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0 pointsphaus10y ago0 comments

I'm intrigued by the idea of a basic income, but usually when people begin to talk about it, I see a certain argument presented.

A simplified version of the argument is as follows: "In a free market, if a certain subset of people start making significantly more money than they used to, the demand for things that this subset of people couldn't afford before is going to increase substantially. This increase in demand will inevitably lead to higher prices for the things that they can suddenly afford, which will essentially put them back where they started."

Can anyone briefly explain to me why this argument is wrong? On the surface, it seems fairly reasonable. For example, the ridiculous cost of education is often attributed to the creation of federal student loans. Unless that attribution is also mistaken, it seems to represent a valid example of this phenomenon.

Please note that I'm not condoning or even agreeing with this argument. Its just something I've been wondering about for a while. I figure there are plenty of smart people here that can probably explain it to me.

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4 comments · 2 top-level

ctdonath10y ago· 1 in thread

Supply is limited. Always. Increase demand enough, and there MUST be an increase in "friction" somehow to limit demand to match supply; otherwise, supply runs out fast favoring "first come first served" and suffering waste while "real need" goes unfulfilled. Raising prices is the most natural and appropriate (if arguably imperfect) way to apply such friction, generally equalizing the cost value to the buyer with the reward value to the seller.

phausOP10y ago

I understand the argument. What I'm asking about, is whether or not it would negate the positive effects of a basic income. The people who argue against the idea of a basic income often use this argument as evidence that it can't possibly work.

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AlexWest10y ago· 1 in thread

Look at the most basic need: food. Demand is relatively constant - you need enough to eat, and shouldn't eat too much (obviously in practice there is a certain amount of elasticity and differences in demand for different types of food). Supply of food already exceeds demand (look at food waste, supermarkets tossing out ugly produce or burning unsold items to maintain their profit margin). So - demand for food barely goes up, supply continues to exceed demand.

phausOP10y ago

I would say shelter is as much of a basic need, and places like the bay area show that prices are rapidly increasing due to demand. Would a basic income exacerbate the problem in places that already have an issue with high housing costs?

As far as food goes, wouldn't the prices of luxury foods, like porterhouse steaks and the cost of going out to eat likely increase rapidly? I mean, no one needs to eat expensive food, but isn't the purpose of the basic income to prevent people from having to eat ramen 3 times/day?

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