ubi and inflation: a matter of consistency

universal basic income (u.b.i.) sparks debates, with a common concern being its potential to cause inflation. critics worry that u.b.i. recipients will reduce their work hours or stop working altogether, driving up labor costs and triggering price hikes. however, this argument often lacks logical consistency when it comes to how we view u.b.i. spending.

the berry picker and the bread buyer

imagine a world with u.b.i.. critics fear berry pickers, now financially secure, might work less, leading to labor shortages and pricier berries. this seems plausible, but let’s consider another scenario: someone uses their u.b.i. to buy bread. this increases demand for bread, nudging its price up. this is standard demand-pull inflation (not to be confused with cost-push inflation, which is the bad kind of inflation, which means decreased supply). but you don’t generally hear of people complaining u.b.i. pushing up bread or clothing prices. people might complain about the cost of ubi and the taxes that go into funding it, but not that it be literally used for its intended purpose.

the logical disconnect

here’s the key: whether you buy bread, hire a handyman, or choose to work less due to u.b.i., you’re increasing demand for something. increased demand raises prices, whether it’s for goods or labor. the inconsistency arises when we criticize u.b.i. for potentially inflating labor costs while accepting inflation caused by u.b.i. spending on goods. it’s like saying, "it’s okay if u.b.i. makes bread more expensive, but it’s unacceptable if it makes labor more expensive." this distinction lacks logical grounding.

working less is like buying your own time

think of it this way: when you choose to work less because of u.b.i., you’re effectively "buying" your own time. just as buying bread increases demand for bread, "buying" your time increases demand for labor, potentially leading to higher wages and thus greater costs for your berries. but there’s no reason it’s okay to buy someone else’s time but bad to buy your own time. chatGPT agrees.

conclusion: u.b.i.’s impact on inflation is complex

u.b.i.’s impact on inflation is nuanced and depends on many factors. it’s crucial to remember that people are motivated by more than just money. many find fulfillment in their work, and u.b.i. could even enable them to pursue more meaningful careers. and this could reduce inflation of the cost push variety — i.e. the kind of inflation that’s actually bad.

but the core argument isn’t about whether u.b.i. will increase or decrease net inflation; it’s about applying consistent logic. if we’re comfortable with u.b.i. recipients using their income to buy goods and services, leading to potential price increases, we should also accept the possibility of u.b.i. influencing labor markets and wages. it’s all part of the same economic picture.