An Empirical Test?

Ex-Progressive-Democratic Party Presidential candidate and ex-entrepreneur Andrew Yang now is running for mayor of New York City, and he wants to implement there his Universal Basic Income scheme.

We can eradicate extreme poverty in New York City. If you put just a little money in their hands it can actually be what keeps them in their home and, again, avoids them hitting city services that are incredibly expensive.

Or not.

Keep in mind that demand is not the number of people who want a product, it’s the amount of money being spent for the product.

The problem with giving unearned money to everyone—using the $1,000/mo, or $12,000/yr, from his Presidential campaign for concreteness—is that you increase demand (this time artificially) by those $12k/yr. Since production won’t increase much—the money representing demand won’t be earned from production, it’ll be printed, or it’ll come from taxes, or it’ll come from borrowing (future taxes)—the result will be pure inflation.

That inflation will rise to fully absorb those $12k, leaving buying power where it was before the UBI started getting handed out. The $2 candy bar will cost $24, and the UBI will be completely absorbed. The recipients will be no better off than before.

In fact, everyone will be worse off. Inflation will leave everyone’s buying power fundamentally unchanged, but money taken out of the economy by those taxes or that debt will lead to an overall reduction in economic activity. Taxes or debt (either one) will reduce businesses’ ability to innovate—which is jobs—or to give bonuses/pay raises—which is jobs—or to improve existing plant—which is jobs—or to hire more employees—which is jobs—since absent innovation, there’ll be reduced ability to expand.

Or, Yang is onto something.

If so, what better place to run the test than in the aftermath of Bill de Blasio’s New York City?

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