Friday, February 27, 2015

Ian Welsh — The Problem with Basic Income

So basic income, at any level that would be equivalent to a living wage (aka. letting people live a decent life, not just barely scrape by), can be expected to spike inflation in various commodities, including oil. This is a problem, but it’s not a huge problem, because we finally have the technology which allows us to move off oil (not completely, but enough to mitigate the effect of demand increases), and because, hey, we’re flirting with deflation anyway. 
The real problem with basic income has to do with who controls our economy—with the fact that we are sold what we need, by and large, by oligopolies.... 
What this means is that increases in income, especially at the lower end, tend to be simply taken away by those who have what you must have. Everyone will know what the basic income is, and they will know who is surviving on just that, or just that plus a low-wage job. And they will raise prices so that money goes to them.... 
So if you want basic income to work, you must also make capitalism work. You must create actual competitive markets, you must-trust bust, you must regulate and you must move, as government, to ensure that the important things people will spend that basic income on are not scarce—either naturally or artificially.This extends far beyond basic income. 
Good post. Read the whole thing if you are into basic income.


Dan Lynch said...

Well, yes and no. Ian tries to cover too much ground in one essay. I left several comments.

His main point -- that monopolistic control of the economy is inflationary and redistributes income upward -- is equally true with or without a BI. IMHO the subject of monopoly deserves a stand-alone essay and should not be linked to BI.

For example, you could make the same argument about raising the minimum wage -- that it would be inflationary and the minimum wage increase would wind up in the pockets of the monopolists. And to some extent that is true, particularly for housing in metro areas where rent is basically a certain % of your income -- metros that have higher pay, like SF and Seattle and DC, will also have higher rent.

By the same logic, increasing the pay of the upper class is also inflationary, yet where is the concern about that?

Whether a UBI or a means-tested BIG would be inflationary depends on how it is "paid for" and whether it is designed to minimize labor market distortions.

Another inflation related issue which Ian did not bring up, but could have, is population growth. Population growth puts pressure on housing prices, food prices, and energy prices. So one way to address inflation might be to have a population policy. I think it's nuts that we lack one.

Basic income is complicated, with many "if's, and's, or but's." It deserves its own essay.

Monopoly deserves its own essay.

Inflation deserves its own essay.

And so forth.

I'm a big fan of Ian, but he does have a habit of rambling. :-)

hog said...

I think BIG needs at least a post-scarcity situation to work (think star-trek), which society doesn't really seem to be moving towards.
fusion power has always been 50 years away, and the lack of political motivation to invest in bridging technologies will just delay it further.

Matt Franko said...


What is "scarce" today?

(Other than toilet paper in nations currently administered by incompetent neo-communists...)


hog said...

Carbon-free electricity/transportation is pretty scarce.

Dan Lynch said...

Land is scarce.
Meat is scarce.
Energy would be scarce if we still had an industrial base that consumed energy.
Clean air and water are scarce.
Wilderness is scarce.

All subject to get more scarce thanks to global warming.

Roger Erickson said...

Common sense is still scarce.

This whole perspective is out of paradigm from the beginning.

1) by this analogy, all militaries would be more successful if the didn't set minimal provisioning for each soldier (and instead, let the "best" generals hoard most of the logistics; Doh! )

2) by this analogy, all the ~35Trillion cells in the average body don't need to be adequately provisioned; You can do without most of them!!! (go ahead, Shylock, try it; one pound at a time)

What's Shewhart's old saying?
"Data is meaningless w/o [FULL] context."

Since context, by default, including our own population growth, is ALWAYS changing, then TWO obligate corollaries stand to minimal reasoning:

a) expanding options ALWAYS dwarf current options (the "Expanding Aggregate's Task," not just the "Traveling Entrepreneur's Task")

b) those same expanding options make ALL data obsolete (it's only a question of when);
Given constant creation, we are flat out NEVER completely bound by current data! Get over it.

We simply can't have both autocatalysis and our orthodox accounting too. One of those has to give, and 13 Trillion years of estimated history says it's not the former ... until maybe it is. So what are you gonna bank on? Past, present, or future?

Matt Franko said...


ALL TIME HIGH storage (above ground):

Perhaps to your point, forms of stored energy that we are not currently using are probably "scarce"... as we dont use them...


Tom Hickey said...

The likely reason that petroleum storage has been so high is that "black gold" was being used as a real asset to hedge against expected inflation. Now that the global economy seems to be threatened with deflation, that hedge may be collapsing.

Matt Franko said...

Tom I was wondering what would happen if it actually filled up?

Maybe prices of JIT deliveries collapse?

So they still deliver the 17Mbpd but at way reduced prices? To undercut those owning the previously stored barrels and wipe those people out?

This could also be what is causing the rig count to reduce... I have a contact in the industry and he has been talking about this for quite a while, they have been seeing this coming....

Could get interesting.... rsp,

Tom Hickey said...

I think the problems began to take new shape when the financial industry decided that it needed a new asset class commodities, which previously had served largely for hedging by users with prices arbitraged by traders.

Then commodities became the next new thing as an asset class and the markets were distorted by real saving of commodities above ground, certainly oil but not only oil.

The huge demand of emerging markets, especially China, contributed to it.

Prices were also affected by the introduction of ETFs. Commodity stores were also hypothecated.

The result was a huge bull market with the overshoot that this generally implies. Many have been calling for a correction for some time, including Randy Wray and Jeremy Grantham.

Now the global economy is projected to contract and uncertainty is increasing owing to the geopolitical situation.

Is the bull market in commodities over, or just taking a pause. In other words, is it time to lighten up on holdings, or buy the dip.

Ignacio said...

Notice that scarcity is a relative quality.

We have scarcity if we all want to have McMansions and yachts. If we can be done with this cult of material toys then we have no scarcity really.

We keep throwing away 50% of the produced food in developed nations, if we really had scarcity this wouldn't happen. Is an ecological disaster too.

The 'post-scarcity' society is here already, we have enough production to get most of the human population a decent standard of living. And if you are worried: inflation taxes is what we need, you (or the good you consume, more appropriately) get taxed relative to the inflation you create, is proven that the rich do even have a bigger share of resource consumption than they hoard money. An other ecological, and human, disaster.

Just, tax, them, like there is no tomorrow. Or do you think those golf camps everywhere spawn alone.

No scarcity and some people hoarding and consuming too much resources while others too little (distribution problem).

Piketty tax not a bad idea after all, although I would prefer a more efficient way of calculating inflation and taxing that inflation.