Universal Basic Income (UBI) is being pushed by progressives. But the past year has one undeniable indicator that it will not work. Inflation.
UBI is also known as a guaranteed minimum income, or basic income. The thinking is that if the government provides money to cover the cost of living, people will have a sense of financial security. Until 2020 / 2021, there have just been a few limited experiments in the US. Rent moratoriums, extended and enhanced unemployment, and other financial programs essentially, and I believe intentionally, greatly expanded the UBI experiment.
How could inflation be tied to this? You might recall the basic definition of inflation: Too many dollars chasing too few goods. We can meet these conditions by expanding the amount of money in circulation, and/or by having supply chain disruptions. Think about fundamental capitalism for a moment and you will see that UBI does both of these.
Why UBI has been creating inflation
A farmer can grow way more corn than his family needs, but because he is busy growing corn he can’t make chairs. So when he needs a new chair, he could find a furniture maker who needs corn or, more efficiently, he could sell his excess corn for money, which he can then use to buy any product that he needs. This is a wonderful system, as he has increased his personal supply of cash and, very importantly, he has produced a product that others need. Let’s say that he works like a dog and is able to make a profit of $30,000. He did that because he actually put more than $30,000 worth of product into the system.
But our farmer has a neighbor who is getting government benefits to the tune of $30,000. This UBIer is also spending money on goods and services, but, unlike the farmer, he did not produce anything for his cash. Instead, he is only consuming. Look back at the inflation definition and you realize that he is both increasing the amount of money in circulation and decreasing the amount of available goods.
Many proponents of UBI claim that once people receive a minimum basic income they will be free to explore new business options, invent and market new ideas, take risks, and make the world a better place. But the past year has shown that they would rather sit at home and play video games. And consume. They don’t want more – they are satisfied to simply live day to day, never thinking about their future, as long as they have their basic expenses covered.
Hopefully, we can change the direction of this country before we go too far down this path. The farmer who works from sun up to sun down (and then some) will not take kindly to the freeloader who gets the same reward for living in a rent-free apartment. And when he decides to take the free money without producing any corn, where will we be?