Somebody Wants a UBI

This is a Progressive-Democrat dream, but Andy Kessler centered it on Silicon Valley in his op-ed in Sunday’s Wall Street Journal.  He’s not far wrong, but aside from limiting the idea’s core constituency, he also only described part of the reason why a Universal Basic Income is a bad idea.

He did a good job of laying out the costs of paying for a UBI—the charges to those with earned income or profit—and how those costs cap what the earners and producers can do, but there’s the outcome of the demand side, too, that must be factored in.

What determines the price of any good or service? Of course, one component is the cost of its production. If the price doesn’t cover the cost, it won’t get produced. But that’s only a floor; the driver of cost is the demand for the good or service. That demand, though, isn’t measured by the number of folks wanting the thing, it’s the amount of money available to pay for the thing. More money means more demand, and more demand means rising price if the demand rises faster than production.

Now give everyone a UBI. Demand just inflated by the amount of the UBI, and the price of goods and services just went up to absorb that demand—every single dollar of it.

But wait—rising demand means rising production. Yep. And rising production means rising demand for labor—and rising labor costs. Rising production means rising demand for production input materials—and rising prices for those inputs.  And so rising threshold prices for the output good or service to cover those rising costs.  The minimum price for producing the good or service is above the income available, even after the UBI; the range of goods and services available is at least as limited from the perspective of the impoverished as it ever was.

The buying power of the UBI was just driven to zero, and the value of a person’s total income in real terms is just the same as it was before the UBI was instituted.

But it’s not just a zero-sum outcome; it’s a negative-sum matter.  Recall Kessler’s thesis that the cost to the earners/profit-makers of providing the UBI limited their output.  There’s a net reduction for everybody of goods and services to be had.

That’s a net reduction in the real value of income for everyone.

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