Universal Basic Income. Myth 6. Inflation will rise



Today we are going to talk about the sixth myth about the universal basic income and find out whether its introduction will provoke an increase in inflation.

There is an opinion that the introduction of the UBI will increase the purchasing power of the population, and therefore prices will begin to rise. That is, the unfounded conclusion is made that the introduction of the UBI will provoke an increase in inflation.

Let’s call things by their proper names and not confuse inflation with speculation. Inflation is an increase in the overall aggregate level of prices, not an increase in the prices of certain categories of goods, works and services. In addition, rising prices are not the only sign of inflation. It is possible at stable prices, if accompanied by a chronic lag of supply from demand, which took place in the USSR, when inflation was suppressed.

If we start talking about commodity shortages and imbalances in the structure of the economy, the consequence of which is the inflation of supply and demand, a logical question arises – what does the UBI have to do with it? What does the UBI have to do with the structure of the economy? I admit that its introduction will indeed increase the solvency of the population, and therefore the demand for certain categories of goods, works and services will really rise. But this means that the economy must respond to this in a timely and adequate manner, and produce more corresponding goods or services. This is a stimulus to the economy.

There are many causes and types of inflation. I will not look at all of them, but I will draw your attention to another one that is mistakenly associated with UBI. This is the pattern of inflation caused by rising business costs. In fact, there are 3 reasons for its occurrence. First of all, a rise in the price of raw materials, secondly, an increase in wages under pressure from the unions or the demands of the workers themselves, and thirdly, an increase in taxes.

An increase in one of these cost components does lead to an increase in price. Since the producer is not going to give up his profits, he simply adds to them the amount of the increased costs. Thus, the price goes up. Although there are, of course, different pricing models, the whole picture, roughly speaking, looks something like this.

Again, if we’re talking about the UBI, it’s not paid by the employer, it’s paid by the government. When we’re proposing the introduction of the UBI, we’re not talking about an increase in wages, which is built into the cost of production. We’re not talking about raising the tax burden, because we found out before in one of the myths that the UBI is not financed by tax increases. There are other sources for that. So we also rule out this cause of inflation.

In general, I have repeatedly said that I consider the UBI to be the provision of the material base of man in the Creative Society. This is a society of all earthlings with a single world economy – a planned economy – adequately satisfying and covering all people’s needs, but not allowing surpluses, that is overproduction of the unthinkable mass of unclaimed goods that we have today. I ask not to confuse the word planned and not to associate it with the shortage of consumer goods that we saw in the Soviet Union.

Planned means well thought out, covering all needs and providing for them, but not allowing overproduction, that is, eliminating unnecessary surplus. After all, when we make eggs for breakfast, we do not fry 5-6 eggs just in case, or just because we have raw eggs in the fridge.

In the same way, it is necessary to act on a more global scale within the country and the planet as a whole. Then, with such a sensible approach to the economy and fair pricing in the Creative Society, there will simply be no inflation. This phenomenon will disappear from our lives once and for all.

And what do we have today without the UBI and the Creative Society? According to the World Bank, the average inflation rate in 2018 was 2.5%. The ranking of countries by inflation in 2018:

First place in the ranking are countries with deflation – Burundi, Rwanda, Ecuador and the Maldives. There the inflation index has a negative value.

Russia is in 79th place with an inflation rate of 2.9%.

Our neighbors Belarusians are on 112th place with inflation of 4.9% and Ukrainians – 127th place with inflation of 11%.

133rd place is held by Liberia with inflation of 23.6%. Then come 74 other countries, where the percentage is not even given, including Uzbekistan, Syria and North Korea.

The World Bank’s data differ slightly from the Rosstat inflation indices, but in general the calculation can be done using different methodologies. Personally, I am more inclined to trust Rosstat, because it will definitely not overestimate inflation, because this data is used for indexation, benefits, payments of all kinds, and therefore affects the expenditure part of the state budget.

Let’s look at the Rosstat data. According to Rosstat, the inflation rate in the Russian Federation in 2019 – 5.5%, in 2018 – 4%, for 5 years – 23.55%, for 10 years – 87.63%. 88 percent over 10 years is pretty much. This is despite the fact that Russia is only 79th out of 209 countries and territories. That is, inflation literally eats up all people’s savings. There is no bank in the world that would give you a higher interest rate so that you can beat inflation. Besides, people in our country don’t trust banks very much, because many people have lost all their savings in accounts more than once. Well, for foreign banks you need to have at least some significant amount. It turns out that a person first works, earns, saves, and then worries about how to keep what they have earned.

I believe that the universal basic income and the Creative Society without inflation is the perfect solution to this problem.

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