A Perspective on Inflation

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This article is a (possible? viable?) response to one of the few criticisms against UBI that actually holds water. My training is not as an economist and so this intended as a starting point for a larger discussion.

If everybody received a UBI, so the argument goes, the price of goods will increase: If I know you have £2 where you used to have £1, what – other than altruism – would provide me with reason enough to keep the price of my goods the same? Since no mechanism exists to keep these prices down (competition will keep prices down provided supply can be met), critics of UBI suggest, what we will have is inflation. The introduction of UBI accomplishes nothing except a rise in the prices of consumer goods and we arrive, full circle and after a great deal of expense, in exactly the same place as before.homo-ava.jpg

However, before rushing to that conclusion, it is important to have a little more faith in the performance of markets in a situation where UBI has been introduced.

First, the argument is that giving money to people who are currently without the means to purchase goods will increase inflation. There are some people whose patterns of consumption will not change after the advent of a UBI: There is only so much food a person can buy, only so many washing machines, cars, TVs.

This is not even homo economicus. This is pure homo avaricus, an all-consuming, utility maximiser with nothing on his mind but the goods that can be owned, exhausted and replaced for the next round.

 

What UBI does is secure the means by which the essentials of life can be had: Rent/mortgage paid, food bought, leisure permitted, travel covered, standard of living maintained. This is the reference point for UBI, not the indefinite expansion of consumption. To think otherwise seems to put a peculiar vision of the person front and centre of the economic picture. With security, so this vision has it, comes only the desire to consume, to spend and acquire, spend and acquire ad infintium.

This is not even homo economicus. This is pure homo avaricus, an all-consuming, utility maximiser with nothing on his mind but the goods that can be owned, exhausted and replaced for the next round. In contrast to this vision there is reason to believe that something more complex happens to people’s consumption choices. Rather than an increase in disposable income leading to an increase in the quantity of goods consumed, people simply improve on the quality of what is consumed. People will eat healthier precisely because they can now afford to do so.

So the issue of inflation and how the market operates under a situation of UBI must focus at this level: Will the price of that basket of goods needed to secure a basic standard of living inflate to such an extent as to cancel out the gains of UBI?

First, we need to bracket the issue of housing. In so bracketing, the nature of the other kinds of goods that are necessary for a secure standard of living is revealed. Currently, the housing market does not function in this country. There is far too little supply for an ever increasing – and, in London, concentrating of – demand. A UBI would, undoubtedly, be absorbed by rentier landlords upping their rent charges, recognising – and correctly so – the opportunity to extract more and more money from their tenants. To correct for this a great deal more supply is required. This supply issue is going to require concerted state action to get going. The motive is not there for private landlords – or current homeowners – to engage or push for such a policy, precisely because they stand to lose from it. However UBI will be neither saint nor sinner in this area: This is a problem rooted in the fact that housing has become a commodity to be trade as opposed to grounding and securing of a space in the world.

IMG_2502-200x300.jpgThe same project and push necessary to get the housing market functioning is not, however, of the same scale as the kinds that would provide enough food and the other goods that would guarantee a minimum standard to living to all.

Assuming the cost of bread remains the same, my now having £2 where I used to have £1 only acts as an incentive to increase the price of bread, not an irresistible imperative. Where more demand has entered the market, i.e. where people can now afford to feed themselves properly and consume to a level fitting for a reasonable standard of living, the ability to produce more to cope with that demand exists when the good in question is something like food.

Where shopkeeper A raises his prices to soak up the additional demand, Shopkeeper B can take advantage, maintaining lower prices to retain a competitive edge. The market should thus function to keep prices relatively low in respect of those goods that do not generate the kinds of problem symptomatic of the current housing ‘market’ – that is, where production is simply not on so huge a scale.

There is reason to believe then that UBI will not produce the kinds of inflationary effects for which it stands accused – bearing in mind the need to tackle the carcinogen of the current housing crisis which serves only to make landlords richer, more sadistic in their treatment of tenants, and all at the cost of the security and prosperity of the people.

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Main Photo courtesy of K H Rawlings

First photo courtesy of Jesus Solana

Second photo courtesy of David Jenkins

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