Does Universal Basic Income effect inflation?
- The Universal Basic Income (UBI) is a proposed system that would give individuals with a minimal income to help prevent poverty and close economic gaps.
- Some proposals propose that a UBI be paid to anybody earning up to a certain amount of money (e.g., $50,000 per year), whether or not they are employed. Other suggestions propose that a UBI be distributed only to people who have lost their jobs especially, those who have lost their jobs due to automation.
- The main argument against, or disadvantage of, a universal basic income system is that it has the potential to produce runaway inflation, raising the cost of living.
How does Universal Basic Income benefit the economy?
UBI results in increased job growth and a reduction in school dropout rates. People are protected by the UBI guarantee against sluggish pay growth, low earnings, and job insecurity induced by the rising gig economy, such as Uber/Lyft driving and short-term contracts.
Do economists favour Universal Basic Income?
The Universal Basic Income (UBI) substitutes indirect aid’s activating, directing, and therefore paternalistic social policy with unconditional direct cash payments. This, however, explains why the social bureaucracy and labor unions may resist a UBI. In this new welfare state structure, they would lose power and influence. The state would no longer have to worry about job creation or unemployment because the minimum wage would be replaced by a state-guaranteed basic income. Active public labor policies would be rendered obsolete, resulting in a reduction in administrative expenditures.
Direct assistance is more cost-effective and socially just than indirect aid, which is usually accompanied with leakage through bureaucracy and misleading incentives. Indirect interventions in the labor, education, health, insurance, and housing sectors are more costly, imprecise, and unjust than direct interventions.
Is the UBI financially viable?
The first and most crucial concern of how to fund a social system is not unique to the UBI, but it must be addressed nonetheless. It is the central question of what a society expects from its social structure. Once this issue has been addressed, other options must be evaluated in terms of their efficiency and efficacy in reaching the desired outcomes. Which instruments are most effective in achieving political goals? The population’s willingness to accept costs for what form of welfare state must next be determined through political decision-making. After these questions have been answered, the discussion should shift to the economic implications and financial sustainability of these democratically sought goals.
The level of UBI must be determined by a political decision. Economists can only argue that in order to finance a high UBI, high tax rates are required (and vice versa). High tax rates, on the other hand, tend to reduce motivation to work because they reduce available income.
The question of the financial level and scope of the subsistence minimum is, of course, a contentious and politically fraught topic. And it’s not impossible that political parties will be enticed to offer (unrealistically) high UBIs in the run-up to elections. However, this is not dissimilar to present methods. Democracy necessitates competition for the electorate. A population must determine whether it wants a high or low subsistence level, and whether it is ready to bear the consequences of that decision, including the high (or low) tax rates required to pay the UBI, through democratic methods.
Returning to Germany, the federal government already publishes every two years a “report on the amount of the tax-exempt minimum subsistence level of adults and children,” i.e. the minimum subsistence rate.
Is welfare a source of inflation?
A documentary about a priest who brought three or four university students to see street-sleepers in a dismal region of Kowloon aired recently on a local television channel. The program depicted a priest and students visiting homeless people on the street in order to have a better understanding of what life is like for the impoverished. This was all about pity, but there was no mention of how university students could assist homeless people in improving their lives, developing skills, or entering the workforce. University students are expected to come up with more inventive ways to assist the poor. A similar comment may be made regarding the Chief Executive’s recent Policy Address, in which he showed sympathy for families who choose not to have a second child due to a lack of living space.
Sympathy is a word that refers to personal feelings and should only be used in specific situations. But it would be nave to believe that sympathy can be converted into economic policies, particularly when it comes to welfare. In Hong Kong, it has almost become a clich that the poorest portions of the population must be protected. While sympathy is understandable, extending blanket assistance to these individuals is not the solution. The question is, in fact, how to improve the marketability of people with low abilities. While we must be compassionate toward the poor, we must equally encourage them to contribute to the economy. In other words, assistance is required, but we should also assist them in becoming self-sufficient.
There are significant theories about government expenditure that should be respected without putting undue strain on other areas of the economy. In bad times, government spending typically rises, as it should to avoid a slump. When the economy is doing well, however, government spending should be curtailed. This is due to the fact that increased government expenditure in good times is akin to “pouring oil on the fire” and might result in inflation.
The recent push to increase welfare spending may have unintended repercussions by raising inflation. The economic situation in Hong Kong in 2014 is far from ideal. On the one hand, the Policy Address’s pledges of long-term development will take time to fulfill. The economy, on the other hand, is not likely to expand significantly.
Furthermore, when welfare spending rises, it is possible that firms in Hong Kong, particularly small businesses, will raise their pricing. The explanation for this is straightforward. Businesses anticipate that once households have more money to spend as a consequence of increased government assistance, consumers will tolerate higher pricing. As a result, rising welfare costs will lead to inflation. Inflation is predicted to climb significantly in 2014. Prices will rise as a result of increased welfare spending, hurting everyone, including welfare beneficiaries. Life will be harder for non-welfare recipients as their purchasing power is undermined. Inflation will undermine the benefits of welfare increases for welfare beneficiaries. Because there will be little inflation during a recession, welfare spending should only increase when low-income people want assistance.
However, if government assistance spending continues to rise in normal economic times, firms will see an opportunity to boost their pricing. If economic growth is not available, or is not rising at the same rate as welfare spending, stagflation will occur from rising inflation combined with low growth. This is precisely what the Hong Kong economy does not want because it will negatively impact everyone. The government will have to spend even more money on welfare as a result. When economic growth is modest, the budgetary burden continues to rise. We must assist the poor, but when assistance becomes politicized, the economic repercussions can be disastrous. Hong Kong’s authorities must avoid turning the city into a welfare state.
The author is an associate professor at City University of Hong Kong’s Department of Economics and Finance.
What are the disadvantages of Universal Basic Income?
Universal Basic Income (UBI) deprives the poor of much-needed tailored assistance by taking money from them and giving it to everyone. UBI is prohibitively expensive. UBI reduces the incentive to work, causing an economic downturn and a labor and skills deficit.
What causes price increases?
- Inflation is the rate at which the price of goods and services in a given economy rises.
- Inflation occurs when prices rise as manufacturing expenses, such as raw materials and wages, rise.
- Inflation can result from an increase in demand for products and services, as people are ready to pay more for them.
- Some businesses benefit from inflation if they are able to charge higher prices for their products as a result of increased demand.
How does Universal Basic Income boost economic growth?
Our findings are clear: adopting a universal basic income and funding it by raising the government debt would be expansionary, as it would enhance aggregate demand. As the economy converges to a bigger size, economic growth is higher than in the baseline when the policy is first implemented.
Elon Musk supports universal basic income for a variety of reasons.
Elon Musk believes that, in the future, universal basic income will be required due to the rise of robots. Musk is working on a robot that will perform routine jobs so that humans do not have to. However, this would eliminate many service occupations, which is why humans would want a fixed income.
Was Thomas Paine an advocate for a universal basic income?
Thomas Paine, in Agrarian Justice, 1796/1797, was arguably the first in the United States to suggest a system that was strikingly similar to a national basic income. He believed that providing a few “basic incomes” to young people in their twenties, funded by a heritage tax, was both necessary and just. Thomas Spence proposed a comprehensive basic income concept shortly after, in 1797.