food.
As Matt Rognlie of MIT showed, rents have been responsible for almost all of the returns to the already-wealthy over the past few centuries that Piketty documented.
UBI is not a replacement for a job. And unless you wish to survive on extremely minimal living standards, UBI alone won't be of much help to you.
Maximizing social prosperity and stabilizing the economy would probably #1 and #2 for me.
This is a common misconception. In fact real estate is just as supply-elastic as everything else. New developments open up all the time. Development makes land more attractive for more people. And areas become blighted and therefore less attractive, lowering prices.
Some places have sharply-constrained supply, such as San Francisco, but this isn't the norm. The norm is cities slowly expanding outwards, as new investments in the center require more time and effort to bear fruit. Politics often throws a monkey wrench into market functionality, but the vast majority of real estate markets function and clear just fine.
Land (as in housing) is widely accepted as being supply-elastic, especially since in addition to scarcity it's also heavily regulated. You can't wave your hands at SF and say it's an exception because you want UBI to work. Markets like SF are proof that housing pricing is income-elastic, and can't be dismissed when discussing raising the income floor for entire populations.
If you built some electric poles in the middle of the tundra and by moving there people could pay significantly lower prices per KWh, people with high electricity consumption absolutely would show up there to consume it. There are companies that build data centers in cold climates just to save on air conditioning.
> Land (as in housing) is widely accepted as being supply-elastic, especially since in addition to scarcity it's also heavily regulated. You can't wave your hands at SF and say it's an exception because you want UBI to work.
Not all housing markets are hampered by bad regulations. Houston has much less restrictive zoning and rents are much lower there than SF. They're also lower in Tokyo despite the incredibly high demand for housing there, because Tokyo isn't afraid of density.
It doesn't say anything to say the combination of UBI and terrible zoning regulations will cause rents to be high in SF. They're already high in SF because of terrible zoning regulations even without a UBI. The only way to have reasonable rents is to fix the zoning rules, after which supply will meet demand as it ought to.
I fail to see the relationship to UBI with that.
Nobody denies that within the fixed number of locations that there can be dynamism, the question is how rent functions in lieu of this scarcity. It happens to follow the Law of Rent.
The Law of Rent requires a bunch of things to be true that frequently aren't true in practice, or that are only true in cities like SF with restrictive zoning laws that prevent new housing construction.
Suppose there are 1,000,000 tenants and 100,000 landlords whose land can each support 100 tenants if a tall building was built there. In the absence of collusion or zoning regulations to the contrary, each of the landlords has the incentive to add more apartments to their land until the net present value of rent of an apartment falls below the building cost, because the land isn't "scarce" in the sense that it can support ten times as many tenants as there actually are, and every landlord would prefer to make more money at the expense of the others.
Not at the same commute time and price. Home prices won't be that high, if there was fast, cheap and better public transport to far off places. That again takes a lot of tax money to build and maintain.
> Land has a perfectly inelastic supply, and thus expectations of more income will lead to increases in rent.
It seems like you're talking about housing rather than land, you don't think that more construction happens when there's more demand? Most of the populated world doesn't have the unique constraints present in the Bay area or NYC.
Because of the law of supply and demand, as it pertains to the outputs of a productive process in a relatively free market context. The prices will generally tend towards the costs (including opportunity costs) in the long run, and demand shocks will only cause temporary rises in price until production can catch up.
With naturally scarce commodities, that is not possible, because there is no production.
>you don't think that more construction happens when there's more demand?
Land supply is perfectly inelastic. Improvements on land are somewhat elastic, although ultimately anchored by lots of factors... and the speculative holding of land is a big one. Furthermore, there's an upper limit to the amount of density that a region can sustain and still be livable.
There's a "standard of comfort" that people have, which ultimately determines a lot of it, though. So, in theory, if we became more comfortable at higher densities, we could live like people in Hong Kong. Yet, that doesn't mean even they can sustain infinite density, and indeed they have high rents in Hong Kong.
Oil rights are a kind of land, of course, because that is what land really is... the rights.
Those rights are precisely quantifiable in the form of land titles. The scope of those titles, and the quantity of land subsumed under them, is precisely quantifiable and does not change from year to year.
The speculative holders of the rights are often neglecting to rent out the land, but in economic terms they are just consuming their own imputed rents. The rents are a flow that continuously accrues to the title.
One of the cool things about basic income is that because it distributes the incomes evenly, it flattens out the demand curve or increases the price elasticity of demand. This means that (even absent competition) if producers raise prices, they'll lose customers. Conversely, if they lower prices they'll get more customers.
A basic income creates an incentive for producers to keep their prices low. This incentive is higher than it would be without the basic income.
Another way to think about it is that basic income, doesn't give people more money to spend on goods they're already buying. Instead, it gives money to more people to spend on goods they wouldn't have bought before. It's the difference between giving money primarily to people who already have it and giving money to people who don't.
Basic income allows the economy to start activating previously unused productive capacity that was already available.
Of course this doesn't work for goods whose production is being constrained by resource limits. For example, under basic income, you might see the price of meat rise, which would cause people to buy less meat and substitute other types of food. We have the capacity to feed the world, but we don't necessarily have the capacity to feed everyone meat 24/7.
Sort of. But land is not a uniform commodity. Different parcels of land are subject different levels of demand. For a place like New York City, the demand for real estate is fairly inelastic. But a basic income would decrease the incentive for people to live near where the jobs are. This would likely cause real estate prices to crash in more expensive places like San Francisco and New York. Many of those prices are inflated due to speculation anyway.
If you implemented UBI federally, rents in general could take a huge hit. That is because people would use ubi to go from high rent to low rent places, because their marginal savings rate would be much better.
Without implementation details, its hard to say if it will raise or reduce rent.
These days, the amount of money the government is able to spend has very little to do with the size of their tax revenues. You can certainly tax landowners, but you should only do so if you want to punish people for owning land. The money you collect is meaningless.
As has been mentioned by me and others in other comments, basic income will push down real estate prices all on its own.
I think it's incorrect to think that a good has an intrinsically elastic or inelastic supply.
> Eventually stagflation was ended by dramatically raising interest rates and triggering a nasty recession.
An alternative explanation is that, since interest rates were lower than the rate of inflation, producers issued bonds to finance stock (raw commodities and semi-finished goods), which pushed up both the inflation rate and bond interest rates. While the rate of inflation was higher than the bond interest rate, the incentive remained for producers to issue bonds and use the proceeds to hoard stock.
In combination with this, the increasing demand for consumer goods — because of rising inflation — caused the yield on retail shelf space to increase. I.e. if people empty a shelf of flour twice as fast, because they want to stock up before prices increase, the yield on the capital that is retail shelf space doubles. This meant the Fed lost control over the short term deposit rate, since money market funds were able to overbid the Fed by financing the inventory of retail stores. Thus, the Fed lost control over the short term rate of interest, which kept increasing along with the rate of inflation.
Then you said
> UBI could lead to stagflation because the income allotments and any increases would be according to some formula known ahead of time. This means that producers could anticipate demand and simply raise prices to soak up any income increases.
This is a very interesting point that I have never considered before. Thanks for mentioning it.
It's been a while since I've done serious economic analysis. Please correct me if I'm wrong.
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Also, the whole thing is predicated on a web of trust to prevent Sybil attacks. Fine, but PGP has shown pretty conclusively that a web of trust like this is a failed model. A single trust authority makes far more sense for this application.
In the PGP case, casual users like myself don't personally know anybody who uses PGP. I would have to go out of my way to acquire a reasonable degree of trust on my key: I'd basically have to start asking people I hardly know "hey can you sign my key?" which I'd rather not do. That's fine, because PGP is for hacker nerds and not everybody needs or wants to be a hacker nerd.
The problem, however, is that if this is to be truly universal then you need to guarantee universal access. What if I've been in prison for 5 years, I can't get in contact with any of my family, and my old private key is long lost. So I start up a new account and... what? Who trusts me? I basically have to start asking random people to trust me. So people have to trust each other. Then what's stopping a con artist from going from town to town, getting store owners and locals with bleeding hearts to trust each of his multiple duplicate currencies. The Sybil attack can proceed with trivial social engineering.
You're in a Catch-22: either people are skeptical, and the system is decidedly non-inclusive, or people are trusting, and the system is insecure. You need centralized trust: it's the same problem we have today with domain names. You need an authoritative list of valid domains, and a single source of truth for accessing that list.
The nice thing about a trust authority is that it doesn't need to be physically centralized. Just record everyone's citizenship on a blockchain like Ethereum. But at this point I'm just speculating.
=)
> If you print money on a fixed schedule, the natural market response is to devalue the currency according to the same fixed schedule.
This is wrong. Price levels of a currency are determined by the volume of spending relative to the volume of trade. Furthermore, it's not the volume of any trade that matters. It's the volume of trade of goods whose prices you care about.
Money does not spread itself evenly over the course of the economy. To take an extreme example, if we just throw the printed money down a hole, it doesn't affect prices. Or if we spend all that money to buy stocks, it might drive up the price of stocks, but we probably don't care about the price of stocks when calculating the general price level for our currency.
Additionally, people borrow in order to spend. The amount of spending in the economy increases when people borrow more. In this sense, an increase in credit and debt in the economy has a very similar effect to an increase in the amount of money.
As I alluded to previously, there are places in the economy where money flows in faster than it flows out. Money tends to accumulate in these places. The spending that people would have used that money for must be continually replaced or you end up with deflation.
But let's imagine a world in which people are able to buy more of the stuff whose prices we care about. This is the basic income scenario. Assuming that we have the capacity to produce more of that stuff, we will produce more. Note that doubling the number of people who can afford to buy stuff is very different from doubling the amount of money that everyone has. In the former scenario, more people are willing to buy at existing prices. In the latter, people are willing to spend more on the stuff they already buy. The second scenario is always inflationary.
Anyway, I could go on and on about this. And I have. The bottom line is that it's complicated. And you always need monetary policy keeping your currency stable regardless of whether you have a basic income. The effects of a basic income could be either inflationary or deflationary. It probably depends on the amount of the basic income. In either case, monetary policy has got you covered.
I agree with you though that Circles doesn't seem to have any kind of sane monetary policy.
The point about deflation is something I hadn't considered. I'm skeptical, and if you have any references on that point I'd be glad to see them.
The Fed doesn't target housing prices. But a basic income (not tied to a job) should make it more affordable to move away from high-demand areas, reducing demand somewhat.
For the cost of a college education we could give people a valuable trade and a small business loan. I think the reality is we have a cultural stigma against physical labor and hard work. Some of us aren't against the idea of "free money", but I want a guarantee it's being used for good.
I'd argue that inserting companies into the positions where these people once were - asking companies to act as social glue - is where we've gone wrong in the past couple of decades.
So sure - some kinds of organisation can and do provide social glue. The problem is, the capitalist notion of organisation doesn't support this. Not to imply I'm against capitalism - it has its benefits, but social glue is not it.
Do you cut them off and watch them starve? If you have any sort of criteria, SOME people will not meet the criteria and will have no resources. They will have no food or shelter. The fundamental question, then, is whether you believe there are some people who just deserve to starve and die, because they are either unable or unwilling to support themselves.
Lastly, you say you want some 'guarantee [the free money] is being used for good'. While this seems like a reasonable desire, how important is that? If data shows that you have to spend more money trying to catch people abusing the system than the money you would lose just paying people who abuse the system, is it worth spending more? This has happened before; they started drug testing welfare recepients in Florida, and they spent more money on the drug tests than they saved. Is it worth spending extra money to make sure no one 'gets a free ride'?
http://www.nytimes.com/2012/04/18/us/no-savings-found-in-flo...
I also never said that letting people starve who can't or won't support themselves is morally indefensible. If you want to argue that it sucks but is a better alternative than what would happen if you tried to save everyone, it doesn't make you an immoral person. My only point was that you have to think about what you will do with the people who don't meet your requirements.
And then there's also the whole 'universal' part.
But what about it requires to be at the federal level? Is there a base number of participants that are required? Does that mean smaller governments can't have UBI? Or, is the idea just so big we can't be bothered to get into the technicalities of it all?
> Is there a base number of participants that are required?
You need a group of people with diversified income/wealth. The wealthier contribute more than they get from UBI, the poorer contribute less (if any) than they get from UBI.
I like it mainly for the idea of replacing welfare with a much simpler system. But it will never happen in America, land of absurd tax code complexity. And certainly not with a name like Universal Basic Income. It would have to be called something else to avoid triggering people.
Sort of.
> If you have a homogenous group, all with the same income/wealth, then UBI would do nothing.
True. In this scenario, demand is already as elastic as it's going to get. It would basically be impossible for the economy to be operating below full productive capacity. A basic income would either cause inflation or indirectly cause people's incomes do decrease by the same amount in some other way (e.g. taxes or monetary tightening).
> You need a group of people with diversified income/wealth.
Yes. In this case, basic income would actually benefit us because it can increase quantities demanded at current prices thereby incentivizing producers to produce more stuff for people.
> The wealthier contribute more than they get from UBI, the poorer contribute less (if any) than they get from UBI.
Hmm. Not really. I'm going to push back on you here a little bit. The value of a UBI does not come from people "contributing" to it. It comes from the capacity of the economy to produce more stuff in response to the additional spending.
I think you're talking about taxation here. But I don't think it's useful to think of basic income as being funded by taxes. The amount you tax does not have any direct effect on how much basic income you can afford to provide.
> But it will never happen in America, land of absurd tax code complexity. And certainly not with a name like Universal Basic Income. It would have to be called something else to avoid triggering people.
Yup. At least politically, taxes and government spending are hopelessly intertwined. But it doesn't have to be this way. And there's nothing stopping a startup from offering a basic income. I'm skeptical that Circles is the start up to do it, but I fully believe that it can be done.
No. Universal just means everyone gets it. In fact, the word "universal" is redundant in the term "universal basic income" because "basic income" is already an income that everybody receives. It forms a base upon which you can build further income.
Some people believe that basic income should replace existing welfare programs, but it doesn't have to. After we implement a high enough basic income, we certainly might discover that we don't need some of these other welfare programs anymore. But in my opinion, there's not really any reason to shut them down ahead of time.
> But what about it requires to be at the federal level?
It's hard to implement a basic income if you don't issue your own currency. Currency is issued at the federal level, so that makes it a natural choice.
If you tried to implement it at the local level, you'd probably have to raise taxes or something... or create some kind of local or alternative currency. It's not impossible, but it's certainly less efficient.
> Does that mean smaller governments can't have UBI?
In a way, yeah. You've got to have a stable currency in which to pay the basic income. The smaller the government, the harder it is to maintain a currency. Furthermore, the amount of the basic income is constrained by the productive capacity of the economy. There's a limit to how much spending the productive economy can absorb. So if your country has a very resource-rich economy, you might be able to get away with a higher basic income.
But it's a continuum. The most efficient basic income is probably a worldwide basic income. Since the United States controls the world's reserve currency, they could probably pay everyone in the world a basic income in dollars without causing inflation or anything. But a country like Mexico couldn't do something similar.
That's certainly a theory. It's not a theory I subscribe to. Teach a man to fish and he'll fish for a lifetime. Give him fish for a lifetime and he's free to do something useful with his time.
If our economic output is constrained by demand and you give people money, they can buy the stuff we're already capable of producing. It's as simple as that.
> Some of us aren't against the idea of "free money", but I want a guarantee it's being used for good.
It's not free if it comes with such a restriction. We don't need to force people to work. If we want people to work, we can always pay them.
I agree with you that people should use their money for good. But what is the ultimate good that we care about? We care about people's well-being and the prosperity of society, right? Using money for good means spending it on things that benefit you.
So this is an issue for a coin but not necessarily UBI, no?
The amount of money the government can spend without causing inflation has very little to do with the level of tax revenues they collect.
One way to think about it is that the economy has a certain amount of spending that it can productively respond to. Beyond that level of spending, you start running into problems such as inflation, interest rates that are too high, etc.
It doesn't matter whether you took any money from the rich to fund that spending because the rich people weren't going to spend very much of their money into the productive economy anyway. The productive economy can still absorb the same amount of spending as before.
But you're right that there does have to be some kind of mechanism to keep the currency stable and I don't see such a mechanism in Circles.
Also I have never accepted the simple case that UBI will cause inflation. Its almost a ridiculous proposition to me.
Everyone should be. =)
> In reality the Phillips curve was too simple.
Yes. The Phillips curve relationship between inflation and unemployment only holds under certain conditions. Policymakers thought they could stimulate the economy by causing inflation, but this kind of thing isn't going to work if the underlying problem with your economy is that you have less access to resources (in this case, oil).
So the policymakers made a mistake in the 1970's. And, as you say, the expectations of inflation led to institutional inflation, which is basically just inflation that reinforces itself out of habit.
Small amounts of inflation can be okay because they help the economy more evenly absorb adverse conditions. For example, instead of firing a bunch of your workers, inflation allows you instead to choose not to give people raises. But there's a limit to how much benefit you can get out of inflation.
> UBI could lead to stagflation because the income allotments and any increases would be according to some formula known ahead of time. This means that producers could anticipate demand and simply raise prices to soak up any income increases.
Hmm. I'm not sure this is right. UBI or not, you need to keep inflation in check. But there's a lot more to inflation than just the amount of money in circulation.
In order to keep prices stable, the amount of spending in the economy must stay aligned with the amount of actual stuff being traded. Generally speaking, monetary policy keeps prices stable. If there otherwise would be deflation, monetary policy incentivizes borrowing (lowers interest rates) to increase the amount of spending in the economy. If there would otherwise be inflation, monetary policy disincentivizes borrowing (raises interest rates).
UBI, on its own, won't cause inflation, let alone stagflation. In fact, it can lessen the need for monetary policy to encourage borrowing in the private economy. Through the monetary policy response it induces, basic income can take some of the fuel away from the speculative bubbles that tend to destabilize the economy every so often.
However, Circles hasn't described how they plan to implement monetary policy. Without solving the problem of price stability, they won't have much of a currency, let alone a basic income. A flat increase in the amount of the basic income isn't going to cut it. Monetary policy must be able to respond to various economic conditions.
It's probably a mistake not to keep your monetary policy separate from your basic income.
In reality the Phillips curve was too simple. What was happening was that since wage increases came to be anticipated due to the consistent low interest rate/moderate to high inflation environment, producers would preemptively raise prices to soak up all of the wage gains. This led to a wage/price spiral with no actual improvements in productivity.
Eventually stagflation was ended by dramatically raising interest rates and triggering a nasty recession.
UBI could lead to stagflation because the income allotments and any increases would be according to some formula known ahead of time. This means that producers could anticipate demand and simply raise prices to soak up any income increases.
Something to keep in mind when devising these systems.