Link turn – implementing UBI would generate strong a potential growth effect for permanent consumption and income.

The most important studies done in the realm of measuring the price effects of universal basic income have been two general equilibrium studies, one looking at transfers from the NGO GiveDirectly in Kenya25 and the other studying the Mexican food assistance program “Programa de Apoyo Alimentario”.26 Both studies evaluated transfer programs to very impoverished places and the latter to a relatively closed economy, so obviously we can expect discrepancies between the evidence and what would happen in reality given a universal basic income in North America. Egger et al. find that there was less than 1% price inflation on average as a result of the transfers. The greatest price effect is to housing, which the authors do not find statistically significant. There is a strong increase in consumption and firm profits, akin to an aggregate demand increase, with spillover effects, and little-to-positive labour hours change. The authors believe they found a transfer multiplier effect of over 2. Additionally, there was a formation of a strong potential growth effect in terms of permanent consumption and income as estimated by the authors. This overall aligns with my model; that is that is, cash transfers caused growth in both permanent output and output level and almost-nonexistent price change. This checks out intuitively: an increase in income resulted in more consumption and more output in an economy that has room to grow, so there will not be additional money-per-unit-of-output that ultimately underlies the Quantity Theory of Money. The Cunha, Georgi, and Jayachandra study finds again a neglible price inflation effect. However, they do find that in-kind transfers provide deflation compared to cash transfers in isolated villages. Isolated villages likely suffer from imperfect competion and aren’t factored in to the monetary partial equilibrium. In the more-developed world with stronger market institutions, we would likely see different. Unfortunately, data for programs like these in the developed world is scarce.