Ben Simmons: Tackling concerns about inflation and the Universal Basic Income

Basic income campaigner Ben Simmons examines claims that it could cause problems for inflation

ONE of the most common objections to a basic income is that it would increase inflation. Many people remember from history lessons at school the photos of children playing with huge piles of bank notes in East Germany, but it is essential that we confront the idea that introducing an equitable and fair welfare state would lead to economic disaster if we are to win people over.

There was a recent debate on the matter between economists of differing views, as reported on the Basic Income Earth Network. In it, Karl Widerquist (who will be speaking at our forthcoming event in Fife on 28 January looking at a Fife pilot scheme) makes the point that spending on basic income would not make any greater impact on inflation than any other government spending.

What frustrates me is that those who expound the inflation argument around the dangers of enriching communities always seem to do so reactively, and never proactively. 

What frustrates me is that those who expound the inflation argument around the dangers of enriching communities always seem to do so reactively, and never proactively. 

Where were those voices when the Living Wage campaign raised the minimum wage? Where were those voices when pensions were protected by the 'triple lock'? When organisations like Unite come out against the closure of Trident (even though they claim to want a nuclear-free future) simply because of the money it brings into communities, where are those voices advocating for mass unemployment to keep the price of milk and bread down? 

In my eyes all this does is show that inflation is an argument thrown up by those with just enough knowledge to be dangerous, who oppose helping the poorest in society on an ideological basis. 

This is not a dig at the Conservatives either. Dave Dempsey (Conservative Fife councillor for Inverkeithing, Dalgety Bay, and Aberdour), for example, is in favour of bringing in a basic income on the basis that it increases personal liberty, and will be speaking at the Fife pilot event.

There are different proposals about how a basic income scheme could be financed, and quantitative easing is one such proposal. When I am asked at events how a basic income scheme would be financed and how much it would cost I always give the answer that it is more important to agree as a society on the benefits of a basic income and that it is desirable before we splinter into opposing teams and start to tear each other down over technicalities. 

I stand by that position, however I would like to make some arguments here against inflation fears based upon my personal view that basic income should be a mechanism to redistribute money rather than simply print more.

In my eyes all this does is show that inflation is an argument thrown up by those with just enough knowledge to be dangerous, who oppose helping the poorest in society on an ideological basis. 

First of all, to say that a basic income providing people with a higher income would mean higher prices, and that this must be prevented, logically implies that the speaker believes either that the current welfare levels are perfect or that they are too high. 

If you care so much about inflation then I urge you to make your views heard and lobby your MPs to reduce social support to the poorest in society, since you believe there is a net benefit to the nation. That is a brave line to take at a dinner party.

Secondly, in our most deprived communities high unemployment creates a feedback loop whereby job creation is thwarted by a lack of money in the community to buy goods and services from local businesses to drive growth and the need for more workers. 

If you think restricting the money into these communities in the name of preventing inflation is the right thing to do then, again, make your voice heard. It is easy to object to ideas when you won’t advocate alternatives.

Thirdly, redistributing wealth from the richest to the poorest would not mean shifting money from one savings account to another, since most people can barely afford to save anything at all.

For example, 24 per cent of households in Scotland report having no savings at all, with an additional 16 per cent having less than £1,000. This means that money into the general population would flow into the businesses providing goods and services people currently need and cannot afford, whereas tax breaks to the rich simply sit in bank accounts accruing interest as their cost of living is already amply covered by their income. 

Recent scandals like the Panama Papers simply reinforce that when the rich get richer money flows out of the nation to go and work for someone else. Simply look at this graph of income percentiles to understand that moving that line closer to a straight line would benefit the vast majority of the population. 

In my view, myths and fearmongering about inflation are the major impediment to mass support for a measure that would benefit almost all of us, and the poor most of all.

Fourthly, I would turn to a basic economic principle to argue against inflationary fears. The same market forces that should create higher prices are surely also subject to that credo of supply and demand. 

As demand for goods and services increases, prices may well increase, but as price increases supply increases, and as supply increases businesses compete with each other for market share, which drives down prices.

Finally, as Karl Widerquist pointed out, and we argue here, on healthcrime, and bureaucracy there would be cost savings elsewhere in public spending based upon reducing the need to means test the population, and reducing the enormous costs to public services that are driven primarily by poverty. 

Even though basic income would increase spending in one part of the government budget, it would allow lower spend in others.

On 28 January there is a free event in Kelty about a proposed basic income pilot in Fife. Pilot schemes like this will be essential for an evidence-based approach to introducing a wider basic income, and I believe will demonstrate that concerns about inflation are unfounded.

Picture courtesy of Steven Depolo

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Comments

Isembard

Mon, 01/23/2017 - 12:21

As a follower of Modern Monetary Theory (1) I prefer the Job Guarantee concept
rather than the Universal Basic Income (2), as the former gives something back to the economy in many ways.

One of my problems with UBI is that I suspect that the thinking about it is too simplistic, and fails to take into account the feedback loops in the economy that would simply shift many essential basic goods prices upwards over time so that eventually the recipient would be no better off than before.

So it's not a concern about inflation (which is a continuous upwards shift in prices and incomes) but a one-off shift of prices to 'match' the new average
income.

The simplistic analysis of supply and demand in the article fails to take into account many reasons why it does't work in practice, such as monopoly and monopsony.
A simple example is the supply of milk, where supermarkets squeeze producers and force a relatively high consumer price, even though there is a constant consumer demand and no lack of supply.

(1) https://en.wikipedia.org/wiki/Modern_Monetary_Theory - imperfect but a decent start
(2) Google 'Bill Mitchell Is there a case for a basic income guarantee'

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