Mises Wire: The Hidden Costs of a Universal Basic Income

https://mises.org/wire/hidden-costs-universal-basic-income

The author notes that, “The idea of the UBI boils down to breaking the link between income and work…”

That’s certainly true, but the more serious problem is that UBI breaks the link between money and goods.

To grasp how significant this is, consider that the value of money is the goods it can buy. When money expands in relation to goods, as it would with UBI, inflation becomes inevitable. It’s not hard to see how inflation might lead to expanding the supply of UBI money, leading to more UBI inflation, leading to expanding the supply of UBI money, and so on.

And that’s just looking at one side of the money/goods relation. The other side would be monetary inflation that occurs by reducing the production of goods.

Many UBI advocates worry that without work workers won’t have incomes. However, there are many things which break the link between income and work. The most important is one that has always existed: simple process improvement.

Theoretically, the processes by which goods are produced can be improved so much that eventually no human labor will be required to produce any goods at all. This is precisely the utopia that UBI would like to enact on a small scale. But, as we’ve seen, the relation between money and goods would be unaffected. The utopia is therefore impossible to achieve.

17 thoughts on “Mises Wire: The Hidden Costs of a Universal Basic Income

  1. You are leaving very important points out of your analysis of UBI – how it is financed. If it was to be financed by printing money then your basic ideas about inflation being the result would be true IN A FULL EMPLOYMENT ECONOMY. However, if it iss financed through taxation and/or by cancelling existing redistribution programs it would not have any inflationary impact – same amount of money in different hands.

    An even more fundamental error is the idea that somehow the amount of goods is static. Uh, no. The prime driver of economic activity is demand. More people with money to spend would increase the opportunities to make money by producing goods.

    Also, you seem to think that UBI will eliminate working for money. It will not. Most people will want far more than can be obtained through UBI alone. But with a UBI platform underneath them they will be MORE FREE to do the work they want to do even if at lower wages than would have been workable before UBI.

    Liked by 2 people

    1. RE: ” If it was to be financed by printing money then your basic ideas about inflation being the result would be true”

      Both I and the link address this point by noting that UBI will result in less economic production.

      RE: “An even more fundamental error is the idea that somehow the amount of goods is static.”

      Both I and the link address this point, as well. In fact, the substance of my analysis is that money and goods both vary in relation to one another. Sometimes you get inflation by expansion of money, sometimes by contraction of goods.

      RE: “Also, you seem to think that UBI will eliminate working for money.”

      Nothing I or the link say supports this. However, the very point of UBI is to provide income to those who don’t work for it (whether or not they work for other income).

      Liked by 1 person

      1. There is nothing about UBI that will lower economic production. You can “note” all you want, but Economics 101 teaches that by moving money to those with a greater marginal propensity to spend demand and thus production will rise, not contract.

        Money does NOT move in relation to goods. What does that even mean? I think you are trying to say that the UBI will mean more money chasing the same goods and therefore inflation will result. As I said, that might be true IF the money was simply printed AND the economy was already at maximum capacity. Otherwise, it will be stimulative and lead to the production of more goods.

        The big picture is that with human labor rapidly losing value we need a new paradigm. Money for work is not working. And it is getting worse every day. UBI is a definite possibility to solve this growing problem.

        Liked by 1 person

      2. RE: “Economics 101 teaches that by moving money to those with a greater marginal propensity to spend demand and thus production will rise, not contract.”

        No, it doesn’t. You’re confusing Economics 101 with Keynseyan stimulus.

        RE: “I think you are trying to say that the UBI will mean more money chasing the same goods and therefore inflation will result.”

        No. I’m saying that the same money chasing fewer goods is inflationary. That would be enough to start a counterproductive inflationary spiral.

        RE: “The big picture is that with human labor rapidly losing value we need a new paradigm.”

        No, we don’t. Human labor has always been losing value, as I described, due to mere process improvement. If you want a new income model, the place to look is ownership of the means of production, as in the stock market. But that’s an old paradigm, not a new one.

        Liked by 1 person

        1. An astounding display of economic ignorance.

          “Keynesian stimulus” is taught in Economics 101. Because it works.

          The industrial revolution and the technical progress of the last 150 years have INCREASED the value of human labor because of productivity improvements combined with a growing economy and increasingly prosperous people demanding ever more goods. The advent of AI and robotics, though, is a game changer and we DO need a new paradigm. UBI is one. Your idea of taking all the stock in the stock market and sharing it with everyone is another. That was your idea right? Because people with no income cannot invest in stocks, can they?

          Liked by 1 person

        2. RE: “Your idea of taking all the stock in the stock market and sharing it with everyone is another. That was your idea right?”

          No, it wasn’t. My “idea” was to point out that work is not the only source of income. If you’re really smart, maybe you will be the one to figure out how to make alternatives to work-based income more widespread.

          UBI can’t be one, however, because it is non-productive. A UBI program might be less expensive to administer than a welfare program, but there is no great advantage in producing “no goods” less expensively that otherwise.

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        1. @jimroberts

          You do not need to have spent 40 years working in corporate finance to know a little about basic economics. Mr. Roberts is simply wrong on several points. There are, of course, arguments to be made against the idea of a Universal Basic Income but most of the ones he is offering are not among them.

          He may be beating up a straw man where everyone lives high on the hog with their UBI and nobody goes to work. That is not what UBI is about. Instead, it is a cleaner solution to the existing and worsening problem of declining economic opportunity that have lead to food stamps, rent subsidies, ACA subsidies, etc,

          Liked by 2 people

        2. RE: “[UBI] is a cleaner solution to the existing and worsening problem of declining economic opportunity”

          UBI doesn’t solve anything. It is just a fancy scheme for taking from the rich to give to the poor, but there is nothing in all of economics to justify such thievery.

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          1. As I pointed out, one way to view UBI is as a more efficient substitute for the dog’s breakfast of props,tax breaks and subsidies we ALREADY use to keep capitalism afloat.

            Actually, UBI DOES solve a lot of problems – just not problems that you think are important like, oh I don’t know, feeding the hungry, caring for the ill, clothing the naked and housing the homeless.

            Our economic system is heading up a blind and dangerous ally of wealth concentration and masses of hopeless impoverished people. It is getting worse and more dangerous every day. Various other societies have gone up such an alley never to return. Pre-revolutionary France and Russia come to mind.

            Yeah, the wealthy paying taxes – which they won’t even miss – to fund vital government programs is “thievery.” My how you Trump enthusiasts love you some silver spoon plutocrats.

            Liked by 1 person

          2. RE: “As I pointed out, one way to view UBI is as a more efficient substitute for the dog’s breakfast of props,tax breaks and subsidies we ALREADY use…”

            As I pointed out, a UBI program might be less expensive to administer than existing approaches, but there is no great advantage in producing “no goods” less expensively than otherwise.

            The puzzle you’re failing to address is that there is no fundamental linkage between work and income. There never has been. The linkage is between production and consumption, but we are entering an age when human labor is becoming increasingly unnecessary for production. Handing out money via UBI for people to spend (for consumption) will not change this fact of life one iota. In fact, it is likely to exacerbate the problem of unequal wealth distribution in many unpredictable and undesirable ways.

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          3. Over the last decades, we have watched wealth accumulation bypass the working and middle classes and move toe top deciles. A variety of reasons such as the decimation of unions, tax laws, global economics, buyouts, etc. contributed to this. Consumer debt and the Walmarts, etc., made the shift tolerable as wages and salaries barely kept up with inflation, not counting healthcare and education.

            At the same time AI and robotics are ramping up making entry level and repetitive jobs more scarce. And if companies decide the robotics is better than the $15 minimum wage, which is hardly a living wage in many regions, the move from labor by humans will certainly accelerate.

            This is where I think a new economic system needs to be discovered. Economics is at its most basic level nothing more than the study of the exchange of goods and services by people. All our costs, prices and values are dictated by manhours and skill levels. Even the scarcity of certain raw materials is affected. Gold’s value is not just scarcity, but that fact means a lot of manhours are needed to find and extract it.

            Sometime down the line a kind of UBI may be the only way to provide for populations worldwide. And here is the part some won’t like: wealth accumulation will need more justification than just inheritance, favorable tax laws, investment skills or even innovation.

            Incentives to succeed and innovate may mean more modest privileges in order to pay for the jobless segments. More of a natural arrangement as among other higher order social animals. Yes, the leader os the pack gets the best parts of a kill and mates with whichever ones he wants. But, even the lowest levels don’t starve and do benefit from protection.

            IMHO

            Liked by 2 people

          4. RE: “All our costs, prices and values are dictated by manhours and skill levels.”

            Sorry, that’s just false. It’s been more than century since economists abandoned the idea that market pricing derives from the cost of production.

            RE: “And here is the part some won’t like: wealth accumulation will need more justification than just inheritance, favorable tax laws, investment skills or even innovation.”

            Wealth accumulation has always derived from the same thing: production of goods. It needs no justification. What you’re looking for is a way to justify consumption without production. Unfortunately, that’s not possible.

            Liked by 1 person

          5. “All our costs, prices and values are dictated by manhours and skill levels.”

            Market pricing may be determined by supply and demand, that is true. Yet no one has figured out how to sell anything at a loss and make a profit. (Keeping it simple and not dealing with loss leaders, outside investments, etc.) In other words, if you ignore the cost of production, you can’t stay in business no matter how popular your product is.

            So that means that labor is unavoidably part of the pricing. So much so that if a company can make a product more cheaply using less or lower paid labor, all other things being equal, it would have a market advantage for a while.

            Of course all things are not always equal. Perhaps our company has a better technology. Better marketing. Yet, it cannot eliminate the labor costs in its sales price. It still has to pay the workers whether it is just him or 100,000 folks.

            As far as wealth accumulation being solely from the production of goods. The methods I listed had nothing to do with production. Inheritance for example. Investments in debt such as Treasury notes. Even innovation as in discoveries and patents which have no value until they are produced and sold.

            Liked by 1 person

          6. RE: “So that means that labor is unavoidably part of the pricing.”

            No, it doesn’t. That’s the point.

            It is true that a business must recover its costs to remain in operation, but that doesn’t mean that market prices derive from those costs. Businesses collapse all the time because markets won’t buy what they produce. This is one of the reasons that economists don’t see a connection between prices and costs.

            Technically, this also means that you can’t find a material value in labor. You might do the math to figure out that, say, labor accounts for 20% of the cost of production, but that doesn’t mean that labor accounts for 20% of the price you can charge.

            RE: “The methods I listed had nothing to do with production.”

            They do, actually. For example, without production to generate wealth, there would be no wealth to inherit.

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          7. “Businesses collapse all the time because markets won’t buy what they produce. This is one of the reasons that economists don’t see a connection between prices and costs.“

            Of course. Bad products don’t last. But that is not the issue. Good products don’t last either if costs are ignored. Often a company with a great idea suffers because the cost of production is too high. Another investor buys them out and rearranges the business model for profitability.

            There is no question that demand is important. And if demand is great, then pricing can ignore, for a while, sloppy production efficiency. But the competition rears its head and now production costs are crucial. And if the pricing in the marketplace is less than the cost of production for a particular company it is sayonara or cut costs.

            Why do you think so much manufacturing was moved overseas? Cost of labor was the big one. Our labor costs could not compete even for the same products. We designed the stuff then made them in other countries. The ones that didn’t, folded.

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          8. Your reasoning is illogical. The error boils down to this: market pricing varies independently from the cost of production.

            You should ask yourself, How is it possible for supply and demand to operate if there is a fundamental, material connection between the cost of production and point-of-sale pricing? Why did economists develop the concepts of supply and demand in the first place, if cost of production is the main or most significant factor in determining prices?

            RE: “Why do you think so much manufacturing was moved overseas?”

            The simple answer is, as you say, that lowering the cost of production is one way to increase income relative to expenses. The challenge for you is to grasp why such drastic measures became necessary. It wasn’t because lower costs of production would change market pricing in any way.

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