As I read more about Universal Basic Income (UBI) it continously leave me with questions. The first question is, should it be based on a deflationary or an inflationary money?
With a deflationary money it leads to an increase in savings. The reason is that you will not want to buy something today, when tomorrow it will be cheaper. An inflationary money will lead to consumption; Buy it today, because tomorrow it is going to be more expensive.
Can either of these types of money work or will it require both?
I penned this article on this exact topic which is very important and very under the radar.
https://steemit.com/life/@motowngold/universal-basic-income-is-a-control-mechanism
Voted/Resteemed.
Thank you much appreciated, nobody read it at first, now a few days later it is starting to get attention that I think this topic in general deserves but as a whole is not getting. I want to know what they are planning!!
good question, you can find answers if you study Keynesian economy and Austrian economy. And also some use of them in last 100 years history of some countries.
To answer your question shortly, it can work with both types of money. Because it's all about redistribution of country's income. You can either do that with inflationary money or you can impose progressive tax rates with higher rates than those today. Or you can combine both of these approaches. Taxation is not very popular because government takes money right from you packet, so last decades consensus is to do inflation of money and sell the idea of low low tax rates - this is mainly thanks to globalization - lure foreign capital to your country and keep your domestic to stay. But we have come to the edge.
If you wanna study about high tax rate economy, take a look at FDR policy up to Reagan 1980 . Reagan won election on criticism of Jimmy Carter that he made too huge budget deficit. Then after Reagan won, he lowered tax rates sharply and made deficit triple size. Situation was saved with credit cards, decrease of median income for average Joe and then household loans.
If you wanna study about best working inflation economy, I suggest former Yugoslavia under Joseph Tito, 30 years of prosperity for whole Yugo society.
If you wanna look at worst inflation economy, take a look at Zimbabwe :)
Interest rates were high during Reagan, to fight inflation that started during Nixon? I will look at economy of Yugoslavia. Thanks.
it seems the highest rates were during Jimmy Carter, 20%, right before Reagan. In 70's FED has learned(?) that businesses manage prices according to inflation expectation, not on actual inflation. So that FED should not move interest rates up and down like crazy.
fed rates chart
People don't like inflation as much as high tax rates. But if the goal is working economy, we have to choose some way. In 50's Average US Joe could easily pay house mortgage in 10 years, support his wife at home with 4 kids. Same as Yugo Avg. Joe could buy the same house and after 10 years repay the debt with one baked piggy. Both ways provided money velocity needed for economy to work, not sitting in bitcoin or gold or stocks.
https://fred.stlouisfed.org/series/M2V
It seems we've wandered into the meaning of money. Which type of money, inflationary or deflationary, would more satisfy the requirements of UBI. Maybe we should have started off with the requirements?
While most people see inflation as evil and not income redistribution, then deflationary currency is better. But government have to collect taxes from those making profit (earnings after investments) to provide UBI. This is much more expensive than just print new currency. But how can you suppress the greed of people and make them understand the function of inflation to redistribute income? Difficult task. So deflationary + impose high tax rates in progressive rate is likely more acceptable for majority.
If you would be in China, you could try both approaches in 2 districts per 5 million people and wait 'n see.
It can only be inflationary. You can't distribute money to people while simultaneously decreasing supply. Where does the money come from, though? Money is not wealth in and of itself.
If you increase demand, is it not the same as decreasing supply? But doesn't a deflationary money work best if you have a fixed income?
No and no.
"Money is different from all other commodities: other things being equal, more shoes, or more discoveries of oil or copper benefit society, since they help alleviate natural scarcity. But once a commodity is established as a money on the market, no more money at all is needed. Since the only use of money is for exchange and reckoning, more dollars or pounds or marks in circulation cannot confer a social benefit: they will simply dilute the exchange value of every existing dollar or pound or mark. So it is a great boon that gold or silver are scarce and are costly to increase in supply. But if government manages to establish paper tickets or bank credit as money, as equivalent to gold grams or ounces, then the government, as dominant money-supplier, becomes free to create money costlessly and at will. As a result, this 'inflation' of the money supply destroys the value of the dollar or pound, drives up prices, cripples economic calculation, and hobbles and seriously damages the workings of the market economy."—Murray Rothbard
My question wasn't about what many means, but if an UBI is implemented, should it be inflationary or deflationary. At least from I gather you would like it to be pegged to commodity?
A UBI can't work no matter how you try to structure it, unless you can find a way to structure it voluntarily. The instant you insert a coercive monopoly system, you guarantee waste, abuse, and economic destruction regardless of your intentions. An inflationary UBI doesn't directly rob the productive economy, but it erodes the value of all currency in circulation. A deflationary UBI would require far more massive wealth destruction than even that. It simply can't work in either case as anything more than a short-term power grab ensuring the support of a dependent class.