UBI causes hyperinflationary periods with crisis and chaos among the working class

UBI can be funded through money printing, deficit spending or by revenue from taxes. In the first case, the base money supply will increase. The risk with this case is raising inflation. As long as inflation is under control, money printing can help in many other issues (such as alleviating national debt or increasing comparative advantage of country in the trade) in a manner that is fair to everyone. The following sections will elaborate more on the benefits that money printing can provide. The government will issue the notes to fund the UBI program in deficit spending. This case resembles transferring money from the wealthy (local or foreign) to the middle class and poor. However, the lower and middle class become endebted to the wealthy and their debt must be paid at a later time. Deficit spending may also cause inflation, as lower-income households tend to spend a higher percentage of household income. This method is not preferable, as raising money through debt issuing is not sustainable in the long run. Funding UBI with tax income is also transferring money from the wealthy to the middle class and poor, except this time the money will not be paid back. UBI can be funded through land/location value tax (LVT), value-added tax (VAT) or income tax. Some have also suggested the use of Robot-tax, which penalizes industries for the use of automation instead of human labor [10]. To punish industries for technological advancements, however, is irrational. This will reduce the comparative advantage of local industries. The disadvantage with income tax is that raising taxes on the wealthy usually hinders economic growth. Between the suggested taxation methods, the VAT seems the best option, as the program is funded by the individuals who spend the most, and it encourages people to save. Here and through the rest of the paper, we assume UBI is funded by money printing. The author believes other methods will decrease or eradicate the purpose of implementing UBI in the first place. In theory, printing money and increasing the money supply causes inflation. Many leading world economies such as Japan and the Europe Union currently suffer from a deflationary environment. Japan has struggled to introduce inflation into the economy for a couple of years. Even massive monetary easing and asset purchasing do not seem to work efficiently. Such an environment also more or less exists through the Europe Union. Many reasons cause these advanced economies to face a deflationary environment. From them one can mention demographics and reduction of births, wealth disparity, lack of spending, lagging in wage growth, increase in national and domestic debt, low manufacturing costs due to automation, the rise of 2 the Internet and e-commerce, increase in competition, electronic banking, close loop inflation control by the Federal Reserve in the US and other central banks around the world, long-lasting low inflation environment and low inflation expectations, the 2008 financial crisis, etc. Many of these forces do not seem to go away in the foreseeable future. Money in the hands of the wealthy tends to increase the price of financial assets, whereas money in the hands of the middle class will drive spending on common goods and will cause inflation. The traditional monetary easing and asset purchasing are not the most effective ways to produce inflation. The radical measures implemented by central banks around the world to increase economic productivity and inflation seems not to work anymore. Inflation in security prices was already caused by decreasing the interest rate to their lower bound. The inflation in the bond market keeps the interest rates low, which makes the window of potential further cut the interest rates narrow. These methods increase the monetary supply; at the same time, however, wealth disparity also increases. Corporations and the wealthy benefit the most from such methods. UBI, on the other hand, increases the money supply and at the same time decreases wealth disparity. The spending driven by the middle class will cause rise in prices. UBI has failed in many cases solely due to an uncontrolled money supply to the middle class, which produced hyperinflation. The catch here is that UBI should not be controlled by the executive branch of government. In the case of democracy, it is quite logical to assume each candidate will promise higher UBI rates to gain more votes. This will produce a vicious cycle ending with hyperinflation. UBI should be under the control of an independent entity, such as the Federal Reserve in the United States. That entity will control the money supply and amount of UBI based on projections of inflation. UBI will be an extra tool of the Federal Reserve which can directly target inflation and wealth disparity. As an example assume the target inflation to be two percent and country’s inflation rate sustainably runs below the target. Eq. 2 gives an estimation for the UBI rate to be paid to achieve the target inflation. After running the program for certain amount of time (for example three months), the inflation rate shall be reassessed. If running below or above the target range, the rate can be readjusted accordingly. UBI rate eventually goes to zero if the inflation rate sustainably runs above the target range. UBI works best in a deflationary environment, not in an inflationary one. It is best suited for developed countries with deflationary or low inflation environment. In such countries, not only inflation to be avoided, but the central banks are pushing to raise inflation to a healthy level. For developing countries often with higher inflation rates, UBI can cause disastrous effects. Some have suggested that UBI can be implemented for the currency inflation [11, 12]. The UBI is not good to compensate for inflation, as it is itself an inducer of inflation. In this case, more inflation would cause increase in UBI rates, which makes the inflation problem worse. Also, the amount one loses due to inflation is proportional to his/her cash holding, so people with more cash should receive more basic income, which does not seem rational. UBI and Wealth Disparity Current society in developed countries suffers from inequality and a huge wealth disparity. Such an environment leads to the dissatisfaction of the poor and middle class, which can lead to crisis and chaos. Examples of this also happened prior to World War II. The wealth disparity can be decreased by social programs which are usually funded by taxes. Taxation, and especially progressive taxation, seems unfair to the wealthy and also acts as decelerator for the economy. Corporate tax tends to decrease the profit margin of corporations and decreases their comparative advantage on the global scale. As mentioned in the last section, the traditional monetary easing and asset purchasing barely 3 introduced any inflation as most of the money got absorbed by financial markets and increased the wealth of the wealthy. UBI, on the other hand, does not treat the wealthy differently and is fair to everybody, as each person receives the same amount of money. The same payment increases more the wealth of the poor and middle class in relative terms. So, in a deflationary or low-inflation environment (which might be caused by wealth disparity itself), the equal UBI payment to everybody tends to decrease the wealth disparity and Gini coefficient. The new Gini coefficient is calculated as: G new = M3 M3 + U G old (1) which Gold is the Gini coefficient before UBI payment, the M3 is M3 monetary supply that is an indicator of the amount of wealth in society and U is total (not rate) cash payments as basic income to all individuals (this formula assumes universality and uniformity). The inflation induced by UBI should be proportional to δπ ≈ UV M1 (2) in which V is velocity of money and M1 is M1 monetary supply. UBI and Work Desirability There are many concerns that UBI will lead to shrinkage in the workforce. One should note, however, that the rate of UBI should be at its maximum in a deflationary environment (when unemployment is high). As the economy progresses and the job market becomes tight, wages and inflation will rise. This should cause the rate of UBI to decrease or even go to zero. So, more people will depend on the job for income. UBI will act as a regulator; the workforce will be taken out of the market when they are not needed and will be reintroduced when they are in need. If the economy is good but inflation is missing (such as in 2019), providing UBI may curb off part of the job market. This would cause an increase in wages and also prevents the economy from overheating. The wealthy would have to share much of their profits with the lower part of society. The increase in wages will eventually cause inflation, and return of the workforce. At the same time, rising inflation reduces basic income rate, and the market should then return to equilibrium. Some argue that UBI payments will lower incentive to work and singlehandedly cause a decrease in the workforce [13, 14]. The argument seems false as low employment will cause wages to rise, and eventually, the marginal benefit for the worker forces him to return to the job market. It should be obvious that most people in the current environment do not work just to cover their basic needs. The only way that will cause a lack of incentive to work is to set a minimum guaranteed income. This means that regardless of whether a person works, he/she will always receive a minimum amount of money. In the UBI system advocated here, everybody in society receives a certain amount of money. If a person decides to work, he will be paid separately for his work. Therefore, there is no way that the person who works will have the same income as the person who does not. The marginal benefit (extra income) will produce marginal work desirability. An experiment which was done in Dauphin, Manitoba in 1970 also indicates that the argument is false and basic income does not cause mass unemployment [15]. One study on the Alaska Permanent Fund Dividend revealed that while a small decrease in labor force observed, the part-time jobs increased 17 percent [16]. Another study conducted in the Namibian village of Omitara found that the economic activity 4 increased by the introduction of basic income especially in small businesses [16]. While some labor markets might lose workforce, higher spending supports overall employment. It has to be noted that it is possible to deteriorate the economy by producing hyperinflation, and this can hurt the job market. The rate of UBI should be set to prevent a high inflation rate. It is improbable in the foreseeable future for humankind to become completely self-sufficient. What machines are incapable of, is to substitute for human emotions. Our needs may shift from basic survival needs to others. The skill sets we now consider most important might be substantially different in the next era. The need will come for certain skills, and people will pay for them. This transition in demand for skills has happened multiple times throughout human history, and this time will not be the last. Regulated UBI should lead to an increase in productivity and creativity. If people are sure to have support, especially in the case of an economic downturn, they will be freer to pursue jobs about which they are passionate. This would lead to a substantial increase in productivity, making room for entrepreneurship and innovation.