by Eduardo Abreu | Nov 5, 2017 | News
Ellen Brown. Credit to: Signs Of The Times
Writing for Common Dreams, Ellen Brown makes a case for how Universal Basic Income can be achieved without increasing Taxes or Inflation. At first glance, most will consider this not to be possible, but Ellen argues that through quantitative easing, in which money flows directly into the real economy instead of being put into banks, the opposite may turn out to be true. In line with her reasoning, the author quotes Nobel prize-winning economist, Joseph Stiglitz:
“When the government spends more and invests in the economy, that money circulates, and recirculates again and again. So not only does it create jobs once: the investment creates jobs multiple times.”
As a consequence of this economic growth, tax and fiscal revenues increase while demands for unemployment benefits and social programs to help the poor, which are paid by the government, go down. All this strengthens a country’s fiscal position. On the other hand, one might assert that getting “new money” into the economy, supply would grow too large and consumer prices shoot up irreversibly, leaving the central bank unable to retrieve its investment. At this point Ellen quotes Prof. Stiglitz again, who states that money issued by the government, through UBI, simply returns to it in fiscal revenues.
Ellen further elaborates this in the light of the “velocity of money”, the number of times a dollar is traded in a year, which in a good economy is around seven, which means that on each dollar, taxes will be paid seven times, as it changes hands. $1,00 traded seven times on a 26 percent tax results in $1,82 back to the government, more than it initially put out. Also, it is generally taught in economics class that, from the formula “MV = Py”, when velocity of money (V) and the quantity of goods sold (y) are constant, adding money (M) will drive prices up (P). What is not taught, as Prof. John Harvey, quoted by Ellen, pinpoints, is that V and y are not constant, meaning that demand and supply rise together, leaving prices unchanged.
Applying this logic, Ellen sets forth that new demand must precede new supply, that is, employers will add the workers needed to create more supply, once they know there is demand for their goods and services. This has implications for unemployment, for example, which is at 9,4 percent in the US as of January 2017, a condition which at the rise of many innovations may get worse.
Nevertheless, a concern with hyperinflation is thrown around in opposition to this form of injecting money into the economy, to which Ellen Brown quotes Prof. Michael Hudson, who states that most cases of hyperinflation in history stemmed from foreign debt services collapsing the exchange rate, not domestic spending, calling upon the example of post World War I Germany.
In short, UBI can create more demand and drive new productivity by paying a dividend for living in the 21st century, when automation frees us time to engage in more meaningful pursuits.
More information at:
Ellen Brown, “How to fund a Universal Basic Income without increasing taxes or inflation”, Common Dreams, 4th October 2017
by Tyler Prochazka | Nov 7, 2016 | Opinion
I recently led a roundtable discussion on basic income at National Chengchi University (NCCU), which was attended by students from various countries. The participants vigorously debated whether a basic income would result in inflation, with some parties worrying that the greater spending power will push up the demand for goods and, in turn, prices. The increased prices could possibly erode much of the spending power from a basic income.
To confirm whether these worries were justified, I reached out to three experts on basic income (BI), co-editors of the Ethics and Economics of a Basic Income Guarantee, to see what the research says about basic income and inflation.
It turns out: it depends.
Overall, the scholars agreed that there could be some areas where prices are pushed up, but that it would depend on how the BI is implemented.
Knowledge about the topic is limited since none of the BI research has looked at inflation, nor have the experiments been long enough to get a true idea of the BI’s effect on prices.
Dr. Steven Pressmen, former professor of Economics and Finance at Monmouth University, said this means economists “therefore must fall back on theory to answer the question about the inflationary consequences of a BIG (basic income guarantee).”
Dr. Michael Lewis, associate professor at Silberman School of Social Work at Hunter College, added that “multiple variables affect inflation”: if government spending is reduced in some area after a basic income is introduced, there would be a simultaneous push-and-pull effect on inflation.
Pressman also said that the outcome of a basic income on inflation will be based on “the overall condition of the economy and how a BIG is financed.”
According to Pressman, there are several potential scenarios that could play out.
If the economy is near full employment, then a BI would likely “push up prices rather than employment.” Also, since much of the gains in income from a BI would go to people in poverty and “people with low income tend to spend any extra income that they get,” then total spending will increase along with inflation.
On the supply side, Pressman said there are two important factors: taxation and labor.
If a basic income is financed by sales tax or value added tax (VAT), then this will increase prices and inflation. Second, if BI gives employees more leverage to increase wages, firms may “try to pass along these costs to consumers in the form of higher prices,” Pressman said.
On the other hand, Pressman said that financing a BI is paid for by reducing other government spending means “there should be little or no inflationary impact of a BIG.”
Dr. Karl Widerquist, co-chair of BIEN and associate professor at Georgetown University SFS-Qatar, said that Denmark’s economy demonstrates that spending on welfare such as basic income should not lead to inflation “taking away all those workers’ gains.”
“There is nothing special about Basic Income spending. It is not any more likely to cause inflation than any other spending,” Widerquist said. “It is not any more difficult to use taxes and borrowing to counteract inflationary pressure caused by Basic Income spending than it is to counteract inflationary pressure caused by military spending or any other kind of spending.”
Regardless, some inflation may not be such a bad thing for the economy, according to Pressman. He pointed to the Japanese deflationary spiral in the 1990s as to why some inflation may help an economy.
For policymakers considering a basic income, it may be useful to think about adjusting the BI benefit depending on economic conditions.
“It also may (make) sense to think about a variable BIG — one that increases as unemployment rises and falls as the economy gets closer and closer to full employment. This too will reduce the inflationary impact of any BIG program,” Pressman said.
Although more research needs to be done, it appears a basic income is unlikely to contribute to inflation in a substantial way because there are so many factors that influence prices.
“Policy matters, and sensible fiscal and monetary policies can ensure that more egalitarian social policies are consistent with low inflation,” Widerquist said.
by Harry Pitts | Oct 24, 2014 | Research
In this article, David Jenkins assesses the possible impacts of a basic income upon inflation. He concludes that ‘[t]here is reason to believe then that UBI will not produce the kinds of inflationary effects for which it stands accused.’
The full article is available here:
David Jenkins, “A Perspective on Inflation”, Basic Income UK: Towards an emancipatory welfare, 8th October 2014
by Peter Knight | Apr 4, 2024 | News
“In September 2021, Mayor Sumbul Siddiqui and the Cambridge Community Foundation launched the Cambridge Recurring Income for Success & Empowerment (RISE) guaranteed income (GI) pilot. Designed to address growing economic disparities and racial inequities, Cambridge RISE provided $500 recurring monthly payments for 18 months to 130 randomly selected single-caretaker households living below 80% of the Area Median Income (AMI). To maximize the impact of the monthly GI, the RISE team secured benefit waivers to protect housing and DTA public benefits for pilot participants.1 Launched during an unprecedented time of pandemic-related stressors and inflation, Cambridge RISE provided critical relief to single caregivers who were responding to added burdens related to remote work and school and childcare center closures.
The Center for Guaranteed Income Research (CGIR) conducted a mixed-methods Randomized Controlled Trial to evaluate Cambridge RISE and randomly assigned 130 caregivers to the treatment arm and 156 caregivers to the control arm.”
To view the full report, click here.
