I think this is an exceptionally stupid idea and I think part of basic income should be stipulation that it can't be used to get loans ie. make this illegal.
Because first thing financial industry would use it against the poor, get them lump sum and eliminate benefits of basic income.
I am sure this can be made in a way that wouldn't be limiting too much, yet prevent obvious abuses you are bringing.
The problem of course is that BI's main benefit is to reduce regulatory burden, which is supposed to reduce bureaucratic overhead- now you're suggesting a new regulatory burden of policing issuing of predatory loans against BI holders.
In general, I agree, but there is a cost to such regulation in the sense that it would make banks more wary to lend to legitimate borrowers on the promise of future basic income payments. Making it illegal to seize basic income assets in the event of default creates a classic adverse selection problem where bad actors will have incentives to attempt to take a loan.
That being said, the point of a basic income in the first place is to introduce financial stability to all households so any costs associated with preventing lending on basic income collateral may be societally optimal.
Adverse selection happens when the borrower knows more than the loaner, no? Why would that happen here? Banks and other credit institutions already force you to prove that you have assets and/or income; here they would do the exact same thing, just disregarding the BI.
Ah, you are correct. The term I was actually looking for is moral hazard.
The reason why banks require evidence of ability to repay the loan is because, without them, there would be a huge incentive for borrowers to take loans without paying them back. This is where the adverse selection comes in - the information asymmetry results from the borrowers knowing what their intent for the loan is and the incentive to mislead the lender. This leads to lenders being more wary (and implementing requirements) when issuing loans.
>Anyone getting basic income should be completely free to spend it any way they want.
Such as to pay off a loan? Therein lies the problem: if you make it illegal to lend money explicitly based on BI, and the debtor pays with BI, who is liable? And if someone is liable, is the debtor truly free to spend BI as they wish? If nobody is liable, then what stops me from claiming that my BI is instead my paycheck, and then taking a loan based on it?
Part of the point of BI is that you can do what you want with it.
Yes, the poor would be disadvantaged by this. The solution isn't to take away everyone's ability to take loans on BI; this would leave people unable to take loans on their BI once they've got a stable income. The answer is to educate, to explain that taking that lump sum leaves you unable to use BI later when you need it. At most, pass a regulation stating that loaners are liable if they don't make it clear that the loan is paid off with BI over the course of X years.
Would basic income still register in the collective mindset as “help”? Because if it registers as “free money” I fear prices will go up. I understand that since BI correlates with income tax no inflation should be created. Yet people have particular ways to understand how welfare happens. In a poor community, when you know for sure that everyone there can afford some stuff, wouldn’t that be an incentive to collectively raise prices, just because you know there is definitely new money to be spent.
My understanding of most implementations of Basic Income is that the funds would come from taxes or budget cuts in other parts of the government rather than printing money which would reduce inflationary pressure. The problem with raising prices is that collective coordination would be difficult for goods which operate in a competitive market.
Yes, indeed it's not inflation I fear, but the collective mentality people have. Markets in poor communities are not as competitive as we'd think. Not to mention big retailers who are not that many to make coordination impossible.
Amazing how many people don't understand the concept of "supply and demand". Increase the availability of money, increasing demand, and the prices increase so long as supply can't keep up. This has been manifestly demonstrated by tuition, health care, mortgages, insurance, etc.
That's true for student tuitions, but availability of money doesn't increase demand for a specific product/market, so if the prices in supply-constrained markets increase, some people will use that money for something else instead, reducing the demand pressure.
Similarly, local minimum wage laws might be eaten by rent increases, since they're tied to those area and jobs. But a BI would make it much easier for people to move out, distributing the demand over cheaper areas.
Unless you're printing money, there's no increase in supply. You're changing the distribution so there are small localized effects but overall prices should remain constant. Some will go up, some go down, but the top rate stays the same.
The main unintended consequence is that nobody is going to want to be a grocery store clerk for minimum wage if they get BI. Hence, salaries for menial jobs will go through the roof... All of a sudden a gallon of milk will have to cost $20 to pay grocery store salaries... Now salaries will need to go even higher so that employees can afford food, themselves... And now you've got hyperinflation.
Actually, I think you'll find a lot of people will opt for part time lower income jobs than before as they are just supplementing the guaranteed income which means that there is net total more than before.
The salaries for jobs that nobody is going to want to do are going to have to climb, or we're going to need to automate those jobs. But if that's unsustainable and we approach hyperinflation, we quickly get to a circumstance resembling no basic income - at which point, people will start to be (economically) forced into doing those jobs again.
This is assuming we don't raise the BI in response to inflation. We shouldn't do that. (Matching or slightly exceeding targeted inflation seems a good idea; raising in response to observed or expected inflation seems potentially disastrous).
I predict the opposite is going to happen. Most proponents of BI also propose lowering the minimum wage. So let's suppose you're on BI receiving $12K a year. That's about enough to put a roof over your head, leaving very little for food or anything else. You see a clerk job advertised for $5 an hour. You don't have to take the job, but that $5/hr is the difference between eating rice and beans yet again or actually having a little bit of meat with your meal and being able to afford an occasional XBox game.
The big difference I see is that truly unpleasant and unsafe jobs will see wages rise. Being a clerk is not a great job, but it's not a bad job unless you have an awful boss. If your boss at the grocery store starts giving you trouble, it becomes much easier to just walk away and eat rice and beans for a while until you can find another job.
No- You're giving a person a choice between (1) getting to lounge around all day and play xbox or (2) earning 20% more income above BI by working hard all week doing an unpleasant and belittling job in a grocery store.
Part of the growing interest in BI is the likelihood/possibility that increasing amounts of menial jobs will be replaced by robots/computers. If the amount of work available/necessary for a well-function society is massively lower than the population, then some alternatives to the current system/expectations need to start to be considered. BI is one such alternative.
In 40 years I'd expect most of these minimum wage jobs to have disappeared so it wouldn't really matter.
Right now in some cities, Amazon and other services will deliver your food. I'd expect this to gain popularity as delivery costs come down and the cost of running an Amazon warehouse type grocery store would be significantly cheaper than running a traditional grocery store. This will drive down prices and will eventually run traditional stores out of business. So you're left with an automated warehouse moving your food around and a self driving car to deliver it. Shouldn't need that over prices clerk after all.
Of course, you'll still need some workers, but if their jobs are still needed after mass automation, they're probably already worth a lot more than minimum wage.
I think a lot of the push for BI comes from the realization that a lot of these jobs will go away through automation. We already see grocery stores with automated self check out stations. Soon, we'll see the same kind of automation at work in Amazon warehouses stocking the shelves too. An entire supermarket could operate with only a handful of employees. Yes, they'd have to be paid a bit more to create a gap between the pay and BI, but the overall costs of running the supermarket would go down.
Across all sectors of the economy, lots of low-income jobs will be eliminated. If we don't have BI to protect those soon-to-be-ex-workers, we're going to have a sizable portion of population in poverty, with no skills that let them outperform automated systems.
Nobody wants to be a grocery store clerk for minimum wage, full stop. We don't stay in the retail business because we love not being able to afford anything better than Spaghettios.
The whole point of these unintended consequences are easily corrected by allowing penalty free (for the basic income at least) defaults. Just like the student loan issue would be solved overnight by allowing defaults, basic incomes would never have a problem in the first place with them.
Essentially the base line for credit would be raised to the level of basic income. Right now, if you have zero assets and no income, you can file for bankruptcy and discharge your obligations. Hence, nobody in their right mind lends money to such people. In this new situation, the basic income would be the "new zero" - you could file for bankruptcy if all you had was a basic income, and hence few people would loan you money if you were in that situation.
I feel like there would be a number of arbitrage opportunities that would become available as well, though it's late and I can't think of any off of the top of my head. How it affects the currency exchange markets would be interesting as well. IMHO, a better option would be to provide Tax credits to employers for each employee's pay up to the poverty line. If employers don't pay poverty level wages, the government is stepping in with federal benefits. A tax credit is a more efficient transfer mechanism than the current system as well, but still encourages some sort of productivity.
Not the same thing. The tax credit I'm talking about goes to the employer. Right now, we just tax the employer (or the wealthy owners of the business) and redistribute. Let's cut out the middleman that's the government, and not tax employers who pay their employees up to the poverty level.
Ah, I misunderstood. It looks like a version of this exists which provides tax incentives to hire veterans, food stamp recipients, and other disadvantaged groups.
Yes, this looks similar to what I was thinking....basically employers are paying what would otherwise be a government expense to provide federal benefits to these individuals, so those employers are saving the government money. I don't have time to research now, but I would be curious to learn if the program is successful - is it revenue neutral? How much of a credit do employers get? etc...
The UK does something like this. It's a disaster, because it gives employers an excuse to cut wages knowing that the government will cover the rest - effectively a handout to employers, who don't usually need the money, not to employees, who do.
It's also a disaster because the UK gov is famous for changing payment rules, sometimes retrospectively. The most recent changes leave some of the poorest people owing between a quarter and twice a year's income in supposed overpayments - which they accepted in good faith, with no suspicion that the government would change its mind about them later.
Any tax credit scheme is going to be open to similar abuse - whether accidental, because of incompetence, or deliberate because of political malice.
Could you link to what you're referring to so I can understand better? I think we are talking about different things. The tax credit would go to the employer, not the individual. Based on your statement, i think you are talking about the UK version of the EITC?
To expand on his migration point, I worry that BI will create inland ghettos where the BI allowance is enough on it's own to cover the cost of living. At least some people would choose this lifestyle. Over time these ghettos would evolve their own cultures and start to be very separate from the rest of us. While I value personal freedom of an adult to chose to do this with their life, I worry about their children who will have a hard time leaving and I worry about internal fragmentation of our nation.
I think overall the net positive effect of BI probably counteracts the concerns above - but it will be interesting to see if such a phenomenon develops in Finland.
No, in our current system everyone is equal and has the same opportunities as everyone else. The market is essentially a benevolent, moral being that cares for the sick and needy whilst rewarding the hard working.
Joking aside, I'd be really interested to see what happens in an economy where starting a business is easy because you don't have to worry about it covering your basic needs. I'd imagine many people within ghettos would finally be able to leave and seek opportunities elsewhere, or be able to create their own opportunities within their current situation.
Would some people sit around not working while spending money on drugs or booze? Of course. But those people exist already. I'd be interested to see how the ratio of these types of folks compares before and after BI, and also the ratio of people making money from jobs vs self-created small businesses.
I really want another country to try this out =]. Not saying I don't want it for the US (I do, and if nothing else than for an interesting experiment), but I really don't see that happening with the weird fear we have of anything even remotely perceived as socialism/communism.
The current poor areas we have in America are still connected by market forces - jobs, social service providers, affordable housing, transit, road infrastructure, and others. Short of being subsistence farmers they cannot break too far off geographically or culturally because of all the tethers.
BI lowers the bar from "people okay with sustenance farming" to "people okay with roughing it." In the extreme case the only tether needed is a dirt road or body of water suitable for a delivery vehicle to bring supplies[1].
You might ask who would be willing to break off from mainstream American culture so severely, and I think the easy answer is religions and cults. It could be this isn't as bad as I think - perhaps the cultural and religious development done in these communities would be valuable - but the point of this argument was to bring up something unexpected.
[1] Coordinating the exchange of the BI for the supplies could be arranged in various ways. I think clever people will find loopholes and thus there isn't a practical way to force people to be present in "civilized" areas.
I think you just described Florida (for retirees).
On the margin, basic income should make it easier to move, rather than getting stuck in one place because you're out of funds. I'd guess that applies to children too (when they grow up).
This really cuts to the heart of the matter. In fact, so much so that I'm left wondering if the recent publicity behind BI is simply yet another wall street scam in the making.
Rather than added to with BI, what really needs to happen is the reduction of rent. Specifically the financial rent paid to the cabal of moneyprinters for the "privilege" of partaking in the markets that said moneyprinters have inflated the fuck out of - housing, cars and education - via the Fed policy of forced inflation. Real goods get continually cheaper (that's central to economic competition) so to make the CPI inflationary in a time of increasing productivity gains, the credit-based expenses skyrocket. Their only limit is the carrying cost of the principal - if interest rates halve, home prices double.
Without addressing how the Fed and banks have perverted our society away from wealth-based independence and toward mass indentured servitude, I fear the only thing BI would do is turn the treadmill up correspondingly quicker.
The individual is pretty flawed in his reasoning and examples...
"Since the lifetime of the average person is roughly 78 years, net present valuing a lifetime of $12,000 yearly basic income payments works out to roughly $287,000 assuming that yearly payments total $10,000 and applying a 4% yearly discount factor. That is enough to purchase a median priced single family home"
While factually true, in total, $12k a year isn't going to buy you a house anywhere near the median in your life time. Too much hyperbole in the read.
Basic Income is designed to replace welfare benefits, and get rid the many adverse effects that a complicated welfare system creates. Therefore it should benefit from the same type of protection. It's not complicated, many countries have this system in place already: welfare benefits cannot be financial collaterals and they are not seizable.
62 comments
[ 14.8 ms ] story [ 1935 ms ] threadBecause first thing financial industry would use it against the poor, get them lump sum and eliminate benefits of basic income.
I am sure this can be made in a way that wouldn't be limiting too much, yet prevent obvious abuses you are bringing.
That being said, the point of a basic income in the first place is to introduce financial stability to all households so any costs associated with preventing lending on basic income collateral may be societally optimal.
The reason why banks require evidence of ability to repay the loan is because, without them, there would be a huge incentive for borrowers to take loans without paying them back. This is where the adverse selection comes in - the information asymmetry results from the borrowers knowing what their intent for the loan is and the incentive to mislead the lender. This leads to lenders being more wary (and implementing requirements) when issuing loans.
Anyone getting basic income should be completely free to spend it any way they want. That is essential.
Such as to pay off a loan? Therein lies the problem: if you make it illegal to lend money explicitly based on BI, and the debtor pays with BI, who is liable? And if someone is liable, is the debtor truly free to spend BI as they wish? If nobody is liable, then what stops me from claiming that my BI is instead my paycheck, and then taking a loan based on it?
Yes, the poor would be disadvantaged by this. The solution isn't to take away everyone's ability to take loans on BI; this would leave people unable to take loans on their BI once they've got a stable income. The answer is to educate, to explain that taking that lump sum leaves you unable to use BI later when you need it. At most, pass a regulation stating that loaners are liable if they don't make it clear that the loan is paid off with BI over the course of X years.
Similarly, local minimum wage laws might be eaten by rent increases, since they're tied to those area and jobs. But a BI would make it much easier for people to move out, distributing the demand over cheaper areas.
This is assuming we don't raise the BI in response to inflation. We shouldn't do that. (Matching or slightly exceeding targeted inflation seems a good idea; raising in response to observed or expected inflation seems potentially disastrous).
Or we'll find a way to survive with a lot fewer minimum wage grocery clerks in the future.
The big difference I see is that truly unpleasant and unsafe jobs will see wages rise. Being a clerk is not a great job, but it's not a bad job unless you have an awful boss. If your boss at the grocery store starts giving you trouble, it becomes much easier to just walk away and eat rice and beans for a while until you can find another job.
Sounds great to me.
Right now in some cities, Amazon and other services will deliver your food. I'd expect this to gain popularity as delivery costs come down and the cost of running an Amazon warehouse type grocery store would be significantly cheaper than running a traditional grocery store. This will drive down prices and will eventually run traditional stores out of business. So you're left with an automated warehouse moving your food around and a self driving car to deliver it. Shouldn't need that over prices clerk after all.
Of course, you'll still need some workers, but if their jobs are still needed after mass automation, they're probably already worth a lot more than minimum wage.
Across all sectors of the economy, lots of low-income jobs will be eliminated. If we don't have BI to protect those soon-to-be-ex-workers, we're going to have a sizable portion of population in poverty, with no skills that let them outperform automated systems.
https://en.wikipedia.org/wiki/Earned_income_tax_credit
https://www.doleta.gov/business/incentives/opptax/wotcEmploy...
It's also a disaster because the UK gov is famous for changing payment rules, sometimes retrospectively. The most recent changes leave some of the poorest people owing between a quarter and twice a year's income in supposed overpayments - which they accepted in good faith, with no suspicion that the government would change its mind about them later.
Any tax credit scheme is going to be open to similar abuse - whether accidental, because of incompetence, or deliberate because of political malice.
I think overall the net positive effect of BI probably counteracts the concerns above - but it will be interesting to see if such a phenomenon develops in Finland.
I think that cultural islands such as GP is worried about would not be entirely or even substantially broken down by any educational system.
(i.e. evolve its own culture and make it hard for a child born in a poor area to leave)
Joking aside, I'd be really interested to see what happens in an economy where starting a business is easy because you don't have to worry about it covering your basic needs. I'd imagine many people within ghettos would finally be able to leave and seek opportunities elsewhere, or be able to create their own opportunities within their current situation.
Would some people sit around not working while spending money on drugs or booze? Of course. But those people exist already. I'd be interested to see how the ratio of these types of folks compares before and after BI, and also the ratio of people making money from jobs vs self-created small businesses.
I really want another country to try this out =]. Not saying I don't want it for the US (I do, and if nothing else than for an interesting experiment), but I really don't see that happening with the weird fear we have of anything even remotely perceived as socialism/communism.
BI lowers the bar from "people okay with sustenance farming" to "people okay with roughing it." In the extreme case the only tether needed is a dirt road or body of water suitable for a delivery vehicle to bring supplies[1].
You might ask who would be willing to break off from mainstream American culture so severely, and I think the easy answer is religions and cults. It could be this isn't as bad as I think - perhaps the cultural and religious development done in these communities would be valuable - but the point of this argument was to bring up something unexpected.
[1] Coordinating the exchange of the BI for the supplies could be arranged in various ways. I think clever people will find loopholes and thus there isn't a practical way to force people to be present in "civilized" areas.
On the margin, basic income should make it easier to move, rather than getting stuck in one place because you're out of funds. I'd guess that applies to children too (when they grow up).
Rather than added to with BI, what really needs to happen is the reduction of rent. Specifically the financial rent paid to the cabal of moneyprinters for the "privilege" of partaking in the markets that said moneyprinters have inflated the fuck out of - housing, cars and education - via the Fed policy of forced inflation. Real goods get continually cheaper (that's central to economic competition) so to make the CPI inflationary in a time of increasing productivity gains, the credit-based expenses skyrocket. Their only limit is the carrying cost of the principal - if interest rates halve, home prices double.
Without addressing how the Fed and banks have perverted our society away from wealth-based independence and toward mass indentured servitude, I fear the only thing BI would do is turn the treadmill up correspondingly quicker.
"Since the lifetime of the average person is roughly 78 years, net present valuing a lifetime of $12,000 yearly basic income payments works out to roughly $287,000 assuming that yearly payments total $10,000 and applying a 4% yearly discount factor. That is enough to purchase a median priced single family home"
While factually true, in total, $12k a year isn't going to buy you a house anywhere near the median in your life time. Too much hyperbole in the read.