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I may have part of the answer. It makes the labor market freer. People talk about free markets, but the labor market cannot be free, you don't have the choice of not working, because then you can't afford to eat, and you die or steal. The minimum wage is an attempt to make the market less free by setting a price control, paired with welfare.

By having UBI the choice to participate in the labor market now exists. The market is more free.

It's not an inherently collectivist idea (socialism being extreme authoritarian collectivists). It's a collectivist libertarian idea (see the following link for history and moral philosophy): http://en.wikipedia.org/wiki/Geolibertarianism

> Unlike establishing price floors as things like the farm subsidies do and which encourage over production of unneeded goods

While the programs are certainly not perfect, part of that is by design. The idea is to overproduce storable goods now, when you can, in case you cannot produce food in the future (crop failure, war, etc.).

> And the software engineer making six figures? She might take here bi-weekly BI check and help others, or go out to dinner at a fancy restaurant, or save it for a durable goods purchase. For her, its like "free money" so its easy to spend (which also helps the economy).

Given that a $100K salary puts one in the top 7%[1], wouldn't you have a different inversion layer here? i.e. The taxes paid to support basic income will exceed the income from basic income. As a result, I don't see it becoming 'free money' in the eyes of such people, it will be something to cling on to because it and more were earlier taken away.

[1] http://en.wikipedia.org/wiki/Personal_income_in_the_United_S...

A very well reasoned theory. I am always highly skeptical about basic income schemes, however you definitely began to persuade me, however I'm not am there yet. My concern would be inflationary pressures. If everyone makes $x per year, then everyone would want a minimum of a studio apartment instead of the residence hotel. Yet there isn't an increased supply of apartments. So prices rise, negating the benefit. So now these residence hotels can charge a higher price because the people can now afford it. However, to pay for basic income, now you must increase taxes, which results in a lower marginal profit for property owners, which creates a disincentive to keep building, which further constricts supply and raises costs. Even discounting tax revenue increases that would be necessary to fund a basic income, supply and demand still apply. In you lower the cost of something (either by lowering the price or increasing the ability of people to pay the current price,) you reduce supply. So we're back were we started, except those people who have saved money over the course of their life now find it less valuable, thus reducing their purchasing power and thus resulting in decreased demand, thus lowering prices. However in that scenario, it simply redistributes the wealth from the savers to the group you are trying to help. Great for the special interest (the poor) but at the expense of the whole. Because, a basic income isn't creating new wealth, it's rearranging existing wealth while also reducing the incentive to create new wealth through higher taxes. One could say "reduce the defense budget," which is a valid idea, however the defense budget is also responsible for a huge amount of economic activity (see the US economic recovery during WWII as an example.) Sonwith reduced defense spending, you also reduce the jobs from that industry, which puts additional stress on a basic income system. Of course, I reject the Keynesian premise that defense spending boosts the economy, but what does boost the economy is lower taxes; it incentivizes production which then provides more jobs and increases the amount of capital available for real wealth creation, which helps everyone -- even the profoundly poor. After all, compared to countries like India, Mexico, etc, the American poor are far better than the poor of those counties-- because there is far greater wealth and thus a more powerful economic engine and thus increased opportunity. Poverty rates in the U.S. have remained unchanged since the War in Poverty. Why? Redistribution doesn't solve anything.

> so its easy to spend (which also helps the economy).

If money is not spent, it is invested (not hoarded). Even putting money in a bank is investing it, as the bank loans it out to people who spend it.

The idea that giving money to someone to spend is better than to someone who invests makes no sense to me.

One of the more interesting things that I believe this period will contribute to the field of economics is the question of investment vs spending.

That savings become investment because the bank can only make money when the money it holds works for it, is a principle that we all learn in Econ, however after the Mortgage crisis and the response to it, there has been a twist. For very large banks, and for most US citizens they only have very large banks to interact with, they stopped investing in the outer layers of the economy. Banks stopped lending to a large swath of people in part because as a large portion their deposits could be consolidated into very large pools which were used in more abstract investment schemes. Even today if you read Bank of America's annual report you will note that their investments benefit a much smaller percentage of the population than they have in the past[1]. There are merchant banks that are investing in local infrastructure but retail banks, historically a big component in that area, still suffering from the malaise of the breakdown between banking and trading which still has a cloud over them.

I don't think the book is written yet on the entirety of the challenges set up by the consolidation of capital, it certainly will provide fodder for a number of Phds in the discipline :-) But the events of the last 15 years have shown us that when you consolidate large amounts of capital into the hands of a few, their choices on investing it disenfranchise a number of previously valid capital markets. You will note that it is tied in with Piketty's observations and others about dis-contiguous capital pools. When the .01% start disenfranchising the the .99% it might feel to us in the 99% like the Gods fighting amongst themselves on Olympus, but it seems to have really material effects at a micro and macro economic level.

I am convinced, although I don't feel that my belief is widely held, is that direct transfer payments in BI (or UBI) schemes "work" because they force capital diffusion. And it is the market forces that seek to consolidate that capital that pull the capital through the economy. I originally held the opinion that such diffusion, which has to come at the cost of taxing those capital pools in the first place, would remove the incentives for those people to collect it (the old 'communist trap' you learn about, if you're not going to get to keep it, why work for it). The change though is the force multiplier effect of modern technology which has increased productivity for those who employ it far far above that of previous workers. That and a growing inefficiency of the existing transfer payments system have suggested we may have reached that point where the combined increase in efficiency of abolishing welfare and a modest tax on very large capital consolidations could provide an outsized economic benefit. The danger (or the trick of it if you will) is to manage the capital burden so that it remains a positive benefit. You essentially want a 'leaky bucket' algorithm for capital diffusion. Which is why I expect that until the next shoe "drops" which is the complete relaxation on the energy component[2], such systems will never be sufficient, in and of themselves, to be a 'living stipend'.

[1] I realize that much of Bank of America is trying to unwind some disastrous CountryWide mortgages.

[2] That would occur if we were to crack the fusion problem such that energy production was no longer limited by external factors.

Investing is effectively lending it out to someone else to spend to your mutual benefit (them by spending it efficiently to make economic gain, and you by getting a cut of that economic gain.)

If nobody's spending, though, you can 'invest' all you want - there's no broader economic gain from letting someone else hoard your money instead of doing it yourself. You'll only gain interest from those willing to trade their long term interests for their short term ones. There's simply more supply of money, and less demand for it, resulting in less return on your investments.

As an (extreme and unrealistic) example, your bank isn't going to give you a high interest rate if the only person spending money instead of investing it all is Bob, who's occasionally willing to borrow at 1% to buy a new TV when his old one breaks. In fact, you'd be lucky for them to even be willing to store your dollars without a fee: What's in it for them? They've already got what they need to lend to Bob covered a million times over.

Consumers aren't the only ones buying, but their lack of buying has knock-on effects on broader investment opportunities - if Bob's the only one buying TVs, TV manufacturers certainly won't be spending money on fancy new equipment. Their suppliers won't be spending money building new mines for materials or manufacturing equipment for construction. This all translates into fewer opportunities for investments, and less demand for your money with which to invest.

People usually invest in producing some thing. In order for that thing to have value, you need people who spend to buy it. It seems pretty simple to me.

As for why it might be better to give money to someone to spend than to someone who invests: someone who can't afford to spend needs money more than someone who can afford to invest.

I thought Cash for Clunkers was looked down upon because it sucked up a lot of the cheap, affordable cars. (Genuinely curious.)