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.
Inflation is caused by money velocity. If everyone suddenly has more money, that means more money is chasing the same number of goods and services. This pushes up prices. UBI would absolutely increase inflation if major countermeasures are not taken. Classical countermeasures include significantly raising taxes, significantly raising the central bank lending rate, and significantly lowering government spending. Probably some combination of all three plus more would be required to mitigate inflation.
It gets worse, though, because the types of goods and services that lower socioeconomic groups purchase are different to that of the rich. So to mitigate inflation on specific goods like food staples and rent, measures to remove money velocity must be targeted at the low end. Arguably, these measures should cancel out any UBI benefits, meaning the net gain is moot. So the exercise is a waste of time in aggregate. The solution, then, is to increase supplies of lower end goods and services. Governments are traditionally terrible at command style economic incentives, and I trust the market to fill the gap. It just takes time. Which is to say, food inflation should eventually normalise.
Housing, on the other hand, would not. And this is because of Canada’s (and really most Western country’s) NIMBY laws. Making dense development expensive and impossible close to jobs keeps house prices and rent high. Massive deregulation at the federal level would be required to allow massive housing developments to stave off massive house price and rent inflation should UBI be implemented. It must be done in tandem or the net social damage would be incalculable. I’m not convinced the federal government would have the balls to do this, and home owners are quite self-interested when it comes to their property values.
An alternative (or perhaps parallel solution) is massive reductions in immigration. Net zero for five years at least. This would give the existing (broken) construction sector time to catch up with existing demand and mitigate the worst of property inflation.
I am an advocate for UBI as I think it will become an inevitable requirement in the near future. However it comes with great cost in various obvious and not so obvious ways, and advocates rarely acknowledge these. For example, many UBI advocates are simultaneously open borders activists, and seem perfectly happy to live with that dizzying level of cognitive dissonance.
There is a related solution: land value tax. This has been championed by economists for more than a century. It is considered a “near perfect” tax. It cannot be offshored, hidden, or channeled through shell companies. It aligns social wellbeing with individual incentives (these are currently at odds). It encourages investment in businesses instead of land. It can radically reduce house prices and rent. It incentivises high density housing and productive use of high value land. This makes public transport economically viable for many. LVT can generate huge taxes which can be used to provide UBI, for example. Even if it doesn’t, halving rent for everyone produces a similar or even greater effect on poverty for low socioeconomic groups. They can afford to live close to work, and they have access to cheap public transport. This is compounded by the effect of far greater economic activity. LVT tends to be much more easily stomached by older and conservative voters.
Inflation is caused by money velocity. If everyone suddenly has more money, that means more money is chasing the same number of goods and services. This pushes up prices. UBI would absolutely increase inflation if major countermeasures are not taken. Classical countermeasures include significantly raising taxes, significantly raising the central bank lending rate, and significantly lowering government spending. Probably some combination of all three plus more would be required to mitigate inflation.
It gets worse, though, because the types of goods and services that lower socioeconomic groups purchase are different to that of the rich. So to mitigate inflation on specific goods like food staples and rent, measures to remove money velocity must be targeted at the low end. Arguably, these measures should cancel out any UBI benefits, meaning the net gain is moot. So the exercise is a waste of time in aggregate. The solution, then, is to increase supplies of lower end goods and services. Governments are traditionally terrible at command style economic incentives, and I trust the market to fill the gap. It just takes time. Which is to say, food inflation should eventually normalise.
Housing, on the other hand, would not. And this is because of Canada’s (and really most Western country’s) NIMBY laws. Making dense development expensive and impossible close to jobs keeps house prices and rent high. Massive deregulation at the federal level would be required to allow massive housing developments to stave off massive house price and rent inflation should UBI be implemented. It must be done in tandem or the net social damage would be incalculable. I’m not convinced the federal government would have the balls to do this, and home owners are quite self-interested when it comes to their property values.
An alternative (or perhaps parallel solution) is massive reductions in immigration. Net zero for five years at least. This would give the existing (broken) construction sector time to catch up with existing demand and mitigate the worst of property inflation.
I am an advocate for UBI as I think it will become an inevitable requirement in the near future. However it comes with great cost in various obvious and not so obvious ways, and advocates rarely acknowledge these. For example, many UBI advocates are simultaneously open borders activists, and seem perfectly happy to live with that dizzying level of cognitive dissonance.
There is a related solution: land value tax. This has been championed by economists for more than a century. It is considered a “near perfect” tax. It cannot be offshored, hidden, or channeled through shell companies. It aligns social wellbeing with individual incentives (these are currently at odds). It encourages investment in businesses instead of land. It can radically reduce house prices and rent. It incentivises high density housing and productive use of high value land. This makes public transport economically viable for many. LVT can generate huge taxes which can be used to provide UBI, for example. Even if it doesn’t, halving rent for everyone produces a similar or even greater effect on poverty for low socioeconomic groups. They can afford to live close to work, and they have access to cheap public transport. This is compounded by the effect of far greater economic activity. LVT tends to be much more easily stomached by older and conservative voters.