How does a universal basic income work from economics stand point? Let's say everyone gets $1000/mo. Currently the market knows that everyone has $10 and prices bread accordingly at $1.50. Tomorrow the market will know that everyone has $1010 and will price the bread at $100. Thus everything from food to utilities to rent gets adjusted to the new normal and the poor can't still afford the basics. Is this theory not correct?
Take a step further. Let's say on day 1 of the basic income age all the bread merchants raise their price to $100.
One smart bread merchant will probably say "Hey I used to sell this for $1.50, I can do better than $100" and prices it at $90. Now everyone buys bread from him.
The other merchants feel the price pressure and the cycle continues, with the price settling down to something likely higher than $1.50 (to reflect the increased price of labor input as a result of basic income) but not so high that it totally eats the increased income.
So yes, things will cost more after basic income (after all you'd likely need some sort of inflation to find the money to give away). But in an efficient market they will not cost so much more than people are not still effectively richer than they were before. It does not change the intrinsic value of most things, it just makes certain inputs (namely labor) more expensive.
In other words, utilities and commodities will always hover around cost price due to market forces and hence the poor will be able to afford the basics. There might be other non essentials that might become more expensive to absorb the extra money in the market, but we would have mostly likely solved a bigger problem. Makes sense. I still worry about housing.
Housing is interesting because it's one of the few things we buy that is priced mostly around our ability to pay for it rather than the value of what we are buying. That's why in SF it seems that housing prices rise in lock step with wages in the dominant industry (tech).
So while it's very likely that the cost of housing will increase in this situation, again I think people will still be better off overall. People will have increased purchasing power for non-housing goods and still pay the same percentage of their income for housing, even if that is now a percentage of a larger number.
> Housing is interesting because it's one of the few things we buy that is priced mostly around our ability to pay for it rather than the value of what we are buying.
No, its not. Real estate -- including housing -- is very much driven by value, and for most real estate -- and definitely housing -- and key component of value is location.
> That's why in SF it seems that housing prices rise in lock step with wages in the dominant industry (tech).
Convenience to work of a given pay is a key component of the value of housing; its not priced according to what the buyer can pay, its priced according to value, and the buyers are the ones who can pay that value.
> Also education cost spiked because of easy availability of student loans. Could there be many more products/areas like this?
Anything that isn't provided by a freely competitive market can be like this in the long term, and anything where the supply side can't quickly respond to demand-side changes can be like it in the short term.
Labor is wrapped up in the intrinsic value of things. Gold is only intrinsically valuable after it has been extracted, therefore its labor costs are included in the price. Don't believe me? What happens to the price of gold when it suddenly becomes much easier to mine for it?
Yes, UBI in most of its incarnations is a deliberately engineered inflationary spiral - a one way ticket to Venezuela. Everyone simply ignores the issue.
