OTTAWA - The government's fiscal watchdog says a guaranteed basic income program at the federal level could cut poverty rates in Canada by up to 40 per cent.
I kinda laughed when I read that headline - give people money and they won’t not have money! Hehe. But I’ve always wondered what kinds of upward or downward pressures that would make on the prices of certain things. Or on purchase patterns in aggregate. I’m no economist, so I’m not aware of all the history of similar programs. I have seen some really weird things happen in closed systems like FSA benefits that people ‘use or lose’ here in the US causing weird purchase patterns that cause shortages of certain things that people end up over-purchasing just to not feel like they’ve lost a benefit. Dunno if you have a similar program there. But in a scenario where it’s just money, I imagine the patterns would be completely different.
In my opinion, this is an issue that can be avoided by implementing UBI gradually.
Shortages and inflation don’t just arise from people having more disposable income. If that were true, inflation would’ve been worse and supply chains would be facing shortages decades ago when everyone had more disposable income in real terms.
Rather, these issues are more a function of three factors:
Rate of change in demand
Price collusion among large companies
Supply chain disruptions
During COVID, we saw all of the above, for example. Supply chains disrupted, people had more disposable income due to CERB and changed their consumption behaviours dramatically during lockdowns/work from home (rapid shift in demand), while large corporations such as Loblaw’s & Sobey’s engaged in well publicized price-fixing schemes.
This lead to the inflation crisis we are just now recovering from.
However, there’s no inherent reason why UBI needs to include any of these things. You could instead, for example:
“Boil the frog” when it comes to demand, by starting with small payments and phasing them in so that consumption habits do not change too rapidly
Promote anti-trust measures against large companies to prevent price fixing (bonus: proceeds can go toward UBI)
Similar to point one, if you take the boil the frog approach it will be less disruptive to supply chains, as people leave jobs gradually & companies are slowly incentivized to pay their employees more in order to stay competitive
At the end of the day I don’t see it as all that different from setting interest rates, for example. Like YES the central bank COULD tank our economy by raising the interest rate 2000 basis points tomorrow. And YES they COULD also drive inflation through the roof by setting the interest rate to 0% as well. But they ain’t gonna, because it’d cause… inflation/deflation and supply chain shortages.
I kinda laughed when I read that headline - give people money and they won’t not have money! Hehe. But I’ve always wondered what kinds of upward or downward pressures that would make on the prices of certain things. Or on purchase patterns in aggregate. I’m no economist, so I’m not aware of all the history of similar programs. I have seen some really weird things happen in closed systems like FSA benefits that people ‘use or lose’ here in the US causing weird purchase patterns that cause shortages of certain things that people end up over-purchasing just to not feel like they’ve lost a benefit. Dunno if you have a similar program there. But in a scenario where it’s just money, I imagine the patterns would be completely different.
In my opinion, this is an issue that can be avoided by implementing UBI gradually.
Shortages and inflation don’t just arise from people having more disposable income. If that were true, inflation would’ve been worse and supply chains would be facing shortages decades ago when everyone had more disposable income in real terms.
Rather, these issues are more a function of three factors:
During COVID, we saw all of the above, for example. Supply chains disrupted, people had more disposable income due to CERB and changed their consumption behaviours dramatically during lockdowns/work from home (rapid shift in demand), while large corporations such as Loblaw’s & Sobey’s engaged in well publicized price-fixing schemes.
This lead to the inflation crisis we are just now recovering from.
However, there’s no inherent reason why UBI needs to include any of these things. You could instead, for example:
At the end of the day I don’t see it as all that different from setting interest rates, for example. Like YES the central bank COULD tank our economy by raising the interest rate 2000 basis points tomorrow. And YES they COULD also drive inflation through the roof by setting the interest rate to 0% as well. But they ain’t gonna, because it’d cause… inflation/deflation and supply chain shortages.