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Comment by baxtr | Hacker News Reader

I always wondered: if UBI was reality for everybody, wouldn’t then simply all prices go up by the UBI level and nothing changes after all?

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Price is (primarily) a monetary phenomenon. If you print money to pay for UBI (or anything else), prices go up. If you raise taxes to pay for UBI, prices don't go up. That's in aggregate; there will be a little bit of movement on the margin -- the price of caviar might go down. But rent & food shouldn't move much -- 99.9% of people in the US already have a place to live and enough to eat.

If you assume demand will go up for consumer products and/or output(aka supply) will go down under UBI. Then, prices would go up.

DEMAND INCREASE AND SUPPLY DECREASE:

A simultaneous increase in the willingness and ability of buyers to purchase a good at the existing price, illustrated by a rightward shift of the demand curve, and a decrease in the willingness and ability of sellers to sell a good at the existing price, illustrated by a leftward shift of the supply curve. When combined, both shifts result in an indeterminant change in equilibrium quantity and an increase in equilibrium price.

http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=dema...

You're quoting a microeconomics answer to a macroeconomic question.

I've thought about this some. I think the problem with this reasoning is that prices can't go up by the UBI level, since it would be a fixed dollar amount per person. That is, the price of bread can't increase by $1200 per loaf.

The best the market could compensate, I think, would be a percentage increase in prices corresponding to the average percentage increase in income. Since UBI is a flat amount, not tied to income, that average percentage is going to be so close to 0 as to be completely irrelevant. Even if it's not close to 0, for low-income (or UBI-only income) households especially, the marginal increase in income should be significantly higher than the marginal increase in prices.

If the economy doesn't produce more(or even less) then all that money would go to pay for the same(or less) amount of items.

Yes, I think that's true, although the magnitude of the effect is hard to determine, and I think is likely to be very small.

If the average purchaser of a particular class of good (say, eggs) is making 10xUBI post-tax, then getting one unit of UBI in addition to their base salary shifts the demand curve enough that you'd expect to see a price increase proportional to that increase -- so a dozen eggs goes from costing .05xUBI to .055xUBI, purely as an economic rent.

But for a person making less than the average salary, like 2xUBI or 0xUBI, their egg-purchasing power increases dramatically. A 2xUBI person previously could afford to buy 40 units of egg, and can now afford 54 eggs, a 36% increase in their buying power.

Only for goods that have a constrained supply, in the UK for instance it would probably end up in the pockets of landlords because the housing market is so broken.

If you imagine that there's a fixed amount of stuff available to buy with money, and you increase the supply of money, then the price of stuff in money goes up since the total amount of stuff must remain equal to the total amount of money. But since UBI will mean that poor people have a bigger proportion of the total money than they do now (and rich people having a correspondingly smaller proportion), it will lead to poor people getting a bigger proportion of the stuff, and have a nonzero effect.

You're assuming that any additional funds would simply be spent, and spent on the same goods thus driving up demand given an inelastic supply. All those factors together seem unlikely.

Prices for what? How would anybody coordinate this?

That's what markets are for.

The joke at Google is that if we get a company-wide raise, Mountain View landlords are the ones who celebrate.

Rent is a big one. For example, you charge your tenants $1000 a month now. UBI kicks in, everyone gets an extra $500. Why wouldn't a landlord up their rent charge to $1500, or even to just $1250? Who wouldn't want to do that?

When I was in the military there were landlords who tried to raise your rent whenever you got promoted since each rank's pay is publically available, basically negating your pay raise. The only solution was to make it illegal, but I imagine it'd be even harder to detect with UBI since everyone is getting the same amount, they could just raise rates uniformally instead of singling people out.

The shortest answer, of course, is competition.

One thing to note is that we're not really constrained on "places to live". We're much more constrained on "places to live that are nice enough and close enough to ways of making enough money." A UBI directly increases our supply of "places that are close enough to ways of making enough money."

Also bear in mind that landlords aren't competing just with identical units, but also with alternative living arrangements. If landlords charge more, I save more if I live with a roommate or stay with my parents.

> For example, you charge your tenants $1000 a month now. UBI kicks in, everyone gets an extra $500.

They don't, though, because UBI isn't funded by magical outside injection of value; the maximum mean additional after-tax income in any plausible UBI scheme (ignoring gains by induced economic growth or tax policy changes not germane to UBI funding) is $0. In a sense, it's a means-tested program where the means-test is within the taxing structure rather than a separate bureaucracy.

More to the point, though, local and interregional competition on rent, the same thing that stops landlords from capturing all the gains in income from all sources, is what constrains this (or not, if it is absent); UBI presents no special features in this regard.

While this is true, it is not magically funded, consider the average person. Taxes historically are taken out every pay check. This person is now receiving $X dollars a month "for free", insofar that it doesn't require any actual input on their end to receive this money. Rationally, of course it's not magical free money, but and the end of the day they do ultimately have X more a month to spend.

> While this is true, it is not magically funded, consider the average person.

Yes, do.

> Taxes historically are taken out every pay check.

And witholding formulas will be adjusted to reflect the additional taxes to pay for UBI, so people with jobs or other income subject to withholding (with income high enough that, at the level of approximation provided by withholding formulas, they would pay some additional tax for UBI) will have their non-UBI regularly-received take-home pay commensurately reduced.

> This person is now receiving $X dollars a month "for free", insofar that it doesn't require any actual input on their end to receive this money. Rationally, of course it's not magical free money, but and the end of the day they do ultimately have X more a month to spend.

No, even in the take home pay before filing taxes and settling up at the end of the year sense, not everyone will get equal (or any) additional income under a UBI scheme, and the mean will still be around $0.

>not everyone will get equal (or any) additional income under a UBI scheme

Why call it universal base income if you can price yourself out of it like you can with normal welfare? I thought that was the entire point of the system.

The point is to avoid any effort on deciding who really needs it, and not create perverse incentives not to work. If your tax bill exceeds your UBI, your income is a lot higher than your UBI so you don't care that much.

At the same time, a lot of people will leave crowded cities when the UBI gives them other options. That should exert downward pressure on housing costs.

(Also, laws against randomly raising rents by 50% would be useful.)

You're forgetting there is supply and demand as well. If there are more places to live than people who need them, then landlords and property owners will have to compete to offer the best price. This would drive prices downward, even if everyone has an equal constant added to their income.

Then there's the possibility of some people working less or quitting one of their 2 jobs so they can enjoy their life a bit more. So their actual income could remain flat. If enough people do this then landlords wouldn't be able to increase rates either.

I'm not forgetting supply and demand. The supply increases, therefore demand would as well.

If there are more places to live than people who need them, then I'm curious where this place is. In populated areas where the rental market is already insane (SF, NYC, etc), then it could really only increase rent prices.

> The supply increases, therefore demand would as well.

So you're misunderstanding supply and demand?

If one landlord defects and charges $1250, then they all have to do the same, as long as housing supply isn't constrained. Then if another landlord defects and charges $1100, all the landlords have to switch. In theory at least. Obviously the rental market isn't very liquid, so prices can lag and you can have distortions that persist.

I realize that housing supply is constrained in many areas, which complicates this analysis, but in many areas that is more a regulatory failure than a necessary condition.

Because they're in competition with each other, and thus they also want to undercut each other to ensure that they get tenants for their properties.

One solution would be social entrepreneurs. But I guess the issue with that is regulation. I can imagine lobbyists and NIMBYs blocking those proposals.

With an extra $500/month, maybe I get a mortgage at $800/month and start building up some equity instead of renting.

I don't think the idea is that the poor will get more money from the state just that the money they get will not be means tested.

How do you envisage that would work?

If everyone were to receive £20k per year, the price of everything would obviously not go up by £20k a piece.

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