I think you are getting very distracted by the money flows here. A generally-useful move in these sorts of problems is to forget about the money flows, and just look at the real goods/services/economic value produced and consumed.
If a UBI causes a bunch of people to stop working, what does that mean in terms of production and consumption of real value?
Well, obviously if someone stops working then there is less total goods and services produced. That's a loss of real economic value. The trade-off is that the (former) worker gains some leisure time. So, from a real value perspective, the main question is whether the leisure gained has more real economic value than the goods/services no longer being produced.
There will also be second-order redistributive effects, as the redistribution of income/wealth changes spending patterns, but the analysis there shouldn't be any different from redistribution more generally. (This would include e.g. your Netflix/city apartment examples.) The part which is specific to UBI is the trade-off between leisure and goods/services produced.
Well, obviously if someone stops working then there is less total goods and services produced. That’s a loss of real economic value
If they stop, and they were doing something useful, and nothing replaces them. Getting rid of bullshit jobs and increasing automation aren't bad things. Although that won't be the whole story.
If I earn less money than I spend less money. The question is whether the combination of {me working} + {me consuming} is better or worse for the rest of the world than {me relaxing}, since what's at issue is precisely whether individuals who decide not to work are a sign of social inefficiency.
For the purpose of that comparison, the consumption seems just as relevant as the production. You seem to be disagreeing, but I'm not sure why. Yes, it's true that if I give someone a UBI they will also spend the UBI, and that's the same as any redistribution, but that's not relevant to analyzing whether their decision to not work is socially inefficient.
The question is whether the combination of {me working} + {me consuming} is better or worse for the rest of the world than {me relaxing}
Huh?? This does not make sense to me, in two ways:
If we're talking economic efficiency, then your own utility should be included.
My starting assumption is that I decided not to work because I believe I am better off. We are wondering if my decision to stop working was inefficient, i.e. if it makes the world worse off despite me voluntarily choosing to do it. So the salient questions are (i) how does this affect everyone else? Does it cause harms to the rest of the world? (ii) am I predictably making a mistake (e.g. by not adequately accounting for the ways in which working benefits my future self)?
In a UBI scenario, you should be able to stop working while still consuming
Yes, I'm talking about the additional consumption if you earn+spend more money.
Yes, I'm talking about the additional consumption if you earn+spend more money.
Generally speaking, if we're asking "what's the impact of policy X?" in economics, we:
Key point: we do not compare outcomes under decisions the agents could make (i.e. their choice-sets), we compare outcomes under decisions they will make, in both a with-policy scenario and a without-policy scenario.
In this context, that means we ask
The question you are currently asking is instead "given UBI, how will production and consumption change if I do vs do not work?". But that's not the relevant question for evaluating UBI. For evaluating UBI, the questions are
In particular:
We are wondering if my decision to stop working was inefficient
This is not the question. The question is whether UBI is inefficient, given that you will react to the UBI by not working. The question is not whether your own decision is inefficient.
(If the question were whether your own decision is inefficient, then the discussion of externalities would be roughly correct; at that point it's basically just the usual question of whether individual utility-maximization produces efficient outcomes.)
Many people's view of a UBI depends on whether recipients in fact stop working. For example, people are interested in running studies on that question, often with a clear indication that they would support a UBI if and only if recipients don't significantly decrease hours worked.
What are we to make of this concern?
A natural way to understand it is to separate the effects of UBI into {recipients may decide to reduce hours worked} from {all other effects}. Then the concern could be understood as a suggestion that this change in hours worked is bad even if the the other effects of a UBI would be good. Put differently, people who express this concern may believe that a UBI would be good if we magically causally intervened to ensure that people continued working the same amount, while the effects of UBI alone are more uncertain.
The reason to respond to this view, rather than directly analyzing all the effects of a UBI together, is that it seemed to me to indicate a moral error that could be separated from the other complex empirical questions at stake.
(Given that this seems like a kind of unenlightening thread about a topic that's not super important to me, I'll probably drop it.)
(Given that this seems like a kind of unenlightening thread about a topic that's not super important to me, I'll probably drop it.)
Reasonable. If you want a halfway-decent defense of the view that whether UBI is a good idea should depend on whether recipients stop working (while still accepting that work is not inherently good), you might like this.
Learning a lot from this discussion, thank you. I am in agreement with idea that viability of UBI depends on people who are currently working more or less continuing to work. If everyone stopped working, then obviously UBI (and civilization) fails. In fact, you need a large proportion (dependent on level of UBI) to keep working and paying taxes, otherwise UBI consumption simply fires inflation. On the other hand, everyone who does work has more spending power than those who don't so it seems to me there is powerful incentive to work. I can see that people might use it to reduce work hours, but given experiments on 4 day week, I dont think that would necessarily reduce productivity in many industries.
I cant see a way to determine by reason alone that UBI will be successful without actually running trials over long period to assess response.
People do those transactions voluntarily, so the net value of working + consuming must be greater than that of leisure. When I pay someone to do work I've already decided that I value their work more than the money I paid them, and they value the money I pay them more than the work they do. When they spend the money, the same applies, no matter what they buy.
Basically the whole case comes down to the externalities of working+consuming though (both the case in favor and the case against). It seems the point stands that the externalities of working and consuming are both relevant, there's not really an asymmetry there, and I don't see how this is related to "getting distracted by the money flows."
Like, I might produce value because some gets more surplus from hiring me than they would have gotten from hiring someone else (in the competitive limit that gap converges to 0 and they are indifferent, but presumably it won't be 0 in the real world). And similarly I might produce value because someone gets more surplus from selling to me than they would have gotten from selling to me. But those things seem symmetrical.
UBI could enhance production for some people, if it enables them to invest more in job skills or other forms of capital. The argument for every social program - the military and police, vaccination, education, infrastructure, scientific R&D, and so on - is that they produce more value than they cost.
This also applies to forms of welfare. For example, the ER visits circumvented by housing the homeless may save the taxpayer more money than providing the housing costs.
The essential argument about UBI is not whether greater leisure time is worth the cost.
It's whether we can get more leisure time and more production at a net savings to the taxpayer with UBI.
For example, I am currently in school preparing for a degree in bioinformatics, but I am also working part-time in my old job as a piano teacher. Society could allow me to pump more STEM knowledge into my head if I didn't have to work 20 hours a week providing an after-school activity for bored rich children. It could also reduce the risk that I'll burn out before I make good on my investment.
Whether this sort of dynamic outweighs the productive loss from people choosing to live off UBI and not work at all is an empirical question.
Another question is "what counts as work? - What are they doing instead of work?"
Suppose a group of people are all given UBI. They all quit their job stacking shelves.
They go on to do the following instead.
Their are a variety of tasks that are like this. Beneficial to society in some way, compared to sitting doing nothing. But not the prototypical concept of "work".
I would expect a significant proportion of people on UBI to do something in this category.
Do we say that UBI is discouraging work, and that these people are having positive effects by not working? Do we say that they are now doing unpaid work?
Of course, the answer to these questions doesn't change reality, only how we describe it.
Of course, for every person who spends their volunteering or gardening, there will be ten people who spend their time getting high, binge-drinking, watching TV, or playing videogames.
>getting themselves fit and healthy (exercise time +cooking healthy food time)
What is with this idea that you can't be fit and healthy and have a job? A hour for exercise per day is plenty, half an hour for cooking. It's not at all difficult to do that and have a job too.
I don't have the idea that its impossible. There are plenty of healthy people with jobs.
The question is, how high is getting fit on the persons list of important things to do?
It depends how long the hours are, and commute, and other demands on time.
Most people who cook spend way more than half an hour a day cooking (and cleaning up afterwards, which has to be included).
More critically, spending 25% of your non-work/non-sleep time exercising is a very different proposition than spending < 10% of that time.
Is working good for the rest of society?
Suppose you do some work and earn $100. The question from the rest of society’s perspective is whether we got more benefit than the $100 we paid you.
We can get more than $100 if e.g. you spend your $100 on a Netflix subscription...
If you receive $100 for work, that means you have already provided at least $100 in value to society. That society might gain additional benefit from how you spend your money is merely coincidental.
That society might gain additional benefit from how you spend your money is merely coincidental.
I'm not sure what "coincidental" means here. The question is how much more or less than $100 of value you create by working, and that seems to depend about as much on how you spend your money as it does on how you earn your money.
if I am interpreting Zolmeister correctly, i think you are misunderstanding their point and/or are talking past each other.
If I get paid $100 to write software for a company, that company may earn far more than $100 from the software I write; the company then resells the software, creating a ton of wealth. The wealth creation happens through the work, not the macroeconomic details of how I spend the $100. Those macroeconomic details are the “coincidence” of which GP speaks.
I may still be misunderstanding.
When I work I create value for the world, which is ultimately measured in benefits to other humans. And when I go spend my money I impose a cost on the world which is ultimately measured in the effort those people put in to give me what I bought, or the other people who could have had the thing that did not, or whatever.
It seems like the question is about the balance between the value I create by working, and the value others lose when I consume, isn't it? It's relevant both how much other people value what I do for them, and how much other people value the effort they put in for me.
And when I go spend my money I impose a cost on the world
You impose no such cost, as those willing to exchange your money for their services do so profitably.
It is possible to trade oneself to be bankcrypt.
You could have a worker that faced a situation that if we doesn't lower his pricer all the customers will go to the competitors. If people were completely farsighted and could factor in everything they would close shop immidietly. But it isn't unheard off to run an activity a little while with loss or run it by overworking oneself outside of ones capacity. There are uncertainties and closing and opening a shop isn't neccesarily frictionless. But that fricton can mask an area where activity is kept for inertias sake while actually being a little bit of burden.
Doing all the risk adjusments and opportunity costs and everything correctly is cognitively very challenging. Trusting that everybody does every decision always correctly might be handy for mathematical ideal land but for limited cognition agents it just means that everybody has a story how their deal makes sense. And like nobody is the villain of their story, everybody is the mastermind of their business. It doesn't mean that everybody is a saint or that all business is suistainable.
Suppose that you write an ET game get paid for it. Your company sells the game to retailers. Turns out the game is utter trash and of no gameplay or cultural value. Retailers decide to dump the game cartidges under the ground as $0 worth items.
Under some definitions the game writer provided value to their company and the retailers destroyed value by finding a item they paid money to now be of worth 0.
By another definition nothing of value was created but some money transfer from retailers to game companies and game writers happened.
But that's not what typically happens.
Take a company like Google. Google has about 100000 employees, and their average annual salary is 117 000 $. Google's yearly net income is 35 billion dollars. An average Google employee is creating value 4 times their salary. The effects of their spending on pollution etc. are negligible in comparison.
Any good that is "consumed" is in a state that has resale value of $0. If the ET game company made 35 billion it wouldn't have guaranteed that the product actually had any use value just that some people are willing to receive it by buying with that cash.
If I save 3 lifes and get $100 in compensation does that mean that a life is $33 in value? Human lives seem like they would have value outside of their exchanged value.
If there was a homo economicus that could choose between spending a day chopping down trees to get $1000 or spend a day saving 3 people and getting $100 the result would be that trees would get chopped and people would be left to die. This would to many seem like a tragic allocation of world affecting power. In order to compare whether market prices line up with our utility function satisfaction we need to be able to model the situation where the prices are not aligned. if one is able to recast the options in utilons that might resolve the problem. But then a strategy being homo economicus efficient doesn't tell whether the strategy is aligned with a value profile or not.
Doing service and getting paid well for it is a hint that it might not be totally frivolous but it is not staighforward to define that value via exchange. If somebody would do the same thing a google engineer did and didn't get any compensation for it it woud be just as valuable. Or a piece of code written as freeware or as proprietary software has comparble use value regardless of the cost associated with aquiring it.
If I pay you 100$ for saving 3 lifes, it means I value these lifes at at least 100$. The payment is not equal to the value, it is a lower bound estimate. Granted, I could make a mistake and spend these money on a cure that didn't work, or on a game I didn't enjoy. Then I would give away more than I got in return. But if we're talking about an established company that sells the same goods or services over and over again, people are going to learn what these goods or services are worth and stop making such mistakes.
If you receive $100 for work, that means you have already provided at least $100 in value to society. That society might gain additional benefit from how you spend your money is merely coincidental.
No, it means that there is at least 1 person prepared to pay $100 for the work. If you are manufacturing weapons that end up in the wrong hands. You might be doing quite a lot of harm to society overall. Your employer gains at least $100 in value. The externalities could be anything.
Gaining an item worth $100 and losing $100 in cash is value neutral. If you buy one banana for 10 million dollars that doesn't make a banana 10 million worth to society.
Voluntary exchange only happens when both parties benefit from it. It creates value for both parties, and, if there are no negative externalities, it's a utilitarian good.
A banana isn't going to banana harder because it is in your hand instead of mine.
You could take any mistake that is persistent and just think that the "revealed preferences" tell that they are actually gaining value by having that financial behaviour.
One needs some kind of assumption to bridge thinking that you benefit to actually benefitting. If you suddenly start to resist a advertisements effect you might realise that you are perfectly happy and content without some kind of experience or good. Does that reveal you were making an error or does it make it an error to continue to buy the product? If you manage to deceive someone to opt into a value-extracting deal does it mean they benefit from the deal? The beliefs about whether your experiece is improved need to be competent and they are capable of being incompetent.
A banana isn't going to banana harder because it is in your hand instead of mine.
I might like bananas more than you, or be hungrier than you. Than a banana has greater value to me.
If you suddenly start to resist a advertisements effect you might realise that you are perfectly happy and content without some kind of experience or good.
It think the left greately exaggerates the extent to which purchasing decisions are a result of some kind of deception or manipulation. For example, there was that movie that criticized consumerism, the Fight Club? The protagonist would spend every evening looking at ads, and then he'd change all furniture in his home all the time. That doesn't remind me of myself, or anyone I know. Last time I bought a couch it was because the old one became uncomfortable to sleep on. Sometimes I make mistakes, like when I bought the "Where is my flying car" book, and it turned out to be deceptive. But these kind of things amount to less than 5% of my expenses. When I look at other people I know, it seems like they, too, are spending most of their income on food, clothes (when old ones get ruined) and other things they obviously need and weren't tricked into buying. So I don't understand why you think advertisements' manipulation is a significant problem. When you look at people you know, do you see them wasting most of their money on worthless things?
A bananas value is created when it grows. Sure your brain might orgasm harder from bananas than my brain. But allocating it correctly rather prevents wastage than creates anything.
It doesn't need to be a serious problem. "only happens" in a previous post seems to point at a definitional impossibility. A claim of "there is handful of lighting strikes each year" is a relevant rebuttal to "Lightning never strikes" even if one is not arguing that everybody should always be afraid of lightning when going outside. But for somebody that is building a house wondering whether they should add a lightning rod impossiblity vs seldomness is very relevant.
I see a lot of consumtion that is more of "what you are supposed to do" or being a kind of signal where what is the venue of signaling isn't significant. This is not an insignificant or round-offable force.
Advertisement is an example of a constructed cognitive state that when I am in it I don't need outside coersion and I am doing "voluntary stuff" for most purposes. However parties that don't have my larger values so close to their heart have vested interest in constructing it. Just because I can doesn't mean I should. Certainly that I do doesn't mean that I should.
Both instant gratification and delayed gratification schemes can be used to rationalise consumption behaviour. However they tend to give contradictory recommendations. A greek philosphers advice to live a happy life can be taken to mean that having stable relationships and finding deep purpose of furthering science. Or a naive sensual hedonist might think that means drink wine every night and have a hang over every day. Just because one identifies wine making oneself to have a pleasant feeling doesn't mean that correct answer to "drink or not to drink" is to drink. If one has an accounting scheme that does recognise the raveness of orgies but doesn't recognise the satisfaction of progressing human knowledge then an option that gives a little better orgies but wastes a lot of knowledge potential gets more aggressively selected. Somebody that wants to make a name for themselfs as organising great parties might actively want for people not to understand feelings of progress so that their parties have greater attendance and more central role in society.
Holidays like black friday mean some cultural things for some. But as the cultural meanings are somewhat foreign to me I do note how marketers use it as a standard sale promotion period. Given that it is associated with trampling deaths it seems mostly parasitic for the "actual activities" if there are any left under this simulcra.
The teorethical foundations for microeconomics as far as I understand it means that you need to first know what you want in order to determine a value. Having a thought mode where you determine what you want based on "produced value" puts the cart before the horse.
You can cause more than a dollar of damage to society for every dollar you spend, say by hiring people to drive around throwing eggs at people's houses. Though I guess in total society is still better off by a hundred dollars compared to if you had received them via UBI.
But when I work I get paid, so that I (and the people I share my income with) get most of the benefits from my work.
I sort of got lost at this point. Isn't the point of work that I get more in money than I pay in effort, and others get more in value than they pay in money?
So the benefits are split between the workers and the buyers. If they're not, no one will buy and I'll be out of a job.
There's no symetric incentive for me to provide at least the value I'm getting to taxpayers when they give me money.
I might incidentally provide that value because humans are pro-social, but it doesn't feel like I can say "the amount of value I'll provide with my unincentivized effort is so close to the value I'll provide with my incentivized effort that it's dwarfed by externalities" just on intuiton.
You also have to balance out all the people will stop doing work that benefits society with the group of people that create something of huge value in the they used to spend doing wage labor. Traditionally it was rich people who therefore have a lot of free time that made all sorts of advances in science and mathematics (see all the lords hanging around 18-19th century science). The same logic goes for forming businesses unless a massive percentage of people don't work - it takes a ton of money to start a business because you still need to eat before you're profitable, and UBI takes some of the strain off that because, at worst, you still have your basic income to fall back on. It doesn't take many people doing extremely high value work of this sort because they aren't doing wage labor to make up for any number of people who sit on the couch and watch television all day.
There's also the second-order benefits on the next generation. How much healthier and higher-IQ would the population be if poor children had access to better food, better housing, and parent's with more free time and energy? Probably a lot more than the average upper-middle-class kid would lose from their parents paying slightly higher taxes. And that translates to more people with the theoretical potential to do high value creative and cognitive work - and hence being able to compete for jobs that today get paid a lot more than any plausible near-term UBI.
Also, less resistance by the population to increased automation seems like a huge long-term benefit that would increase the pace of economic growth, even if it causes an initial slump as people leave the workforce.
if poor children had access to better food, better housing, and parent's with more free time and energy?
It's going to end up being an empirical question if any real UBI implementation does those things. Presuming it replaces, rather than supplements, current low-income government programs, it's likely neutral or even negative to the disabled and non-working poor. It could be a noticeable boost to the working poor, and it remains to be seen whether it leads to healthier food and lifestyle choices, or "just" more pleasant lives. Or as payments to warlords (in a capitalist system, that's mostly drugs and black-market purchases, not direct violence).
I support large-scale trials (major metro areas or smaller US States), and I have hopes that it could make things somewhat better. But it's not guarantees, and it's not a panacea.
I agree, of course there are no guarantees. Well, I expect it's essentially a guarantee that there will be some of all of the above, and only the balance is in question.
I guess my response to that is... so what? Once we ensure people get enough support, for long enough, that their decisions are actually free choices unforced by desperate circumstances, I'm much more willing to let them bear the consequences of their own decisions. It removes a lot of the moral grey area. Granted I could be convinced the relevant time frame for that kind of shift might be anywhere from "a couple of years" to "multiple generations."
How much healthier and higher-IQ would the population be if poor children had access to better food, better housing, and parent's with more free time and energy?
Children's access to food and housing quality don't depend on whether the help that their parents get from the government comes with the government pressuring the parents to get work or not.
Not directly, no. But I'm fairly sure "Children have those things, but their parent(s) have to accept a job even if it has odd and inconsistent hours and is in an inaccessible-by-public-transit location so they're never home to cook, or help them with homework, or read to them at bed time" is a very different scenario than "Children have those things, and parent(s) who are around in the mornings and evenings."
I know I'm cherry picking a specific subset of scenarios here, but I do think I illustrate real and important ways in which a UBI would be better than the EITC, just by creating those possibilities.
I don't think there a good reason to abbreviate EITC here given that it's not a common abbreviation and not spelled out.
In any case earned income tax credit is not the only way to provide government welfare. There's welfare for the unemployed. The key difference of UBI is that the welfare that unemployed get doesn't come with a requirement of them searching work and accepting job offers.
Arguing that time for children is important is a different argument then that having enough food is important.
There is clear evidence that malnutrition keeps cognitive ability down but I'm not aware of clear evidence that parents having time for children is predictive of adult cognitive capacity.
That's very fair (on all counts). I have no studies to show, but would be surprised if it turned out that parental time and stress weren't correlated with childhood nutrition quality, though that's a very weak claim on my part.
Your argument proves too much - in medieval times, if more than 20% of people stopped working agriculture to buy food with their UBI, food prices would go up until they resumed, as an indicator of damage done to society from people stopping their work.
It seems like their problem is that they can't pay for a UBI without crazy distortions (and likely can't raise enough money for a large UBI regardless).
I'm not sure what exactly the reductio is for the medieval society. Giving low-income workers money will generally raise the price of goods produced by low-income workers but that doesn't generally indicate any efficiency loss.
I do definitely agree that paying someone a $100 UBI causes a loss of $100 to the taxpayers who paid for it. But that happens regardless of whether the recipients stop working.
The crazy distortions are the damage. People fear low-income people stopping their work because they fear that goods produced by low-income workers will become more expensive.
I think you are misunderstanding what 'crazy distortions' paul is referring to (that's on the tax end when you are taking money away, which mainly affects the rich; not the UBI end when you are giving it out, which mainly affects the poor.)
On the UBI end, you should expect to see that creating a UBI will, in equilibrium, cause the cost of living to rise by an amount less than the amount of the UBI. If the cost of producing the goods required to feed everbody requires nearly the entire productive output of society -- as in the medieval scenario you are pointing at -- I believe you should expect a small UBI to have almost no net effect in equilibrium, because (as you observe) it will be almost completely absorbed by rising prices.
It is a mistake to see rising prices as "an indicator of damage". They are an indicator of damage that would be done if all that production ceased, sure. But you're miscounting if you call them an indicator of damage that is done, because the whole value of the price mechanism is that it is not done, because prices rise until production is again adequate to meet demand.
The rise in prices means that the net effect of a UBI is reduced relative to the gross effect, but that's not an "inefficiency". It's not causing any value to be destroyed, it's just a change of accounting. You get some more money, you spend some more money (but less than you get). The real net redistributive effect of the UBI is in the excess you get beyond the increase in what you spend. (And as you observe, if there is not much spare productive capacity, that amount could be small.)
Capital costs in food production are significant. Land will still cost money, materials will still cost money, and machines will still cost money (though the cost of machines above and beyond the raw material cost could rapidly fall).
If I give you $8k, you will probably value marginal dollars less than you used to.
With an UBI you actually keep most of your marginal dollars that you earn at that point. In many systems where earning more means that you lose government support, earning a few marginal dollars isn't very helpful as the unemployed have a very high marginal tax rate when you account for them losing their benefits when taking a low paying job.
I expect a lot of people will find this argument to be confusing because they don't have an intuitive sense of what it means for something to be "economically efficient." To clarify what I believe to be your argument, I propose a thought experiment:
Suppose the American government discovered a portal to another universe that, when opened, spews forth an enormous amount of wealth (final consumer goods, not dollar bills) at some rate. After some tabulation, we find that the portal gives us so much free wealth that distributing its bounty equally among US citizens would provide everyone $1000 a month. In response, politicians pass a new law describing how the wealth ought to be distributed: we auction off goods that the portal gives us, and then distribute the revenue from the auctions equally, as to provide everyone a fair share of the pot (i.e. $1k a month to all).
Now, suppose someone claims that we should close this portal. Their argument: if everyone was given $1000 a month, then many would sit at home and do nothing. This portal decreases the incentive to work, and we therefore must not receive any of its benefits.
I'd imagine most people would not accept this argument for closing the portal. But indeed, this argument is precisely the one that people often give against UBI.
You could argue that people don't take that into account when deciding not to work (so that I can make the world better by forcing people to work for their own benefit).
The first step would be believing that people who stop working because they don't have to end up being less healthy, I have no idea if that's true. It's a bit hard to study, since interventions like "inherit a bunch of money" and "receive a UBI" mostly affect health via the channel of "now you have a bunch of money," and that obscures any negative effect from not having to work.
(And on the other hand, comparing the employed to the unemployed is extremely confounded and I'm skeptical it gives any evidence on this question. It would be pretty surprising if people who had a harder time finding work weren't less healthy and happy.)
The best would be to compare people receiving an unconditional transfer to people receiving a transfer with a work requirement, but I'm not aware of studies on that.
You could also have some anecdotal evidence about that. People I know who are voluntarily unemployed seem to eat and exercise better, but they are probably not representative of the people affected by a welfare work requirement.
IMO the problem is that reducing incentives to work makes it hard to compute the actual cost of UBI. Naively, if we want to pay each person a UBI of X, all we need to do is multiply X by the size of the population. We can then infer how much it would cost to each given taxpayer. But, because of reduced incentives to work, there are additional effects s.t. reduction in tax revenue and increase in the price of labor (that propagates to other prices). The latter means we don't even know the value this X will have to the recipients.
I think the efficiency lens is probably the wrong lens to try to make sense out of UBI. Economic efficiency is about margins, maximizing total surplus and allocation of resources. UBI is really about distribution of the available surplus.
True, connections here exist but they are not all that clear or straightforward, which is what you are asking for. Economics lacks a strong micro-macro theory linkage (no grand unification theory/ well functioning micro-based macroeconomic theories).
Last, as a question about distribution, I think the answer will actually change depending on a number of underlying factors related to both the society and the economy. I think it is clear that UBI (basically that just means that some stuff is free for people -- or at least some people) will be some function of both the total surplus in the system and probably some things like level of joint production (very high in modern large corporation and developed economies) as well as, lets call them, the elasticies of the external economies of scale in the economy. Probably some other factors as well.
I do agree that in general if everyone in the USA got 8,000 a year the impact on work would be trivial. In fact one might expect that such a marginal gift might actually promote some additional effort -- with the UBI and 2 two crappy jobs I might actually be able to afford a nice late model car. Without the UBI the two crappy jobs not only will not provide the means to buy a decent car, the additional wear and tear may leave me without a working car so the second job in not really a good return for me. (Pure hypothetical but could certainly see something like that happening)
However, that UBI would be about 13% or total GDP. That would, I believe have a direct impact on overall financial savings and investment that would need to be weighed against any non-financial investment (e.g. education) as well as any realistic savings in terms of all the existing social programs. Lots of reasons one might be a bit skeptical of that actually occurring. If we don't have a new gain socially from the UBI in terms of on-going investments then one might expect to see the pie starting to shrink over time and that would not be a good situation economically, socially, politically or culturally.
The marginal cost of producing something might fall to the price of the electricity + hardware depreciation, but the cost of delivering that product to a customer (marketing, sales, transporting, support, etc) will always be present. Also, too, if the thing has value, and can't be produced easily (eg high cost of entry to buy or build the automation) producers will be able to collect profits.
You need to pay for raw material, pay off investment in machinery and make enough to motivate yourself.
Even if my customers don’t pay me any cash, they still have value to me.
Are you sure ? Note that there is , for instance, no point in advertising in Gratistopia.
When automation comes, producers will compete against eachother for customers.
If every customer is worth zero, there would be no point.
The cost of production will essentially be 0,
It won't be exactly zero.
But in a fully automated situation, the production of food wouldn’t cost any labor at all, and therefore not cost any money at all either.
If the owners of the automata give the automata's products away for free, what's their motivation to invest in automata? You would need communism as well as full automation.
It's not 'free', just very very cheap. If food at the mall was as cheap to produce as ketchup, they would probably just make the food free to bring in business.
It's based on an observation of the continual efficient pricing pressure of competitive markets combined with technological innovation which reduces the real cost of food.
It’s not ‘free’, just very very cheap. If food at the mall was as cheap to produce as ketchup, they would probably just make the food free to bring in business.
Business in the sense of the person who is now in the mall spending money on something other than food which is not free. Everything being cheaper makes sense, some things being free makes sense, everything being free doesn't.
Overall I think that working is probably better for the world than leisure. The effect seems pretty small though (maybe 10% of the value you earn).
I think this intuition is different than many people have. For hooligans (those of an untrusted or actually destructive/violent group), the effect could be 200% or more of the value they earn. For most people, it doesn't matter, though - even if it's 10% or less, I don't value their leisure anywhere near as much as I value the small amount of utility they bring to the world by working.
A UBI (e.g. paying every adult American $8k/year) would reduce recipient’s need for money and so may reduce their incentive to work. This is frequently offered as an argument against a UBI (or as an argument for alternative policies like the EITC that directly incentivize work).
This argument is sometimes presented as economically hard-headed realism. But as far as I can tell, there’s not really any efficiency argument here—there’s nothing particularly efficient about people having a stronger incentive to work because they are poorer. The argument seems to mostly get its punch from a vague sense that work is virtuous and necessary. I think that sense is largely mistaken and it should be taken less seriously.
(As usual for policy posts, I’m not very confident about any of this; if it makes you happier feel free to imagine sprinkling “seems to me” throughout the prose.)
What people fear
If I give you $8k, you will probably value marginal dollars less than you used to. Some jobs that used to be a good deal will stop being worth it, and a job search itself may stop being worthwhile. We could study how much this happens empirically, but it’s definitely plausible on paper and it would be my best guess for the long-run effect even if pilot UBI experiments found otherwise.
This seems to be one of the main worries people have about a UBI. For example, some folks at McKinsey write:
[They find that the UBI didn’t decrease work, but this post isn’t even going to get into that.]
But it’s left somewhat vague what exactly is so bad about this. In fact it’s hard to respond to this concern because, although I’ve seen it expressed so many times, I’ve never really seen the argument laid out clearly.
It’s clear that work creates much of the great stuff in our society, and so reducing how much work happens seems scary and bad. But when I work I get paid, so that I (and the people I share my income with) get most of the benefits from my work. And leisure and slack also create value. If it stops being personally worth it for me to work, then it has likely stopped being socially efficient for me to work, and that’s OK.
The real cost of a UBI is on the taxpayer’s side, and so the actual focus of discussion should be “how expensive is a UBI and are we willing to pay that much?” Thinking about recipients’ incentives to work on top of that is double-counting at best. To be clear, I think that the cost of a UBI usually is the focus, as it should be. So all I’m trying to do is address a little bit of FUD about UBI rather than make the positive case.
My view
Is working good for the rest of society?
Suppose you do some work and earn $100. The question from the rest of society’s perspective is whether we got more benefit than the $100 we paid you.
We can get more than $100 if e.g. you spend your $100 on a Netflix subscription that subsidizes better TV, or help our society learn by doing and advance technology for the products you produce or consume.
We can get less than $100 if e.g. you spend your $100 renting an apartment in a city that crowds out others, or buy products that create untaxed externalities like pollution or signaling.
Similarly, if you decide to relax and have fun, society can benefit (e.g. if you are participating in a community that benefits from having more members, or hanging out with your kids who enjoy your company, or doing unpaid work to improve the world) or suffer (e.g. if you contribute to congestion at a public park, or you drive around throwing eggs at people’s houses).
Overall I think that working is probably better for the world than leisure. The effect seems pretty small though (maybe 10% of the value you earn), and I think this isn’t a big deal compared to other efficiency considerations about a UBI. For example, it seems like it is smaller than any one of the additional overhead in additional redistributive programs, the costs of bullshit for benefit recipients, the efficiency losses inherent in poverty (e.g. from credit market failures), and the deadweight losses from taxation.
(Of course the calculus is different for people who pay taxes, since that’s pure social benefit, but a UBI should mostly change employment for low-income families who are paying very low tax rates.)
Dependency trap
Another concern is that people who don’t work won’t develop marketable skills, so they will remain trapped as dependents. Some of my thoughts on that concern:
Other effects
Funding a UBI would involve significant tax increases, and those really do inefficiently decrease taxpayer’s incentives to work. For example, paying $8k per adult in the US would require increase the average tax rate by ~15%. But quantitatively the disincentive seems moderate, and this isn’t relevant if we are comparing a UBI to other government spending. When people get really concerned about incentives to work it’s because they are thinking about beneficiaries who no longer have to work, and that’s the part I think is mistaken.
This argument is especially clear when we compare UBI to programs that add a bunch of machinery with the goal of incentivizing work. For example, families with a positive incentive from the EITC probably have an inefficiently large incentive to work since the size of the EITC seems to dominate plausible estimates of externalities (and then other families have an absurdly reduced incentive to work).
There may be strong economic cases for these policies based on empirical analyses of e.g. the benefits to communities from more people working. But I haven’t seen studies that convincingly assess causality, and it feels to me like public support for these policies is mostly based on unjustified pro-work sentiment.