A universal basic income would have some advantages over a minimum wage. Minimum wage interferes with supply and demand in the labor market, which is why some economists dislike it. UBI moves the supply curve to a different place, but it allows those principles to function.
The evidence for 2) is literally all around you. Why is an empty shack-sized lot in Palo Alto worth $1MM+? Simply and only because the people there earn enough money to buy it.
Typical UBI proposals are funded, e.g., by additional progressive taxes, and so no actual income surplus is generated (in a first-order analysis), income is redistributed, compressing distribution.
Not really. The fundamental problem of means-tested welfare programs that UBI addresses remain:
(1) Eliminates multiple sets of inefficient benefits/eligibility bureaucracy that duplicates functionality already performed as part of taxing authority.
(2) Eliminates a counterproductive incentives associated with typical means-tested benefit eligibility, which has clawbacks at low income levels and rapid marginal rate (sometimes exceeding 100% with marginal income when tallied across all means-tested programs; this effect creates a barrier to progress beyond a low income level. (While progressive income taxes may be raised from previous levels to fund it, when viewed as clawbacks these changes typically kick in at much higher income levels and lower marginal rates than typical means-tested benefit clawback.)
From a US point of view, when was the last time any entrenched bureaucracy was eliminated? As a baby step in redundancy reduction, is it realistic to think that UBI going to get rid of a program like WIC, against the full power of big ag brandishing starving baby pictures?
Your second point acknowledges that taxing away UBI through progressive tax rates is a clawback. As I read it, your idea is that the increased marginal taxation due to the clawback will occur at higher income levels than exist with current programs. Why not just change the existing tax rates instead of sending out cash and taxing it back?
> From a US point of view, when was the last time any entrenched bureaucracy was eliminated?
The most recent that springs to mind is the elimination of most of the conscription-related bureaucracy post-Vietnam.
> Your second point acknowledges that taxing away UBI through progressive tax rates is a clawback. As I read it, your idea is that the increased marginal taxation due to the clawback will occur at higher income levels than exist with current programs. Why not just change the existing tax rates instead of sending out cash and taxing it back?
A baseline tax credit plus adjustments to existing rates is widely recognized as one mechanism for implementing a UBI, but even the there is often a desire to have an estimated advance mechanism, to avoid a delay of potentially more than a year from when people enter the UBI-covered population and when they start benfiting from it.
> elimination of most of the conscription-related bureaucracy
I was just thinking of that as an entrenched bureaucracy example but decided to focus things on an entitlement program. Despite having zero purpose for 49 years, Selective Service still manages to spend $26m/year [0].
> often a desire to have an estimated advance mechanism, to avoid a delay of potentially more than a year
The model for advance payments on an upcoming year's tax credits already exists [1]. I can see how this doesn't address downward change in income, but also don't see how that couldn't be added.
There are goods and services with income-elastic pricing, like housing.
UBI indirectly and unfairly benefits only the people who control those goods and services. If everyone made $1000 more per month, housing prices would raise up to that amount for everyone. This means the majority of the UBI raise would go into just the landlords pockets.
This is why many welfare programs are expense- or need-dependent, because it maximizes the benefit to those who need it without impacting price inflation as much.
That said, the UBI inflation would incentivize construction. But this requires zoning changes, approvals, and consecutive land reclamation anyways.
Might as well start with:
- Removal/reduction in zoning
- Automate construction approval workflows
- Leverage eminent domain to aggregate land, and sell for profit to the builders.
Its just a win-win-win (given the views / property values would be reduced regardless without extra housing causing SF/LA/Seattle levels of homeless people):
- Homeowners get paid, by the city / local gov, at market rate or slightly above market rate.
- The city / local government has a new profit stream, to be used for more housing / services / reduced taxes. They would aggregate land, re-zone it, get approvals completed, and sell the whole package to the highest bidding developers.
- Developers reduce costs to aggregate land and due to interest payments while waiting for all the land + approvals.
- City gets to better plan the hosing market, i.e. superblocks, transit, etc.
- City dwellers get more access to housing (i.e. cheaper housing), and possibly reduced taxes. Also reduced crime and homelessness because the city is affordable for everyone.
Whitewashing UBI as a "win-win" is pretty bold considering I just showed how UBI disproportionately benefits property owners and discriminates against everyone else.
There are ways to achieve all of the above that doesn't require destroying income-elastic priced markets. UBI is not a good solution.
The win-win-win was for "Removal/reduction in zoning", "Automate construction approval workflows", "Leverage eminent domain to aggregate land".
UBI doesn't work well at all, like you stated, if there isn't a big increase in the supply of housing. For example, Seattle needs 10x more housing than it has today, and in 10 years it'll need 100x more housing than it has today. Ideally, all of these should be new luxury condo buildings, with 1000-3000 sqft condos, driving prices of all housing down by 10x. I would really like to see the city make this their only priority.
> For example, Seattle needs 10x more housing than it has today, and in 10 years it'll need 100x more housing than it has today.
Seattle has about 740k people and about 370k housing units. 10 times the housing units would be enough for the entire state population at an average occupancy of 2 persons/unit. 100 times would be enough for roughly every US state bordering on or one state out from the Pacific Ocean.
Seattle pretty emphatically does not need that much housing.
Greater Seattle has 3MM people many of whom would like to be in the city core in a 3000sqft lux condo instead, or Airbnb space for concert nights. You’re also greatly underestimating the number of people from around the US who would rather live in Seattle but just can’t afford it right now. Seattle has a labor shortage and just can’t fill it right now. Restaurants and even many bars close early because it’s not cost effective to stay open later.
Density also facilitates business and pulls in even more workers, who are also customers and it’s a positive cycle.
Seattle needs 100x more housing in the next 10 years if it wants to continue to be a competitive city. As a resident I sure hope it does.
> He's saying that if everyone has extra money, then everyone can afford higher prices.
UBI only gives everyone extra money if it is unfunded; typical UBI proposals are funded by either increased progressive income taxes or cutting other spending (which produces income to the recipient), and so is (in first order effects) zero-sum. (Typically, it replaces rapid clawbacks from means testing with slow clawbacks by progressive tax increases.)
That’s not how market prices are generally set. Competition and demand keep them low. It might happen the way you describe sometimes but it’s far from a guarantee.
The theory is just supply and demand, which is how prices are determined in a competitive market. If you give everyone $20k, would you expect grocery stores to raise the price of bananas to $20/lb? Probably not, since people can just go to the grocery store down the street. Now if everyone suddenly wanted to buy more bananas with their new cash that would have an effect, but that’s how markets are supposed to work.
In practice it probably depends on a lot of factors and would need empirical studies.
Who would supply these bananas? After receiving $20,000, do you think the farmer's laborers will go to work the next day for the same wage as before? The trucker? The grocery store cashier? Will the "grocery store down the street" be immune to the higher labor costs?
The gocery worker and trucker will have a better bargaining position, yes. On the other hand, they can also affort to take a lower pay because their basic needs are already covered and any additional income can be spent on luxory. So yeah they will demand better working conditions and goods will increase somewhat in price - but there is no reason to expect that this will be proportionally to the UBI amount.
Why wouldn't rent just increase to capture this new income for most people? If UBI is high enough to afford mortgage payments on an owned house, housing prices will skyrocket (even more than now) until those receiving the UBI are priced out of the market once again. Because once the mortgage is paid off, the value of the property is expected to grow, and that's a bet lots of people are taking, even now in this crazy market.
We could do what they do in Japan and deprecate housing as it ages. Very few people buy second hand properties, so a house is a liability that needs to be demolished vs land without one. It also helps if no one believes in property speculation because of a huge property bubble that burst in the 80s.
UBI could allow the elimination of minimum wage entirely, along with a ton of other scattered welfare programs that have lots of administrative overhead and the typical middleman industries that leech off of government programs.
Most people working for minimum wage (and probably most people in general in the US) work pay check to pay check (like the Applebee's manager stated in the article). They max out their available credit so that the interest takes up all of the possible slack in their income. Under UBI how to you prevent people from now borrowing more money (spending it on a vacation, clothes, fancier car, etc.), paying all the UBI as interest and ending up back in the same financial situation they were before. I don't think UBI solves peoples financial problems. I think Thomas Paine's idea of getting a large lump sum when reaching the age of maturity has some merit. Maybe a manditory two year service in the military or other government org after high school and then they receive a large chunk of money to start their life ($200k or something like that). The person could spend it on school, start a business, down payment on a house, wedding, etc. Having classed in high school discussing what one should do with that money would be a great way for students to think about the future and in a positive way.
> Under UBI how to you prevent people from now borrowing more money (spending it on a vacation, clothes, fancier car, etc.), paying all the UBI as interest and ending up back in the same financial situation they were before.
Don't make UBI subject to garnishment/attachment to pay debt and exclude it from income considered available when determining bankruptcy terms. Lending behavior under those conditions will prevent the use of credit you are concerned with, and bankruptcy itself will resolve problematic cases to the extent that lending behavior does not prevent it.
Most people in financial distress don't do bankruptcy. They run up their credit cards/car loans/etc. till the interest payments are high enough that they are living paycheck-to-paycheck. They get stuck in that situation. I think in the US only the government can garnish wages. Private entities can only bug you a lot and wreck your credit. I just don't think UBI solves the poverty problem like many people think. But I sure would like some country to try it to see what happens.
I find this comment very classist and detached from reality.
Most minimum wage earners are not in poverty because they are taking too many vacations and buying too many luxury items: they are in poverty because rents are consuming 40-60% of their income, costs of essentials to live and commute to work are rapidly rising, and a single medical debt can wipe out all of their savings in an instant.
Avocado toast is not destroying the middle class - corporate greed is.
People aren't poor because they are lazy and stupid, as ultra-capitalist pundits would like you to believe to prevent you feeling empathy. America is systemically broken in a way that it is no longer 'the land of opportunity': poverty today is a trap that hardly anyone can escape by simply working hard and spending wisely.
Minimum wage has other effects. It eliminates extremely unproductive jobs, which I'm sorry if you don't like the freedom reduction, but it's a form of industrial policy that's useful when you're competing with other economies. Also protects workers from accidentally ending up in such a job, which is bad for them even if UBI would let them quit it easier.
And of course, economists don't find it has the negative effects it used to theoretically have, because throughout the 90s they switched from just making things up to actually doing real-world empirical studies. (That is, it doesn't seem to have them up to "60% of local median income" IIRC.)
I prefer sector-specific minimum wages though. Somewhere in the neighborhood of Denmark or Australia.
>Minimum wage has other effects. It eliminates extremely unproductive jobs
what are these "extremely unproductive jobs" you speak of? Is the job of a burger flipper really so bad that we should eliminate it from the economy? Is it so bad, that if someone's skills only allows him to do that job, that it's better for him to stay at home and twiddle his thumbs than to show up to work?
That's for sure a productive job and it hasn't been eliminated here. Sunnyvale's minimum wage is $17/hr and McDonalds/Wendys/In-n-Out pay slightly above that (I read the posters in the drivethrough.) I've never seen a fast food restaurant in the area close, though of course family run strip mall places have as they often do.
I was thinking of things like servants, typists, textile workers.
>I was thinking of things like servants, typists, textile workers.
I don't think they were eliminated because of minimum wage. They were eliminated because of a combination of outsourcing/globalization, which set an upper bound on how much those jobs can pay (at least in the US), and baumol's cost disease, which set a lower bound on what workers were willing to accept. The two forces combined to make those professions unviable. Getting rid of the minimum wage probably won't bring those jobs back. If anything the jobs will go to more productive sectors (thanks to baumol's cost disease), rather than to the utterly unproductive ones like you mentioned.
It recently occurred to me that the complex Byzantine structure of the existing welfare state does have one major advantage over UBI: it’s significantly harder to make the entire thing agenda driven. As soon as you have a UBI, there will be massive political pressure to use it for some agenda.
Of course everyone gets UBI…
…except the polluters
…and CO2 emitters
…and meat eaters
…and porn watchers
…and weed smokers
…and tobacco smokers
…and alcohol drinkers
…and maybe it’s distributed on a curve, depending on race
It could be corrupted so easily. And it’s a single point of failure.
Cash welfare is extremely good, but an advantage of directly giving out non-cash welfare like food stamps is that they can't be stolen from the recipient. ie if everything was UBI and you ended up in debt or someone stole your bank account contents, you still can't pay for groceries. But with a guaranteed free groceries program then you can always get something.
Unfortunately, non-cash welfare has tons of the manipulation you describe. You can get kicked out of public housing for using drugs and food stamps have all kinds of arbitrary limitations on them based on what the state legislature thinks you should be eating.
> It recently occurred to me that the complex Byzantine structure of the existing welfare state does have one major advantage over UBI: it’s significantly harder to make the entire thing agenda driven
Uh, no, it's not.
The byzantine structure is because of (and in part to disguise the way that) every component of the system is agenda driven, and often by an agenda rather divergent from the overt purpose of the programs.
Eliminating complexity for the sake of eliminating complexity is not an effective solution, especially when it introduces new problems like inflation on income-elastic priced goods like housing.
>along with a ton of other scattered welfare programs that have lots of administrative overhead and the typical middleman industries that leech off of government programs.
That sounds great in theory, if everyone is the type of person that can take care of himself for $15k (or whatever) a year. But what about people with special needs? eg. people with mental health problems or medical conditions requiring expensive therapy? Unless you think we should let those people fend for themselves, you'll still need welfare programs to help those people, which mean all the "administrative overhead and the typical middleman industries that leech off of government programs" that you're so against.
> But what about people with special needs? eg. people with mental health problems or medical conditions requiring expensive therapy? Unless you think we should let those people fend for themselves, you'll still need welfare programs to help those people
Speaking from experience, such people already have to fend for themselves...so nothing really changes.
Something changes: Those people can spend the energy that they currently need to chase after means-tested benefits on getting better. Being poor is not just expensive, it can also be extremely mentally taxing.
It is very tempting to draw a straight line between something you don't like and some other event that is negative and declare causation.
Do you really think this is what is causing inflation? Perhaps there are other facts, such as trillions of dollars of almost zero interest money injected since 2008, massive tax cuts for highly profitable companies (eg AAPL) that result in great payouts to people who are already paying low taxes (long term capital gains), complex interacting forces that moved the cost of a barrel of oil from a low of $20 to over $100?
The 6 trillion in government spending, subsidizing labor non-participation with federal money, and canceling federal leases and pipelines and saking banks not to lend for fracking didnt help any of that.
I'm not sure how I see how spending a ton more money (UBI) will help with inflation at this point. 100% debt-to-gdb is already a lot.
You might recall 2008, where we tried not spending money and what we got was a 10-year-long recession.
Currently private investors are refusing to invest in oil even without environmental factors in the picture - they think it's a temporary spike and are insisting the oil companies pay them back dividends instead.
The covid checks weren't UBI, only people under a specific income range were eligible. Also keeping businesses afloat solved stagnation (worst) at the cost of inflation (bad, but not the worst).
I'm critical of UBI but using a global pandemic with millions of deaths as an example isn't what UBI is.
How much funds were paid out to individuals aka UBI and how much was spent to stimulate business? How much of those funds paid out to individuals were funded via additional progressive income/wealth taxes rather than just printed?
