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Comment by msandford | Hacker News Reader

Yeah he definitely identifies a problem but does not address any of the knock-on effects of a guaranteed minimum income, namely the incentive to not work rather than to work.

What he's arguing is that we should pay people not to work the same way we pay farmers not to grow corn, to ensure that the price is kept high enough for those who do engage in working/farming to earn the "right" amount of money.

It's a noble goal to be sure, to ensure that everyone can feed their families and live a comfortable-enough life and such. I don't argue with his intentions one iota.

The problem for Krugman is that taxing is his hammer and every problem in the world looks like a nail. It's far easier to exhort "we must do something!" and to use the force of law to do SOMETHING than to figure out a better solution to a very real problem.

I am of course in some ways a hypocrite since I can't think of any solutions myself off the top of my head.

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Actually, the idea of a basic income (under the rubric 'negative income tax') was favored by economists like Milton Friedman as well (see http://en.wikipedia.org/wiki/Negative_income_tax for an OK overview). The underlying concept here is not so much fairness as that there's an opportunity cost to society in having people engaged in the sort of work they're not especially well-suited to in order to meet the basic needs of survival.

I never argued against this for "fairness" nor did Krugman mention the societal opportunity cost.

It's more an issue of signaling. People won't go through the pain necessary to learn a new skill if there's no incentive. High wages are encouragements to endure the discomfort inherent (for most) in change necessary for the rebalancing of the labor force. Low wages signal that the skill is not in high demand (relative to supply) and that there may be other more opportunities more attractive.

The negative income tax reduces the incentive to move from one segment of the labor force to another and could be analogous to a tariff, in a way.

It's equally arguable that people won't engage in time-consuming activities of uncertain return if there's too much financial risk. 'Lack of demand' is often a stumbling block for new technologies that are ahead of their time.

> The negative income tax reduces the incentive to move from one segment of the labor force to another

The negative income tax also removes the friction that prevents people from being able to move from one segment of the labor force to another, which is the need to continue working where you have the skills in order to survive, which reduces the opportunity to invest time and energy in learning new skills.

Which of these forces would be most dominant depends on details of implementation, but what is clear is that the effect isn't one sided.

Friedman favored a negative income tax, which is not the same thing.

Also, if properly calibrated, a negative income tax can (assuming diminishing marginal utility) actually create incentives for work. A basic income never does [1].

I don't understand your claim that there is an "opportunity cost to society". Could you explain in a little more detail?

[1] See this previous HN discussion where I do the calculations. https://news.ycombinator.com/item?id=1926061

> What he's arguing is that we should pay people not to work the same way we pay farmers not to grow corn

Actually, no.

Basic income isn't pay not to work, its pay independent of work (or anything else). It is very different from paying people not to work, in that there is always a positive reward for earning money through work (whether wage labor or capital.)

Its essentially making everyone a stock-holder in the commons, and issuing periodic dividends.

Okay sure, but it makes a seriously weird nonlinearity to the work/income relationship.

Let's say I make a modest wage, $15/hr. For every hour of work I do, I earn about $12 post-tax. My income is y=12x. $24k per year working a normal 40 hour week. Okay.

Now let's say I make the same wage but I get a guaranteed $20k tax-free. For every hour I work, I earn $12 post-tax. My income looks like y=12x+20000. 44k/year if I work a regular 40 hour week. But I could also work only 20 hours a week and still make $32k/year, doubling my effective wages. I could work 10 hours a week and bring in $26k/year. Or work a single hour and make an effective hourly rate of $22,012 in that one hour.

People are absolutely smart enough to see how that works and many of them will choose not to work at all. Yeah, it might be true that you don't live anywhere near as fun of a lifestyle on $20k/year as $44k/year but that's only if you value spending money. There are plenty of people who would be content to contribute nothing TO society but still collect their checks FROM society. That kind of asymmetry is worrisome to me.

> Okay sure, but it makes a seriously weird nonlinearity to the work/income relationship.

Pretty much every set of real policies in the world does that. So, what?

> Now let's say I make the same wage but I get a guaranteed $20k tax-free. For every hour I work, I earn $12 post-tax. My income looks like y=12x+20000. 44k/year if I work a regular 40 hour week. But I could also work only 20 hours a week and still make $32k/year, doubling my effective wages. I could work 10 hours a week and bring in $26k/year. Or work a single hour and make an effective hourly rate of $22,012 in that one hour.

Which doesn't really matter. Total income over hours worked isn't what measures the incentive to work, the marginal utility (not the same as dollar amount, to be sure, as income experiences diminishing marginal utility) of the next dollar is what sets the incentive. So, sure, the incentive is less in a system with basic income compared to one otherwise identical without it -- but nowhere near what you are portraying.

> People are absolutely smart enough to see how that works and many of them will choose not to work at all.

Sure, some will, but to an extent that's the point; people are going to be without wage labor one way or another.

> Yeah, it might be true that you don't live anywhere near as fun of a lifestyle on $20k/year as $44k/year but that's only if you value spending money.

You mean, if you value any of the things for which money can be exchanged. Which, pretty demonstrably, most people do.

There is no incentive not to work. With or without guaranteed basic income, you stand to lose tens/hundreds of thousands of dollars per year in compensation by quitting work. So there is no financial incentive at least (except e.g. the cost of commuting, which is generally small in comparison to your lost salary/wages).

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