A---Velocity.

Boyce ’19 [Paul Boyce; 05-05-2019; “Universal Basic Income Is a Pandora’s Box”; Business Economics graduate from UK; FEE Stories; \\pairie]

Previous experiments with UBI may suggest it would work, but they in no way represent the scale of $12,000. There is no conclusive evidence to suggest this would work in practice. While the late Milton Friedman is a source of inspiration, he only suggested a modest $300 negative income tax in 1962. In today’s money, this is equivalent to $2,500—far short of the proposed sum.

Higher Prices and Inflation

A UBI would essentially transfer wealth away from higher earners toward low earners. This spurs higher consumption because those with lower incomes have a higher propensity to consume. On a macro basis, this may not necessarily create any inflation, as there is no new money entering the economy. However, it will create inflation on a micro basis. Rather than money going toward investment, it is going toward consumer goods. Instead of inflation occurring through a wide variety of areas, it is being concentrated.

Importance of Velocity

Yang says this is just using the existing money in the economy. In part, he is right. However, he fails to consider the velocity of money. One of the reasons the US did not experience significant inflation after quantitative easing was due to a slowing of consumption growth. If we put $12,000 into everyone's hands, consumer demand will rise, and so, too, will velocity.

When velocity increases, the same $1 exchanges hands at a quicker rate. For example, A may buy a television from B for $100. B will then buy a used iPhone from C for $100. C will then buy a used sofa from D for $100. The initial $100 has circulated around the economy at a value of $300. This sends demand signals to the relevant parties, who then respond with higher prices.