Finland Will Give Some Unemployed Citizens a Basic Income (theoutline.com)

Next month, the Finnish government is going to try something completely different to help its unemployed citizens: give them free money. From a report on The Outline: On Jan. 9, 2017, a randomly selected group of 2,000 unemployed citizens in Finland will receive a check for 560 euros (about $585) with no strings attached. They'll continue to receive that check every month for two years straight, even if they find a job or continue to remain unemployed. This is part of an experiment to see what happens to people's participation in the labor market after they've been guaranteed a certain amount of money.

Comments

Incomplete economic experiment

[bluefoxlucid]

I've generally talked about a Universal Social Security (a type of UBI) in its potential to create broad market effects. That's not possible in these small experiments, so you get incomplete information.

Imagine being a landlord. If an average of 10% of your theoretical rent revenue is lost to evictions and empty units, what happens? You have 10 units that must rent for $250/month to make your profit margin, yet you face a risk of $25/month per unit. Well, to retain the same profit margin, you have to charge $275/month--and what if your tenants can only afford $260/month? You can't rent these units. Mind, your tenants will more likely only be able to stably afford $260/month, meaning they have $275/month but have a good chance of sometimes having only $260, and so that $25/month needs to be higher to cover that risk, and now you've got to charge them $285/month, and it's even worse now.

You can't profit in that market.

Now imagine we change things around. Instead of your tenants being underemployed, part-time workers who can lose hours, jobs, or welfare (unemployment insurance) with the season or just bad luck, they have a guaranteed income. Your tenants will have enough money for food, clothing, personal care, utilities, and a steady $260/month. You have 10 units with a base rent of $250/month to hit your viable profit margin, and now they're only facing a 4% risk. You can charge your tenants $260/month to cover this, and they're stable at that rent: you'll lose money to evictions and empty units at an amortized cost of $10/month, on average, thus still hitting your profit margin.

Do you think landlords will gradually test the waters, then start building out rental properties and attracting low-income tenants, when that stable income is going away in 2 years, or 5 years, or 10 years? It's going to take a while to get ROI.

Financial stabilization brings economic stabilization. When people can't go below a livable income, ever, for any reason, then the supply of a basic service can't be interrupted by a sudden collapse of the demand market. That's central for a market-driven welfare system like any form of basic income.

Re:Incomplete economic experiment

[DigiShaman]

Supply / Demand. Depends on the market. If you're renting out units a near 100% capacity, the price will go up proportionally to the BI being able to sustain it. That's the whole point of a MARKET, to find that optimum equilibrium of market value. This is no different than what's happening now with the student loan bubble. Might as well have had the government written a check directly to the universities; in essences, that's what happened with the student holding all the risk.

BI by any other definition is blatant inflation!

Re: Incomplete economic experiment

[Kabukiwookie]

You're correct in your assumption, but fail to take something into account.

Increase in rent may, at least in part, be off-set by the fact that people with a guaranteed income will move to areas of a country that at the moment have very little economical activity (hence low rents).

This means less demand for rental accommodation in big cities, which in turn puts pressure on the amount of rent that can be charged.

As a side-effect, due to people moving to areas that are currently not economically active, economic activity in those areas will increase.

Now whether economic activity moving out of the crowded areas, where everybody is vying for the same limited amount of resources, and spreading out more evenly counter-balances some private actors to eat up people's UBI completely, is not guaranteed.

It will take time to see if this is actually effective and in short term land-lords will probably indeed put up their rents. Until the time people get fed up enough to move out of the cities.

Re:Incomplete economic experiment

[Kiuas]

BI by any other definition is blatant inflation!

No, no it isn't. The whole point of BI is to simplify the already existing models of social security. The people in this experiment are currently on unemployment benefit which this will replace. The whole point about BI as others have pointed out is that it's created essentially as a negative income-tax bracket. That is, not everyone across the board will get X amount of euros more (which would be what you describe: a blatant increase in inflation and nothing more). The BI will be taxed away from people making above a a certain amount, thus making it a modified version of the already existing benefits we have here.

Have a look at this chart, it's one of the proposed models for basic income by the Finnish Green Party. Now, I might not entirely agree with the numbers therein but this gives you an idea of how these systems are imagined. The leftmost column is the basic income, same for all income groups. The column after that is income from work, and the column after that is taxes paid for on the income for work (41 % for those making less than 4200, and 49 % for those making above it). The column after that is net income after taxes, and the column after that is total income (net income + basic income), the rightmost column is the effective tax-rate. Now you can see that for the two lowest classes, even though the nominal taxrate is high (41) the effective tax-rate is indeed negative due to the basic income, and only 4 % on those who make 1500.

This model (and most UBI models floated around here) would actually lower taxes on middle and low income earners. The cost to moving to a model like this from the current system would actually be relatively small, as we already have a both heavily progressive taxation system as well as a wide-variety of different types of social benefits that this would replace,

The whole problem with the old-fashioned social-security systems currently in use here (in Finland) and elsewhere is that the amount of terms and conditions involved with them create a trap: people cannot for example accept part-time or gig jobs as that basically stops the for receiving the unemployment benefits for awhile and they have to re-apply for it, effectively meaning that taking say a 3-4 days job offer will often lose you more money when you factor in the loss of the unemployment benefit for a fixed amount after that.

This makes no sense, as it's trapping unemployed people into a situation where they're afraid to take part-time jobs because they cannot for certain know they'll be able to survive the interrim period between the part time job ending, and the umemployment benefit starting to run again.

This is one of the scenarios in which BI is meant to help and is actually what this experiment is meant to test: what they're looking at is whether or not allowing people the same amount of income as they're currently getting in the form of the current unemployment benefit but guaranteeing that they will not lose it if they take a part-time job offer, whether or not this increases the people's willingness to take up short/part-time contracts, knowing that their income will be secured and will not be disrupted by this.

Since the amount in this experiment is no different from the existing unemployment benefits, it cannot be argued that this will drive inflation up, as we've had hundreds of thousands of people receiving the exact same amount of money in the form of unemployment benefits for years, and that has not driven up inflation.

With automation taking more and more jobs systems like UBI are a necessity for the future: if we want to keep the economies running, if we want to maintain a consumer-base of people who have money to spend on goods and services in a future in which their labor will be either of very little or no value (because they've been made obsolete by machines), we must provi

Re:Finland

[__aaclcg7560]

Presumably, in a UBI world, high income earners would essentially give all the UBI back in the form of taxes.

George W. signed a $3,000 tax credit for adults to learn new job skills into law after 9/11. I used that tax credit to go back to school to learn computer programming and switched from video game testing to IT. Today I pay more in taxes than I did 15 years ago.

a job guarantee would be a better solution

[Presto Vivace]

https://www.thenation.com/arti...

Re:I predict a lot of misunderstandings about BI

[khallow]

GDP is roughly money supply * velocity of money

No, that's a standard approximation for inflation given a fixed demand for money. Inflation != GDP.

Second, what is the value of increasing GDP? It's just another example of a broken window-type fallacy where increasing GDP is considered a higher priority than what is actually done with the increased economic activity.

Price Fixing

[inhuman_4]

I for one am glad Finland is doing this. It will save my country from being this generation's lab rat. It seem very couple of decades we need to relearn that price fixing doesn't work. I would have hoped the Venezuelans spectacular meltdown would have been enough, but it guess not.

Economics is all about whats happening at the margins. The marginal utility of going from $0->$5 per day in income is much greater than from from $200->$205. By giving everyone (this study is only starting with a few) a guaranteed fixed income you've just hugely reduced the utility of a working a low paying job. If you're getting nothing a job that pays $30,000 is a huge improvement because you have lots of time and no money. If you're getting $20,000 UBI you have lots of time and some money, the value of going from $20,000 to $50,000 won't be worth it to some people. In order for the low paying job to have that same marginal utility it's going to need to pay a lot more. Which raises the price of everything, which means that $20,000 doesn't go as far. Yay inflation! The market will readjust, and keep readjusting, until you relearn that price fixing doesn't work.

Re:I predict a lot of misunderstandings about BI

[T.E.D.]

Rome used to give bread to the mob, because when they didn't, food riots would break out and then you'd see some real violence.

That's largely true. However, the riots were more of any annoyance than anything.

The real driving force in Imperial Rome was the armies. Whenever an Emperor died (or an existing one sucked), generally the armies between themselves (often times by fighting each other) picked who would be the new Emperor. That effectively meant the army had to be kept happy at all costs, which in practice meant they kept getting raises, regardless of the rest of the Empire's ability to pay them. Eventually they had to start looting their own temples to pay the Armys' wages.