This happens every single time the poor get any sort of money. In poor neighborhoods the rents cost as much as people are able to pay, no more, no less.
Do you know when most rental deposits are collected? Around the tax return season.
If suddenly the poor had some money to spare - the rents will simply go up. The water bill will go up. Electricity, gas. Etc.. until there's no extra income left. And then the poor will be in exactly the same situation as they are now.
Source: long time resident (and landlord btw) of poor neighborhoods of Philly.
P.S: Government is willing to help poor with mortgages? House prices balloon. Government is helping with education grants - colleges raise tuition. Borderline-broke municipalities with enormous unfunded liabilities are looking for any opportunity to collect back taxes and make up new ones. I can go on.
Why would this be any different? As the history shows it will provide a benefit for only a short amount of time until costs catch up.
P.P.S: I am not an opponent of helping poor, quite the opposite. I just don't know how to go about it in real world.
That's the orthodox theory. You shouldn't buy it wholesale.
On the other hand, it would be a very heterodox environment indeed if producers were able to steal all the increases in wealth from consumers. That could only happen in an environment of no competition, not imperfect competition. Or an environment with 100% occupancy and no ability to build more units of housing.
Also, there would need to be no substitutes for the good. For instance, that people couldn't move between cities.
Surely the game is, to some extent, rigged. But can it be rigged so badly that it is possible to believe that transferring wealth from richer to poorer will not lead to an increase in the purchasing power of poorer people?
I don't have a decided opinion on guaranteed minimum income, but to deny that it would have a marked effect on purchasing power of the recipients of the wealth requires one to posit a truly exceptional economic theory. To attack minimum income on its efficacy of all things: that is either an ill-considered or truly radical view.
If minimum income can't help, what possibly could? The only option left would be the confiscation and redistribution of capital.
let's say you have 5 people who have the following amount available to spend on TVs:
$100
$80
$50
$30
$10
And you have 5 TVs to sell. What price do you sell them for? If you price them at $100, you sell 1x$100 and make $100
If you price them at $80, you sell 2x$80 and make $160
If you price them at $50, you sell 3x$50 and make $150
At this point you see a trend - you should price your TVs at $80 and just eat the loss on the three TVs you don't sell.
So now we have a society in with 40% of people have a TV and 60% don't. As a government, you want 100% of people to have a TV, so you intervene to try to fix it.
First, you double everyone's income.
That doesn't change anything. The new price for TVs is $160 and two people get TVs.
So instead, you give everyone $50.
If you price them at $150, you sell 1x$150 and make $150
If you price them at $130, you sell 2x$130 and make $260
If you price them at $100, you sell 3x$100 and make $300
If you price them at $80, you sell 4x$80 and make $320
If you price them at $60, you sell 5x$60 and make $300
So now 80% of society gets a TV. Better! Sure, you haven't eliminated inequality, but you've reduced it.
But let's say it isn't TVs, it's houses. And you have three of them, not five.
Everyone needs a house. So you'll bid as much money as you have to to beat the next guy trying to get one. So the first house will go for $80 to the person with $100. The next house will go for $50 to the person with $80 The final house will go for $30 to the person with $50.
If you double everyone's income? Nothing changes. We've already seen that doubling people's income does nothing.
If you give everyone an extra $50? The distribution ends up the same, except everyone pays an extra $50 for each house.
TL;DR: inelastic goods like real estate will just go up in price. Elastic goods like electronics will, but less than the amount of the wealth transfer. The most important thing is to change the wealth ratio rather than the gross amount.
Money is just an abstraction for real goods and services produced by the economy. Presumably we need people to live in Philly since that's where our industry is. If people moved away to some remote place, wouldn't our economy take a hit? Not to mention the transportation costs of servicing a more remote, less dense area.
I have so many examples of this. For instance due to terrible public schools - private schools cost roughly what it would cost you to move to a good neighborhood with good public school.
Day care - costs around what the government contributes as day care assistance.
Etc...
There would be some movement. The prices of the worst shit-holes would probably go down because people would gain the ability to move into a nicer place. That might cause a little increase in the price of low end apartments.
And any city that is currently supply-constrained would probably see upward movement on prices. But most cities that aren't San Francisco have vacancy rates around 3%, they aren't supply constrained. If one landlord raises prices, people can and will move to an cheaper apartment elsewhere. And if prices do rise, people will build more apartments, driving prices down. (again, assuming not San Francisco).
Because even though anybody relying on Basic Income may not be starving, they'll still be really poor, and really cost sensitive. If BI is $10,000 a year, a $100/month price increase is a huge chunk of their income, and worth the huge hassle of a move to avoid.
Remember that these "costs" are seen as revenue to providers of goods and services. What follows can be thought of as the opposite of trickle-down economics.
How will it help them to get higher paying jobs?
I think. I'd welcome any clarification to my attempted summary.
This is a bit of a tautology. Low-rent housing is usually pretty bad, so when people can afford to pay more they just move to a nicer place.
As far as I know, the first-time home buyer credit made a tiny ripple in the low-end housing market - where did prices "balloon"? College education is quite different because the "market" has a massive barrier to entry (in terms of creating a new university).
People do not understand how prices are set and this is a major barrier to stopping rentier activity.
Rents are set by what the market can bear. I hope we get land value tax and stop the leeches.
It reminds me of Tobias Fünke in Arrested Development, when asked if open relationships ever work, saying "No, it never does. I mean, these people somehow delude themselves into thinking it might, but ... But it might work for us."
This is pretty much Chicago in a nutshell. You have all these handouts to public sector unions in return for union votes and union support. You have further entitlements given to the poor on the south and west sides for votes. You have all these ugly deals done in exchange for staying in power, and no one cares about actually balancing the books. When push comes to shove, you just raise taxes over and over. In other words it won't just go "higher and higher" it'll just be higher for special interest groups who can deliver votes. If you can't deliver mass votes and aren't part of one of these groups, your income will be low or non-existant as you'll be stuck in the 'worker' group and not in the 'leisure' group.
GMI needs an implementation that works. I suspect there really is none that doesn't quickly just become corrupt patronage. GMI and democracy/elections may not be compatible. It may only work under a totalitarian system and sounds pretty close to the USSR's system at that point. The best case scenario here seems to be automation making the cost of living so low that existing welfare systems will just be more than enough to take care of people. If we can vastly lower the cost of everything, then modest payouts will be enough and we'll be able to retain a capitalist and democratic system.
Practically I suspect it will need to be quite low to avoid all sorts of distortions.
The existing programs are very distorting already, often giving poor people 100%+ marginal taxes.
Sure, Basic Income would be distorting, but far less than that. It should also save a lot of money since it requires almost no people to administer.
This is also the biggest problem with instituting it, since the people holding those jobs will fight to the death to keep them.
There will be a lot of people who will use the freedom granted by basic income for productive means but there will also be a lot of people who won't do anything productive and just live off their basic income.
That will give opponents a lot of material for campaigning against basic income. So my prediction is that this won't work long term. That is, unless our society changes in radical ways.
Won't do anything productive like spend money on food, housing, and entertainment? They will just sit inside and stare at the walls all day.
Have you had to file for Unemployment "Insurance" yet, in your lifetime? It's a complicated circus to get back money that you "paid in". You have to prove, and then re-prove, your past earnings and tax amounts that had paid into the programs (plural if working across state boundaries); you have to "be actively seeking work" and prove, every single week, that fact with somewhat embarrassing forms to fill out to get the money that you already set aside for this already embarrassing situation...
These systems treat you as "guilty-by-default" and we've let the worry of possible fraud, however unlikely, turn these systems into giant theaters of "fraud reduction" and complicated terror on the individuals dealing with the system.
Basic Income, by expecting to be unqualified and guaranteed to all regardless of need or effort, is intentionally about simplicity and about avoiding the giant red tape spaghetti that is our current "entitlement" systems. If everyone gets it, equally, then you don't need to worry about "fraud" and you don't need to worry about "proof".
Any time you here someone say "basic income", they mean a guaranteed, zero qualifications beyond citizenship and possibly adulthood, income. It is meant as a replacement for many aspects of the welfare system.
It is true, since humans are bad at making many financial/health/welfare decisions, that not all public welfare costs are a good fit for replacement with a BI. But things like food stamps, disability income and section 8 housing all do appear to be good fits.
It is a football like you say but no one has dramatically increased it for decades.
Besides the looming shortfall it seems to be run fairly responsibly.
Where would this basic income for everyone magically come from? It maybe would be possible if the rich (millionaires and especially billionaires) and corporations would pay for it with higher taxes, but since they run the world, I'm guessing that's not gonna happen.
Seriously, the current welfare systems are quite ok (pay only those who don't have enough and/or don't have a job), just streamline it and tax the rich a bit more for more money to go into it. Europe seems to do it best so far. But of course that's socialism, etc. (and somehow basic income isn't)...
Some parents can put 850k in a account for their child when it's born that gets invested, say in the American economy (grows by say 7% over an average, long time period), which compounds until later in life, and when they grow up, they can access it. With good financial responsibility, this child won't have to work a day in their lives and can live off the returns.
Why can't we as a society do this for everyone, but you can never touch the account, only the returns? That is, wealth and a foot in the returns of humanity as a right.
You're born, you get $1mil put in an account that gets invested. When you turn 18, you start getting a monthly check, the return on that investment. You can never touch the account, only get its returns.
Someone tell me why this is a bad idea, worse than guaranteed basic income.
Which is to say, spot on, you've hit near the right track and aren't too far from what a lot of guaranteed basic income discussions generally start from and are basically about.
Come to think of it, I'm not even considering the money multiplier. When that $4 trillion is spent or invested, eventually it ends up in someone's bank account, and because we have fractional reserve banking, it adds to the banks' deposits, allowing them to loan more money out. The banks' reserve requirement is 10%, so in the worst case (if the banks loan out as much as they possibly can), that $4 trillion becomes $40 trillion. (Each bank loans out 90% of their deposits, the loans becomes deposits at other banks, who loan 90% of that [81% of the original], and so on and so on.) That's 250% of GDP, so you'd probably see inflation severe enough to threaten social order in general.
If we imagine that the program has been running for several generations already and the whole population already has their $1 million trust fund, you can at least destroy about $2.4 trillion per year as people die, but the bigger issue would be that "$1 million" means a very different thing in a world where there's $300 trillion in citizen trust funds compared to today when the total of all physical currency and liquid bank accounts is about $10 trillion.
There's also the problem of who gets to decide how to invest the money, which would be a magnet for corruption.
What investments should be used in the account exactly?
What do you do about the temptation of the administrators to "borrow" from the reserves, direct the investments to benefit themselves, hoard extra resources or underfund the plan by estimating the future revenues or expenses a bit too high or low?
Your idea isn't bad exactly, just complicated by these extra provisions such as "the basic income shall be derived from investment proceeds from individual accounts."
And why do you believe prices wouldn't rise to meet the new common standard of living afforded by this grant?
As for rising prices, surely they can't rise everywhere? People will be able to afford to abandon the obscenely wealthy playpens (SF, NY, Tokyo, etc) and move somewhere that's affordable. Cost of living varies depending on location, doesn't it? Surely this would result in more competition, not less?
out of those two ludicrous requirements, i'm not sure which one is more of a challenge.
Sorry, I know your a world class doctor, but Auto Scan (TM) just does a better job.
The important thing to remember is that % for a given standard is dropping over time. If 1% is enough to reach the current US standard then it's going to be really hard to say no.
PS: I don't think we will take this global any time soon. But, we could. World GDP is 106 dollars per person per day. 10% of that is 10.06$ per person per day. 80% of humanity lives on less than 10$ per day.
A 10% income tax increase redistributed to all US households would be ~$11,000 per household, which is right about what the poverty line is for 1 person. If your household makes less than $110k you get a tax cut, above $110k you will be paying more to prevent social unrest.
All numbers in Billions and for 2014
Total earned income $14,700
Total income tax $1,000
--------------------------
$13,700
Total US households .125
basic income per household 1370/.125 = $11,000
EX: A flat tax at the highest rate would adds ~2,745$ to everyone above of the first tax bracket $9,275/yr, next tax bracket is hands out 6,980$, together that's a 9,725$ benefit for everyone making over $37,650/yr already being baked into the tax code.
On top of that you get things like HUD, education grants etc. Not to mention the 60+ million people getting Social Security.
PS: Not that I think the odds are good in the US any time soon. But, we are facing a lot of systemic issues which could promote a huge range of reforms.
Maybe that competition would lead to better companies and better work.
[1] Other than the lasting impact of the Puritans on American society, of course...
ROBERT GORDON: As far as a guaranteed minimum income, I’m not in favor of that. I’m in favor of a modest increase in the minimum wage, and a substantial increase in the earned-income tax credit, which encourages low-income people to work.
DUBNER: Why would you not be in favor of the minimum guaranteed income?
GORDON: There’s too much of an incentive, if you guarantee income, to replace work. And if you provide a guaranteed minimum income to everybody, then those with low skills will drop out of the labor force and will no longer work. So I think it’s a matter of incentives. A guaranteed minimum income would put a very high implicit marginal tax rate on going to work, for those with relatively low skills.
The purpose of modern states is exactly to provide security in multiple ways, one of them being shared financial security, to remove the need of constant struggle for survival and allow the social side of humanity to flurish.
As an example on a smaller scale: There were enough articles recently for instance about Amazon, as an extreme example of hiper competitive anti-social environment that encourages people to backstab each other and play politics to advance. Pure survival mode. Compare that for instance with companies like Google, that spoil everyone and even give you 20% time for free. So far they haven't collapsed. Now you can argue that companies are not countries, but I don't see how such learning don't apply. That exactly is the human behaviour argument.
Sorry in advance for the ad-hominem, but that supposedly intelligent people even here on Hacker News keep reiterating old tropes about socialism and human nature unreflected, while any research in that regard or simple observations as illustrated above are contradictory to it, is baffling.
Socialism is anti-social (or were you confused by it having the word "social" in it?). Socialism says two people do not have the right to come to an agreement on the exchange of property and labor. What is social about that? How is that in harmony with human nature?
>There were enough articles recently for instance about Amazon, as an extreme example of hiper competitive anti-social environment that encourages people to backstab each other and play politics to advance.
And yet people work for Amazon. Willingly. What's wrong with that? Just because the work environment does not meet your standards of what you expect from a job, why would you want to deprive others of their jobs? That's very anti-social.
>Now you can argue that companies are not countries, but I don't see how such learning don't apply.
Not only are they not countries but trying to extrapolate such scenarios which happen between free acting, cooperating, social individuals to a generic edict enforced through threat of violence is foolhardy.
>Sorry in advance for the ad-hominem, but that supposedly intelligent people even here on Hacker News keep reiterating old tropes about socialism and human nature unreflected, while any research in that regard or simple observations as illustrated above are contradictory to it, is baffling.
Again, your examples tell us nothing of socialism and are not even applicable.
(there are even several countries with 3-4 weeks of vacation for everyone and similar annual per person productivity to the US...)
"Yet" is the operative word there.
Often socialism is applied, at least at first, in a very limited fashion, but then expand as the natural consequences come to fruition. For example, examine the minimum wage law. The natural consequence of the minimum wage law is the least productive individuals lose their jobs. Most often those individuals are youth and minorities, with the affect especially evident among young minorities. Reacting to this natural consequence, legislatures then want to enact social programs to provide for those who are unemployed. These social programs are funded through higher taxes, typically upon the most wealthy. The wealthy are incentivized to be free from the higher taxes and get around them through a myriad of creative ways. A cycle develops where social programs continue to expand, taxes continue to rise and the wealthy flee. This is very evident in France, currently. When the wealthy flee, the taxes fall onto the middle class. There is incentive for immigrants to come into the country. And so on and so forth.
The failures of socialism are most evident where the interventions are taking place. Healthcare is a sector where a lot of the interventions are taking place and the affects are glaring. You can see this in Western Europe with sub-prime healthcare. The problems in the socialist governments in Western Europe will be exasperated by the refugee crisis.
A socialist government and a planned economy are only different by a few degrees. Bad laws beget more bad laws and the problems will grow. How long until the parasite overpowers the host? Who knows.
Of course it could be done through taxes but a lot of people have legitimate concerns about government taxation. For taxation to work you need a coercive government and many of us are very aware of the downsides of such an entity. Of course taxation isn't the only reason we have a coercive government there's also the war on drugs and other policies which seem to ultimately derive from the need of a significant fraction of the population to dictate the choices of their fellow citizens. This tendency is of course inevitably amplified among those who self-select for government or political careers. There is also to some degree a legitimate need for self-defense which also inevitably leads to some degree of coercive government. But even if these problems could be solved, say for example through more rational and better focused defense policies and through evolution of ethical views to give greater weight to the desires of individuals to lead their lives as they see fit, if we are going to provide a safety net for everyone we will always need some form of government and if that government is financed through taxation a level of coercive and invasive policies is likely inevitable.
Could we find a better way to finance government and a UBI ? Some countries and regions with extensive natural resources have been able to leverage them to help finance their governments and provide assistance to citizens (examples I believe include Norway and Alaska). However most economies are not so strongly dependent on the exploitation of natural resources so this type of solution cannot be generalized. What if a nation's government became an investor in that nation's economy ? I'm not talking about nationalization of industry but allowing the government to acquire minority ownership of public corporations as a means not of exerting control but of generating income. Could we imagine government evolving to the point of relying for its financing on a financial portfolio much like some universities receive substantial income from their endowments ? I'm not an economist but I've never encountered this idea in the press. It would be interesting to know what the experts think of it.
Get rid of income tax, tax land. We want to stop rentiers, we don't want to stop workers. Right now it's back to front, by design.
I advocate for LVT in the abstract but get stuck on explaining implementation in a relatable way.
p.s. really appreciate your persistent posting on this :)
Moreover, it would be interesting to see what becomes of today's jobs if there were an basic income. E.g. what percentage of jobs would disappear and not be missed? How many people would continue to work at their current job?
[1] http://books.simonandschuster.com/The-Industries-of-the-Futu...
Every technological advancement from the invention of hand tools, to creating complex machines can be loosely classified as "automation" and in every case the standard of living has increased and resources were then allocated to some more productive means.
Why is today's automation any different?
The people who pay? In general, as with any tax increase, it's the middle class. It's the couple that went to college, saved their money, worked hard, bought a house and started a family. Regardless of how much you think you can raise tax rates on "the rich", the only way to pay for something like this is by getting to the middle class, which is where the tax revenue is.
Guaranteed Basic Income sounds like an early retirement option for most people, so where it's probably a fantastic opportunity for self-starters, it might be lethal for everyone else. GBI's side effect can be weeding out non-entrepreneurs.
[1] Early Retirement: Bad For Your Health? http://freakonomics.com/2012/03/29/early-retirement-bad-for-...
The idea would be that as we figure out how to automate things, we make those things essentially public goods. We end up with a mixed economy, where we have one class of goods that are produced in publicly owned automated factories and do not cost the consumer money, and another class of goods that work like they do now where private parties produce them and sell them for money which the buyers earn through paid employment.
For instance, consider vegetables. We're close to being able to make almost fully automated farms for many crops, and we're close to fully automating most of the shipping from farm to market. The idea would be that as we achieve this, the government buys up these farms (or starts its own farms), and everyone gets a daily allotment of the produce from these farms. Some meat production is also highly automated, and so we should be able to at some point in the not too distant future add meat to this.
At that point everyone who has a place to cook has their basic food requirements taken care of.
How about transportation? Automobile manufacture is very automated. At some point that too will be almost completely automated. Combine that with self-driving cars, and we should be able to have a publicly owned nationwide fleet of self-driving taxis. Ideally these would be electric cars, powered by publicly owned solar, wind, hydroelectric, or nuclear systems.
As automation gets more and more advanced, more and more goods can be added to the "made by publicly owned automated factories" list and made available to all.
When enough stuff is automated and turned into public goods to allow someone to survive reasonably without a job as long as they have housing, we can start making publicly owned housing in places where land and construction costs are cheap. That will be away from the big cities, but for people who decide to not work that would be fine, as it would for people who can work remotely. So we should be able to reach a point where everyone can have a basic apartment or small house and the necessities to survive reasonably there, without an income.
Will we ever be able to automate everything except creative intellectual work? I don't think so, at least not for a long time. I think that would require the development of something like the robots from Asimov's stories--robots that have human form factors (so that they can work anywhere that a human can work) and human level intelligence, and I don't think we'll be there anytime in the next 100 years.
A nice thing about this approach is that it can be done with minimal disruption. With basic income you have to give everyone enough to reasonably survive right from the start. With basic goods, you go item by item, industry by industry.