<p>It would not work.</p>
<p>Historically speaking, governments that try to fund their operations primarily via the printing press experience not just inflation but hyper-inflation. Why? Well, one explanation is that without taxes nobody has any reason to <em>want</em> the government's currency. You can try to force people to use it, but that just encourages black marketeering.</p>
<p>Another way to look at it is that a policy of funding the government by printing money is equivalent to funding the government entirely with taxes on holding currency. But since the tax <em>only</em> applies to currency, and not gold, or land, or massive stockpiles of cigarettes, people have an incentive to avoid holding onto money at all costs. No matter the current price of cigarettes, using your spare cash to buy cigarettes for barter later on will always seem like a good deal because the cigarettes are more likely to maintain their value than the cash. But if no one wants cash, by law of supply and demand the value of cash should plummet.</p>
<p>Edit for the benefit of pedants: I am <em>not</em> saying that any &quot;inflation tax&quot; will automatically destroy the value of a currency. I am saying that people need reasons to hold your currency which are strong enough that they'll tolerate the inflation tax—and the larger the de facto tax on holding currency, the better people's reasons for doing so need to be. In the normal world, taxes are a key source of demand for fiat currency, take that away and the system stops working.</p>

CC BY-SA 4.0
2020-08-31T22:30:41.733Z
(US dollars are also as good as cigarettes)
Criticize SE actions means ban
CC BY-SA 4.0
2020-09-01T11:15:17.783Z
This answer is much more succinct than the top voted answer, and gets its point across more effectively.
Omegastick
CC BY-SA 4.0
2020-09-01T13:12:30.463Z
@Omegastick this answer is also wrong since if this answer would be correct government would not be able to collect seigniorage, it does not even provide any theory only hand waving  even if the main point is correct nuance is important.
csilvia
CC BY-SA 4.0
2020-09-01T15:30:04.090Z
This is a good answer.  The requirement that people pay taxes in a polity's official currency is historically a *critical* component of inducing people to use and hold that currency.  Removing that constraint on the public's "currency behavior" would encourage the growth of black market or alternative payments systems.
tbrookside
CC BY-SA 4.0
2020-09-02T05:08:32.233Z
@csilvia Sure, governments can earn money from seniorage, but generally only as a tiny fraction of government revenue, unless they want hyperinflation. It's not that you can't make money from seniorage, it's that people need reasons to hold your currency which are strong enough that they'll tolerate the "inflation tax"—and the larger the de facto tax on holding currency, the better people's reasons for doing so need to be.
Topher Brennan
CC BY-SA 4.0
2020-09-02T09:24:38.510Z
but in your answer you pretend they cant. That is just logical conclusion from what you are saying. Also as I mentioned before your overall conclusion might not be wrong but your explanation is simply off - I mean common you can open any macro textbook and see that the relationship is far more complex than you pretend here. I am guessing that you never studied economics and this is just something you overheard somewhere without actually understanding the theory behind it at all, and that is also the reason why you dont provide any academic sources to support your claims
csilvia
CC BY-SA 4.0
2020-09-02T13:08:23.123Z
*sigh* I'm not an economist, but I do read a fair amount of the economics literature. I gave the above as a simplified version of the MMT answer—because while I upvoted Brian Romanchuk's MMT answer (below), I thought it would be worth posting something easier to understand by people with no background in economics.
Topher Brennan
CC BY-SA 4.0
2020-09-02T18:04:32.280Z
@csilvia assuming bad faith by the answerer is rude and obnoxious.
barbecue
CC BY-SA 4.0
2020-09-03T09:25:05.760Z
@barbecue I am not assuming bad faith - I am assuming and correctly that OP has zero professional knowledge of economics, because explanation in this answer is simply wrong which you can see in any macroeconomic textbook. Am I supposed to be quiet and not mention it? Also is it wrong to ask from the user to provide some sources? I thought this forum is supposed to be more than just popularity contest where any nonsense goes. Even if the main conclusion is correct the explanation is wrong.
csilvia
CC BY-SA 4.0
2020-09-03T12:45:09.567Z
@csilvia Yes, that's exactly what you did. You pretended to know the motives of a stranger and judged them based on those assumed motives. Deny all you want, you were rude. And you're still being rude. And you'll likely continue to be rude going forward.
barbecue
CC BY-SA 4.0
2020-09-03T12:49:58.543Z
@barbecue so according to you pointing out peoples mistakes or false claims is rude? Good grief! If all people would have the same attitude people would be still burning witches and think earth is flat.
csilvia
CC BY-SA 4.0
2020-09-03T12:52:33.667Z
@csilvia Also, you keep saying it's "wrong" but have not provided any clear explanation as to exactly why it's wrong. The questions asked here are not true/false questions, and the correctness of an answer is not a boolean value.
barbecue
CC BY-SA 4.0
2020-09-03T12:54:48.587Z
@csilvia, no, pointing out mistakes is not necessarily rude. Pointing out mistakes in a rude manner is rude. Assuming bad faith is rude. Accusing an answerer of having "zero professional knowledge" simply because their answer does not agree with your preferred textbook is rude. And as I predicted, you are continuing to be rude now. And I further predict that your next response will also be rude.
barbecue
CC BY-SA 4.0
2020-09-03T13:00:12.820Z
@csilvia allow me to present a different way that you can point out inaccurate information which is less rude. "This answer attempts to simplify the issue, but I believe it may be misleading, and does not fully capture the nuances of the situation."
barbecue
CC BY-SA 4.0
2020-09-03T13:00:18.933Z
@barbecue but it does not agree with **any textbook** not my preferred textbook. If you can find me **any textbook** that would agree with mechanisms of monetary policy mentioned in this posts I will delete my comment. It is not rude to point out that someone obviously does not have professional qualification. If someone is antivaxxer then they are obviously not professional doctors. Also I stated my reasons why its wrong, under this answer seignorage would not be possible but empirically we know it is possible.
csilvia
CC BY-SA 4.0
2020-09-03T13:00:30.810Z
Let us [continue this discussion in chat](https://chat.stackexchange.com/rooms/112609/discussion-between-barbecue-and-csilvia).
barbecue
CC BY-SA 4.0
2020-09-03T13:07:27.183Z
@csilvia barbecue is right that you should be nicer even though the answer contains severe inaccuracies in this forum we don’t debase ourselves with name calling. You can always make corrections in a polite way - pretend you are sitting in a classroom and having discussion during seminar.
1muflon1
CC BY-SA 4.0
2020-08-31T21:30:45.890Z
2020-09-02T13:10:47.670Z
2020-09-02T13:10:47.670Z
Topher Brennan
<p><strong>tl;dr</strong> this would not work in either closed or open economy unless your proposal would include very large cuts to current social and welfare spending as only arguably small part of those could be funded that way. There are several reason for including:</p>
<ol>
<li><p>there is a limit to the amount of real government spending that can be financed by monetary expansion. For redistribution you care about real spending not simply monetary transfers. If a poor person gets transfer of <span class="math-container">$\\\$1000$</span> but one apple costs <span class="math-container">$\\\$10,000$</span> then such person is much poorer than a person getting transfer of <span class="math-container">$\\\$10$</span> when apple costs <span class="math-container">$\\\$1$</span>. Even though people who first get to spend these money might initially get a seigniorage revenue from it - the amount of seigniorage is not enough to provide anything close to current level of real welfare transfers. Unless you envision some sort of society where welfare/redistribution spending is only about <span class="math-container">$10\%$</span> of what governments currently spend it would have disastrous consequences while not improving lives of poor by much.</p>
</li>
<li><p>Open economy considerations actually generally make the situation even worse. To be more specific they might lead to bit better situation to economically large countries that also issue reserve currency but empirically speaking most countries in the world can be characterized as small open economies that do not issue world's reserve currency.</p>
</li>
<li><p>UBI is actually not generally considered good redistribution policy as it wastes resources so choosing UBI specifically as
opposed to some non-linear system of taxes and transfers would only
make the above worse.</p>
</li>
</ol>
<p><strong>Full Answer:</strong></p>
<p>What can theoretically work depends on theory you want to follow. Time dilation works under the Einstein's general relativity but does not work in classical Newtonian mechanics. I will assume you want to follow contemporary mainstream economic theory. Under mainstream macroeconomic and public economics theory government cannot finance itself without taxes and even if it could monetary policy is bad tool for redistributing resources.</p>
<p>First thing first, we actually don't need to imagine this &quot;centralised pseudo-cryptocurrency where only the state can create new currency units&quot;. This is how modern fiat money already works. Most money is already digital not paper and even with paper money costs of production are so minuscule that only in rare extreme cases (such as recently in <a href="https://www.bloomberg.com/news/articles/2016-04-27/venezuela-faces-its-strangest-shortage-yet-as-inflation-explodes" rel="nofollow noreferrer">Venezuela</a>) government faces any limits on the amount of money it can create.  So we are already living in a world where governments can do this. Of course, I am not trying to suggest that 'crypto' is exactly same as fiat currency because of the ledger, limitations on supply of 'crypto' and because demand for private crypto cannot be generated by taxes (as that would undermine government monopoly), but for the purposes of this particular question there really isn't meaningful economic difference.</p>
<p>However, redistribution and  social spending in general, even at the current level that some people consider low, comprises of approximately <a href="https://data.oecd.org/socialexp/social-spending.htm" rel="nofollow noreferrer"><span class="math-container">$20\%$</span> of GDP on average across OECD</a> countries and hence requires a lot of resources. Furthermore, it is generally agreed by economists that government cannot finance any amount of real spending it wants through money creation. You can see this from a results o a <a href="http://www.igmchicago.org/surveys/modern-monetary-theory/" rel="nofollow noreferrer">IGM forum poll</a>, which is a poll among wide and diverse group of top economists, showed that most of them disagreed or strongly disagreed with statement: &quot;<em>Question B: Countries that borrow in their own currency can finance as much real government spending as they want by creating money.</em>&quot; (where real spending is what arguably matters for redistribution the most) and once weighted by their confidence the poll showed that they all disagreed or strongly disagreed. So there seems to be strong consensus among the experts that what you suggest is not possible/desirable. Now the question that still remains is why is it so, I will start explaining that in next section from the point of view of closed country and then quickly discuss some additional reason in open country case.</p>
<p><a href="https://i.sstatic.net/xbjeG.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/xbjeG.png" alt="enter image description here" /></a></p>
<p><strong>Closed Country Macro Reasons:</strong></p>
<p>First and foremost reason is that this would generate massive amounts of inflation. The relationship between money supply and inflation is determined through money market equilibrium (see Blanchard et al Macroeconomics an European Perspective or for shorter explanation Mankiw's Principles of Economics) which can be in its simplest form described by the equation of exchange:</p>
<p><span class="math-container">$$MV=PY\implies P= \frac{MV}{Y}$$</span></p>
<p>where <span class="math-container">$P$</span> is the price level - change in which is inflation, <span class="math-container">$M$</span> money supply, <span class="math-container">$V$</span> velocity of money (number of times a unit of currency is used in economy), <span class="math-container">$Y$</span> is the real output. This relationship implies that conditional on keeping output and velocity constant increase in money supply will lead to increase in prices and hence inflation. The reason why we can hold <span class="math-container">$Y$</span> constant is in the long-run independent on amount of money in economy, because while in short-run monetary expansion can stimulate the economy, the <span class="math-container">$Y$</span> is ultimately determined by what the production capacity of our economy is. If we have only <span class="math-container">$100$</span> units of labor <span class="math-container">$L$</span> and we face production function <span class="math-container">$Y(L)=\sqrt(L)$</span> then society can at best produce 10 units of output irrespective of how much money there is in the economy (even though the productive capacity can increase thanks to economic growth - this does not again depend on amount of money in long-run). The reason why <span class="math-container">$V$</span> can be hold constant in the long run is that velocity depends on how fast are people spending money they get. Stuff your money under mattress and forget about them - velocity drops. Spend/invest them as quickly as you get them velocity increases. Velocity definitely changes in the short-run for example during recessions it drops and increases in expansions. It can also be offsetting <span class="math-container">$M$</span> in liquidity trap.   However, while it might be in some periods low and other high on average it won't change much in the long run. As you can see from <a href="https://fred.stlouisfed.org/series/M2V" rel="nofollow noreferrer">FRED data</a> if we exclude the current corona crisis the velocity of <span class="math-container">$M2$</span> is historically quite stable over long periods of time even if it can change significantly in short run.</p>
<p>As consequence in the simplified model above holding <span class="math-container">$Y$</span> and <span class="math-container">$V$</span> constant government can't really redistribute any real resources to the poor just by monetary expansion. However, I on purpose always emphasized that the above is an over-simplification as it's just an undergraduate version of the model which lacks some important nuance.</p>
<p>First important caveat is that the above model does not showcase the dynamics of the relationship between money supply and price level increase. The fundamental reason why more money leads to higher prices is that people take that money and spend it which bids prices up. Hence if there is an <em>unexpected</em> increase in money supply the first person can spend this new money at prices that do not fully yet account for increase in money supply. Hence government by issuing money gets a seigniorage revenue - which could be in principle transferred to the poor. However, a problem is that amount of real spending that can be generated in this way is quite low. According to <a href="https://www.dallasfed.org/%7E/media/documents/research/er/1998/er9803b.pdf" rel="nofollow noreferrer">Haslag (1998)</a> the seigniorage revenue most government generate is below <span class="math-container">$2\%$</span> of GDP -  a far cry from average OECD social spending of about <span class="math-container">$20\%$</span> of GDP.</p>
<p>Furthermore, an important thing to keep in mind is that when people do expect certain level of inflation they will just start accounting for it in their contracts (see again Blanchard et al. or Mankiw textbooks mentioned above). This occurs especially at higher levels of inflation and for these reasons in your proposal (which would arguably generate at least 2 digit inflation) you would have to eventually always unexpectedly increase the money supply at increasing rate not just some fixed <span class="math-container">$10\%$</span> in order to create new 'surprises' for people which would lead to ever increasing inflation.</p>
<p>While economists generally advocate for positive levels of inflation (see <a href="https://economics.stackexchange.com/a/5862/15517">this answer on Economics.SE</a>). Most economists agree that the level of that inflation should be somewhere around <span class="math-container">$2\%$</span> per year on average over business cycle as high inflation rates have negative effect on economic output due to for example menu costs, shoeleather costs, increases relative-price variability and the misallocation of resources or other problems (see again Blanchard et al. or Mankiw). In addition inflation also redistributes resources from savers to lenders in a way that has nothing to do with them being rich or poor. Even if it could be argued that on net poor people are more indebted it would be terribly targeted measure as it would redistribute resources away from those poor who aren't.</p>
<p>Second, modern advanced economies experience on average approximately <span class="math-container">$2\%$</span> economic growth per year. Hence, money supply can be increased by that much on average without any effect on inflation. This would give government again some extra breathing room provided that you want to keep the level of social spending constant. However, again this would be just pennies compared to the amount of social spending and redistribution modern governments engage in. Furthermore, this is to some extent moot point as arguably even if countries would want to keep relative social spending on constant level they will tend to increase the absolute value over time as our economy grows.</p>
<p>Third important caveat is that more complex models for example show that at zero lower bound (ZLB) velocity can offset money supply expansion leaving inflation unaffected and in more complex models expectations of what the money supply  and other variables will be rather than what they actually are plays bigger role (see <a href="https://www.brookings.edu/wp-content/uploads/1998/06/1998b_bpea_krugman_dominquez_rogoff.pdf" rel="nofollow noreferrer">Krugman 1998</a>).</p>
<p>As a result in certain times government can  pay for more of it's real spending through monetary expansion without creating inflation while in other times its ability to do so is more limited. However, this creates an additional problem since poverty &amp; inequality is here always not just in a certain years. Hence, if government would rely solely on monetary expansion for welfare spending while trying to keep inflation down poor people would face unpredictable welfare transfers which would lead to host of other problems - e.g. how do you choose which place to rent if your welfare payments change over unpredictable business cycle?</p>
<p>To sum up, doing some back-of-an-envelope calculations we could reasonable argue that given the above caveats in mind government could finance at most about <span class="math-container">$4-5\%$</span> of GDP worth of real spending over business cycle (and even here some might say I am being too generous), but that is nowhere near of how much average government needs for redistribution policy. Hence proposing to finance all welfare spending that way would require for most governments to drastically cut their current social spending.</p>
<p><strong>Open Economy Considerations</strong></p>
<p>Open economy considerations would not change that much. A country which has an advantage of issuing reserve currency will face little a bit less constraints on how much real revenue it can get from monetary financing. However, generally speaking, political reasons aside, reserve currencies become reserve currencies because relative to other currencies they tend to keep stable value so this advantage cannot be  abused too much.</p>
<p>For open economies that are not so lucky, especially for small open economies, there would  arguably be more additional problems than benefits. First, such monetary expansion in open economy will result not just in inflation but also exchange rate depreciation.</p>
<p>Exchange rate depreciation can be helpful to an economy to certain extent as it helps to boost exports, but this cannot be done indifferently as over long periods of time trade musts balance and hence country cannot just keep being net exporter forever (See Krugman et al. International Trade: Theory and Policy). Furthermore, in some cases economies can even experience contractionary devaluation (See <a href="https://www.sciencedirect.com/science/article/abs/pii/0022199678900077" rel="nofollow noreferrer">Krugman &amp; Taylor 1978</a>).</p>
<p>Next as discussed in previous part in more nuanced models inflationary expectations matter as well and those in turn can depend on exchange rate (See Mark International Macroeconomics and
Finance: Theory and Empirical Methods) . If inflation expectations are weakly anchored and exchange rate depreciation can 'trigger' higher inflation expectations then that would make problems discussed in previous section even worse.</p>
<p>Furthermore, small open economies are at high risk of <a href="https://www.investopedia.com/terms/d/dollarization.asp" rel="nofollow noreferrer">dollarization</a> or more generally currency substitution (in recent history it was mainly substitution to dollar).  This occurs when people within the economy decide to stop using the government issued currency, and it happens mainly due to local currency quickly loosing value, and switch to another one (see Copeland Exchange Rates and International Finance for more nuanced exposition). The whole phenomenon of currency substitution shows that the store of value property of money is far from trivial.  A currency substitution basically eliminates even the small seigniorage advantage that was discussed before.</p>
<p>The above is not exclusive list of differences for open economy but I think that at this point this answer is getting bit too long and you can find further arguments in the sources I cited. I think the literature can be sum up in saying that for open economies that are big from economic perspective and enjoy special status such as being the issuer of reserve currency can be better off but in no way so to allow government spend up to <span class="math-container">$20\%$</span> of GDP or even close to that. On the other hand small open economies will face more disadvantages, potentially even leading to a situation where their own people will decide to not use their currency anymore and substitute for some another one.</p>
<p><strong>UBI Would <em>Probably</em> Make the Above Worse</strong></p>
<p>UBI is not generally considered very efficient way of transferring resources. This is because even though UBI distorts the incentives of people between being economically active or not to lower extent than let's say combination of non-linear taxes and transfers, it is due to the universal part very badly targeted welfare measure. Most economists think the disadvantages of UBI outweigh the advantages and hence relying on it would probably make issues worse than if you would just follow some non-linear transfer scheme (although here the consensus is far less clear cut). I won't be going into detailed theory behind UBI because I think that is mostly tangent but as <a href="http://www.igmchicago.org/surveys/universal-basic-income/" rel="nofollow noreferrer">this another IGM</a> forum poll on what top expert think of UBI show most economists think it's not good welfare measure.</p>
<p>The issue why UBI is not desirable can be explored more in various literature review papers such as  <a href="https://www.annualreviews.org/doi/abs/10.1146/annurev-economics-080218-030237" rel="nofollow noreferrer">Hoynes and Rothstein (2019)</a> or <a href="https://opus.bath.ac.uk/publications/assessing-the-case-for-a-universal-basic-income-in-the-uk/attachments/ipr-policy-brief-assessing-the-case-for-a-universal-basic-income-in-the-uk.pdf" rel="nofollow noreferrer">Martinelli (2017)</a> and sources cited therein. The literature can be summarized nicely by the following quote form Martinelli:</p>
<blockquote>
<p>an affordable UBI would be inadequate, and an adequate UBI would be unaffordable.</p>
</blockquote>
<p>However, I on purpose added <em>probably</em> to the title of this section as literature on UBI is not fully settled and it is of active research interest. Especially in recent times we actually can see some real life UBI experiments while in the past research mostly relies on theoretical and numerical modeling.</p>
<p><a href="https://i.sstatic.net/7Q3AR.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/7Q3AR.png" alt="enter image description here" /></a></p>

CC BY-SA 4.0
2020-09-01T13:13:56.307Z
These poll questions are very strange. They're all of the form "Would (reasonable idea) be a good idea if (insane caveat)?" Of course, you can't issue money to create *infinity* dollars; of course, you can't make things better by *eliminating all current social programs*. Like, who would think that?
Xerxes
CC BY-SA 4.0
2020-09-01T13:16:49.993Z
@Xerxes actually there are politicians who think you could. The IGM forum questions are not random they usually reflect that some US or other important country politician stated that he or she would like to pursue some policy like UBI question in last poll was a asked right at the time when in US Andrew Yang proposed UBI for US. The first poll has to do with MMT that has been endorsed by AOC in US and I think also Sanders. Now my answer is not necessary about MMT but that poll question worked for my answer as well
1muflon1
CC BY-SA 4.0
2020-09-01T13:22:10.160Z
"Most economists think the disadvantages of UBI outweigh the advantages"  Source?  The poll you listed only answers a very specific policy question not the abstract also, it is unlikely to be a random sample of *all* economists.
Frank Shmrank
CC BY-SA 4.0
2020-09-01T13:23:17.640Z
This is not an endorsement of man, policy or math, but Yang certainly does not propose funding a UBI by eliminating all social programs. He proposes a VAT, a high-end income tax and argues that UBI will create cost savings. I haven't validated the AOC claim, but what would she spend *infinity* dollars on?
Xerxes
CC BY-SA 4.0
2020-09-01T13:24:08.397Z
@FrankShmrank you are right its not a random sample. Its the sample of the **most cited** and **most respected** top economists. Most of those economists have Nobel Prizes or similar high awards like the John Bates Clark Medal. So its a biased in a sense those are opinion of the most respected experts in the field. I think its safe to say that we can consider these elite views to represent economic profession the same way as one would not need to sample low ranking doctor in some field hospital when asking about what medicine as a field thinks.
1muflon1
CC BY-SA 4.0
2020-09-01T13:29:39.367Z
@Xerxes the questions are not about endorsing or not endorsing candidates they are about specific policy proposals. You should not take them as endorsements or opposite. There is no politician in the world who would be 100\% right on any scientific issue. I dont know all Yang's policy proposals for all I know most of them might be great but top economic experts dont consider UBI good idea.
1muflon1
CC BY-SA 4.0
2020-09-01T13:31:00.983Z
@1muflon1 You ignored the main part of my point which was that the poll didn't ask if they generally think UBI's disadvantages are greater than its advantages.  It asks about a very specific policy prescription.  Unless you have a source backing the general claim, I'd saying you're inferring too much to go from your poll results to the general claim.
Frank Shmrank
CC BY-SA 4.0
2020-09-01T13:36:12.633Z
@FrankShmrank oh ok I missunderstood the issue. Well the question asks if that specific proposal would be better than current system of non-linear transfers the only specific part of it is the value of \$13 000. Regardless you can see literature review on this issue yourself for example Hoynes, H., & Rothstein, J. (2019). Universal basic income in the United States and advanced countries. Annual Review of Economics, 11, 929-958. Generally its considered bad idea in literature. There is one caveat technically you can always construct UBI in a way it ceases to be UBI in any other way than in
1muflon1
CC BY-SA 4.0
2020-09-01T13:39:25.423Z
@FrankShmrank name because transfers are only half of an equation and by changing taxes you can always create UBI system that is literary economically indistinguishable from a system of non-linear taxation and transfers. For example give everyone 1000e but then just at the same time choose that lts say rich will pay additional 1000e in tax. Technically you could still call it an UBI because that refers only to transfer part but economically it would just be current system of non-linear taxes and transfers just framed differently - not what econs and people have in mind when they talk about UBI
1muflon1
CC BY-SA 4.0
2020-09-02T05:13:33.390Z
Hoynes, H., & Rothstein, J. (2019) (https://www.gwern.net/docs/economics/2019-hoynes.pdf) is substantially more nuanced than you make it out to be, and does not claim to speak for all economists. I don't mean to be rude but I can't help but notice you're 0 for 2 on your sources on UBI saying what you claim.
Topher Brennan
CC BY-SA 4.0
2020-09-02T07:33:01.393Z
@TopherBrennan that source is a literature review, literature review is by definition review of most important literature on the topic, a literature review on global warming won’t be talking to every single economist but will survey all the most important papers and this is the same. And of corse it’s more nuanced but still it concludes that it is a bad idea and in my answer I mentioned caveats that consensus here is still strong but not complete. Also both of the sources are saying that UBI is less efficient then well designed system of non-linear transfers - did you even read them at all?
1muflon1
CC BY-SA 4.0
2020-09-02T07:40:22.967Z
@TopherBrennan Hoynes et al: A pure UBI (providing a set benefit to all regardless of income, age, etc.) funded to meet basic
needs for a household without earnings would be extremely expensive, about twice the cost of
all existing transfers in the United States. Funding it would require substantial new revenue. The
source of the new funds is a first-order issue and will have substantial impacts on the distributional
effects of the policy and its ability to target those most in need of assistance. In particular, replacing
existing antipoverty programs with a UBI would be highly regressive
1muflon1
CC BY-SA 4.0
2020-09-02T07:49:17.067Z
@TopherBrennan Martinelli: "an affordable UBI would
be inadequate, and an adequate UBI would be unaffordable. We assess the basis of this claim,
looking at microsimulation studies on the fiscal and distributional implications of alternative
UBI schemes in the UK. For schemes that aim to replace the myriad means-tested supports (‘full
schemes’), we show that such schemes either lead to unacceptable household losses (including
some disadvantaged groups falling deeper into poverty) or simply cost too much." Hence I am sorry but I am 2/2 on my sources.
1muflon1
CC BY-SA 4.0
2020-09-02T14:01:19.510Z
@1muflon1 My initial question was solely about redistribution through inflation, regardless of redistribution policy.
Nico
CC BY-SA 4.0
2020-09-02T14:02:38.927Z
@Nico then why did you include UBI explicitly there instead of redistribution? Regardless the UBI part is just a side note at the end rest of the post addresses the main question
1muflon1
CC BY-SA 4.0
2020-09-02T14:04:44.340Z
Yes and I thank you for your answer, it was very detailed and you obviously put much research into it. 
And you are right, I should have formulated the question slightly differently
Nico
CC BY-SA 4.0
2020-08-31T15:04:39.237Z
2020-09-02T13:32:50.030Z
2020-09-02T13:32:50.030Z
1muflon1
<p>The Modern Monetary Theory (MMT) literature discusses the historical experience of issuing “new” currencies. (Typically, the introduction of money in colonies that did not have a simple monetary system that was compatible with Western notions of “money”.) One text with some historical analysis is <em>Understanding Modern Money</em> by L. Randall Wray.</p>
<p>The MMT story is straightforward: the government needs to create a source of demand for money to offset its spending. The usual source of demand is to impose taxes, but it could be done by selling products (e.g., mineral rights), which might not be considered a “tax.”</p>
<p>The analysis using neoclassical economics is more complex, but a lack of taxes would contravene the governmental budget constraint, and so one ends up with a story that might have the same qualitative result. (The governmental budget constraint is somewhat controversial, and I have severe concerns about its construction.)</p>
<p>Cryptocurrencies like Bitcoin have been created without such a demand. However, the exchange value of Bitcoin versus real-world commodities or wages is extremely unstable, and so it could not easily be used as a form of money in which capitalists borrow to fund fixed investment.</p>

CC BY-SA 4.0
2020-08-31T14:11:38.053Z
2020-08-31T14:11:38.053Z
Brian Romanchuk
<p>Wanted to note, with a digital currency this is exactly equivalent to replacing all forms of taxes except a single (high) Wealth Tax [1] that only applies to currency, rather than net worth.</p>
<p>Under your model, each year 10% of all currency would suddenly be redistributed, roughly equivalent to $5k/person if this was applied in the United States.</p>
<p>If it is digital anyway, it might make more sense to do this continuously rather than all at once, and not bother changing the total amount of wealth, so your money is continuously increased if you have less than the average, and decreased if over the average.</p>
<p>Some side effects of this would be that money should be converted into goods (or anything that deprecates less than 9%/year) as quickly as possible.</p>
<p>[1] <a href="https://en.wikipedia.org/wiki/Wealth_tax" rel="nofollow noreferrer">https://en.wikipedia.org/wiki/Wealth_tax</a></p>

CC BY-SA 4.0
2020-09-02T11:20:54.570Z
That's not true, inflation effects not only currency that's held by people but also various contractual obligations.
Christian
CC BY-SA 4.0
2020-09-02T13:45:51.767Z
Great point about the continuous redistribution. Makes perfect sense. Thanks for that!
Nico
CC BY-SA 4.0
2021-09-28T14:00:19.180Z
I recently learned about the "Circles" cryptocurrency project which attempts to do something like this. Not an advertisement; I'm not convinced the project is going anywhere; but it exists and attempts to do this thing. There are additional caveats - mainly how to stop people from just creating 1000 accounts to receive 1000 times the UBI? - which results in it departing radically from traditional currency models.
Criticize SE actions means ban
CC BY-SA 4.0
2020-08-31T23:41:10.943Z
2020-09-01T00:37:37.867Z
2020-09-01T00:37:37.867Z
Cireo
<p>Imagine you had the opportunity to found a new country from scratch (in 2020). <br />
Value exchange would be digital, where only the state can create new currency units. <br />
Instead of relying on income tax and/or indirect taxes, there would be no form of tax but instead the government would rely on increasing the overall supply of the currency to perform welfare redistribution, such as providing Universal Basic Income. <br />
(<strong>note:</strong> UBI was my choice in this example since it simplifies welfare redistribution, making the question clearer)</p>
<p><strong>An example:</strong><br />
<em>Year 1:</em> Initial currency units: 100. Government creates 10 more units (10%) and pays it out as UBI <br />
<em>Year 2:</em> Init. units: 110. Government creates 11 more units (10%) and pays it out as UBI <br />
<em>Year 2:</em> Init. units: 121. Government creates 12.1 more units (10%) and pays it out as UBI <br />
...</p>
<p>Each year the value of the currency is lessened due to inflation, so more money has to be generated.</p>
<p>Would this work if the country was completely isolated? <br />
If so, would it still work if international trade were a factor?</p>
<p><strong>FOLLOW-UP QUESTION:</strong></p>
<p>As far as I know, money was initially created as a means of value exchange, not necessarily a means of storing value. <br />
Since most existing answers highlight (rightfully so) that high inflation rates lead to people not using a currency to store value, but resorting to USD or similar, wouldn't it be plausible that they would still use the currency for everyday transactions, simply because it is universally recognised, thus leading to higher ease of use?</p>

CC BY-SA 4.0
2020-09-02T14:03:08.280Z
Comments are not for extended discussion; this conversation has been [moved to chat](https://chat.stackexchange.com/rooms/112564/discussion-on-question-by-nico-could-eliminating-all-taxes-and-only-creating-new).
Kitsune Cavalry
CC BY-SA 4.0
2020-09-02T14:26:18.280Z
I recommend making the follow up question new question. Otherwise you are making your question too broad.
1muflon1
<macroeconomics><inflation><currency><nonexpert><government>
Could eliminating all taxes and only creating new money theoretically work?
Nico
# Could eliminating all taxes and only creating new money theoretically work?

(Asked by: username_0 on 2020-08-31)

Imagine you had the opportunity to found a new country from scratch (in 2020).   
Value exchange would be digital, where only the state can create new currency units.   
Instead of relying on income tax and/or indirect taxes, there would be no form of tax but instead the government would rely on increasing the overall supply of the currency to perform welfare redistribution, such as providing Universal Basic Income.   
(**note:** UBI was my choice in this example since it simplifies welfare redistribution, making the question clearer)

**An example:**  
*Year 1:* Initial currency units: 100. Government creates 10 more units (10%) and pays it out as UBI   
*Year 2:* Init. units: 110. Government creates 11 more units (10%) and pays it out as UBI   
*Year 2:* Init. units: 121. Government creates 12.1 more units (10%) and pays it out as UBI   
...

Each year the value of the currency is lessened due to inflation, so more money has to be generated.

Would this work if the country was completely isolated?   
If so, would it still work if international trade were a factor?

**FOLLOW-UP QUESTION:**

As far as I know, money was initially created as a means of value exchange, not necessarily a means of storing value.   
Since most existing answers highlight (rightfully so) that high inflation rates lead to people not using a currency to store value, but resorting to USD or similar, wouldn't it be plausible that they would still use the currency for everyday transactions, simply because it is universally recognised, thus leading to higher ease of use?

**Tags:** macroeconomics, inflation, currency, nonexpert, government
> **Comments:**
> **username_1**: Comments are not for extended discussion; this conversation has been [moved to chat](https://chat.stackexchange.com/rooms/112564/discussion-on-question-by-nico-could-eliminating-all-taxes-and-only-creating-new).  
> **username_2**: I recommend making the follow up question new question. Otherwise you are making your question too broad.  

---

## 4 answers

### Answer by username_3 on 2020-08-31. Score: 37

It would not work.

Historically speaking, governments that try to fund their operations primarily via the printing press experience not just inflation but hyper-inflation. Why? Well, one explanation is that without taxes nobody has any reason to *want* the government's currency. You can try to force people to use it, but that just encourages black marketeering.

Another way to look at it is that a policy of funding the government by printing money is equivalent to funding the government entirely with taxes on holding currency. But since the tax *only* applies to currency, and not gold, or land, or massive stockpiles of cigarettes, people have an incentive to avoid holding onto money at all costs. No matter the current price of cigarettes, using your spare cash to buy cigarettes for barter later on will always seem like a good deal because the cigarettes are more likely to maintain their value than the cash. But if no one wants cash, by law of supply and demand the value of cash should plummet.

Edit for the benefit of pedants: I am *not* saying that any "inflation tax" will automatically destroy the value of a currency. I am saying that people need reasons to hold your currency which are strong enough that they'll tolerate the inflation tax—and the larger the de facto tax on holding currency, the better people's reasons for doing so need to be. In the normal world, taxes are a key source of demand for fiat currency, take that away and the system stops working.

> **Comments:**
> **username_4**: (US dollars are also as good as cigarettes)  
> **username_5**: This answer is much more succinct than the top voted answer, and gets its point across more effectively.  
> **username_6**: @Omegastick this answer is also wrong since if this answer would be correct government would not be able to collect seigniorage, it does not even provide any theory only hand waving  even if the main point is correct nuance is important.  
> **username_7**: This is a good answer.  The requirement that people pay taxes in a polity's official currency is historically a *critical* component of inducing people to use and hold that currency.  Removing that constraint on the public's "currency behavior" would encourage the growth of black market or alternative payments systems.  
> **username_3**: @csilvia Sure, governments can earn money from seniorage, but generally only as a tiny fraction of government revenue, unless they want hyperinflation. It's not that you can't make money from seniorage, it's that people need reasons to hold your currency which are strong enough that they'll tolerate the "inflation tax"—and the larger the de facto tax on holding currency, the better people's reasons for doing so need to be.  
> **username_6**: but in your answer you pretend they cant. That is just logical conclusion from what you are saying. Also as I mentioned before your overall conclusion might not be wrong but your explanation is simply off - I mean common you can open any macro textbook and see that the relationship is far more complex than you pretend here. I am guessing that you never studied economics and this is just something you overheard somewhere without actually understanding the theory behind it at all, and that is also the reason why you dont provide any academic sources to support your claims  
> **username_3**: *sigh* I'm not an economist, but I do read a fair amount of the economics literature. I gave the above as a simplified version of the MMT answer—because while I upvoted Brian Romanchuk's MMT answer (below), I thought it would be worth posting something easier to understand by people with no background in economics.  
> **username_8**: @csilvia assuming bad faith by the answerer is rude and obnoxious.  
> **username_6**: @barbecue I am not assuming bad faith - I am assuming and correctly that OP has zero professional knowledge of economics, because explanation in this answer is simply wrong which you can see in any macroeconomic textbook. Am I supposed to be quiet and not mention it? Also is it wrong to ask from the user to provide some sources? I thought this forum is supposed to be more than just popularity contest where any nonsense goes. Even if the main conclusion is correct the explanation is wrong.  
> **username_8**: @csilvia Yes, that's exactly what you did. You pretended to know the motives of a stranger and judged them based on those assumed motives. Deny all you want, you were rude. And you're still being rude. And you'll likely continue to be rude going forward.  
> **username_6**: @barbecue so according to you pointing out peoples mistakes or false claims is rude? Good grief! If all people would have the same attitude people would be still burning witches and think earth is flat.  
> **username_8**: @csilvia Also, you keep saying it's "wrong" but have not provided any clear explanation as to exactly why it's wrong. The questions asked here are not true/false questions, and the correctness of an answer is not a boolean value.  
> **username_8**: @csilvia, no, pointing out mistakes is not necessarily rude. Pointing out mistakes in a rude manner is rude. Assuming bad faith is rude. Accusing an answerer of having "zero professional knowledge" simply because their answer does not agree with your preferred textbook is rude. And as I predicted, you are continuing to be rude now. And I further predict that your next response will also be rude.  
> **username_8**: @csilvia allow me to present a different way that you can point out inaccurate information which is less rude. "This answer attempts to simplify the issue, but I believe it may be misleading, and does not fully capture the nuances of the situation."  
> **username_6**: @barbecue but it does not agree with **any textbook** not my preferred textbook. If you can find me **any textbook** that would agree with mechanisms of monetary policy mentioned in this posts I will delete my comment. It is not rude to point out that someone obviously does not have professional qualification. If someone is antivaxxer then they are obviously not professional doctors. Also I stated my reasons why its wrong, under this answer seignorage would not be possible but empirically we know it is possible.  
> **username_8**: Let us [continue this discussion in chat](https://chat.stackexchange.com/rooms/112609/discussion-between-barbecue-and-csilvia).  
> **username_2**: @csilvia barbecue is right that you should be nicer even though the answer contains severe inaccuracies in this forum we don’t debase ourselves with name calling. You can always make corrections in a polite way - pretend you are sitting in a classroom and having discussion during seminar.  

---

### Answer by username_2 on 2020-08-31. Score: 18

**tl;dr** this would not work in either closed or open economy unless your proposal would include very large cuts to current social and welfare spending as only arguably small part of those could be funded that way. There are several reason for including:

1. there is a limit to the amount of real government spending that can be financed by monetary expansion. For redistribution you care about real spending not simply monetary transfers. If a poor person gets transfer of $\\\$1000$ but one apple costs $\\\$10,000$ then such person is much poorer than a person getting transfer of $\\\$10$ when apple costs $\\\$1$. Even though people who first get to spend these money might initially get a seigniorage revenue from it - the amount of seigniorage is not enough to provide anything close to current level of real welfare transfers. Unless you envision some sort of society where welfare/redistribution spending is only about $10\%$ of what governments currently spend it would have disastrous consequences while not improving lives of poor by much.
2. Open economy considerations actually generally make the situation even worse. To be more specific they might lead to bit better situation to economically large countries that also issue reserve currency but empirically speaking most countries in the world can be characterized as small open economies that do not issue world's reserve currency.
3. UBI is actually not generally considered good redistribution policy as it wastes resources so choosing UBI specifically as
   opposed to some non-linear system of taxes and transfers would only
   make the above worse.

**Full Answer:**

What can theoretically work depends on theory you want to follow. Time dilation works under the Einstein's general relativity but does not work in classical Newtonian mechanics. I will assume you want to follow contemporary mainstream economic theory. Under mainstream macroeconomic and public economics theory government cannot finance itself without taxes and even if it could monetary policy is bad tool for redistributing resources.

First thing first, we actually don't need to imagine this "centralised pseudo-cryptocurrency where only the state can create new currency units". This is how modern fiat money already works. Most money is already digital not paper and even with paper money costs of production are so minuscule that only in rare extreme cases (such as recently in [Venezuela](https://www.bloomberg.com/news/articles/2016-04-27/venezuela-faces-its-strangest-shortage-yet-as-inflation-explodes)) government faces any limits on the amount of money it can create. So we are already living in a world where governments can do this. Of course, I am not trying to suggest that 'crypto' is exactly same as fiat currency because of the ledger, limitations on supply of 'crypto' and because demand for private crypto cannot be generated by taxes (as that would undermine government monopoly), but for the purposes of this particular question there really isn't meaningful economic difference.

However, redistribution and social spending in general, even at the current level that some people consider low, comprises of approximately [$20\%$ of GDP on average across OECD](https://data.oecd.org/socialexp/social-spending.htm) countries and hence requires a lot of resources. Furthermore, it is generally agreed by economists that government cannot finance any amount of real spending it wants through money creation. You can see this from a results o a [IGM forum poll](http://www.igmchicago.org/surveys/modern-monetary-theory/), which is a poll among wide and diverse group of top economists, showed that most of them disagreed or strongly disagreed with statement: "*Question B: Countries that borrow in their own currency can finance as much real government spending as they want by creating money.*" (where real spending is what arguably matters for redistribution the most) and once weighted by their confidence the poll showed that they all disagreed or strongly disagreed. So there seems to be strong consensus among the experts that what you suggest is not possible/desirable. Now the question that still remains is why is it so, I will start explaining that in next section from the point of view of closed country and then quickly discuss some additional reason in open country case.

[![enter image description here](https://i.sstatic.net/xbjeG.png)](https://i.sstatic.net/xbjeG.png)

**Closed Country Macro Reasons:**

First and foremost reason is that this would generate massive amounts of inflation. The relationship between money supply and inflation is determined through money market equilibrium (see Blanchard et al Macroeconomics an European Perspective or for shorter explanation Mankiw's Principles of Economics) which can be in its simplest form described by the equation of exchange:

$$MV=PY\implies P= \frac{MV}{Y}$$

where $P$ is the price level - change in which is inflation, $M$ money supply, $V$ velocity of money (number of times a unit of currency is used in economy), $Y$ is the real output. This relationship implies that conditional on keeping output and velocity constant increase in money supply will lead to increase in prices and hence inflation. The reason why we can hold $Y$ constant is in the long-run independent on amount of money in economy, because while in short-run monetary expansion can stimulate the economy, the $Y$ is ultimately determined by what the production capacity of our economy is. If we have only $100$ units of labor $L$ and we face production function $Y(L)=\sqrt(L)$ then society can at best produce 10 units of output irrespective of how much money there is in the economy (even though the productive capacity can increase thanks to economic growth - this does not again depend on amount of money in long-run). The reason why $V$ can be hold constant in the long run is that velocity depends on how fast are people spending money they get. Stuff your money under mattress and forget about them - velocity drops. Spend/invest them as quickly as you get them velocity increases. Velocity definitely changes in the short-run for example during recessions it drops and increases in expansions. It can also be offsetting $M$ in liquidity trap. However, while it might be in some periods low and other high on average it won't change much in the long run. As you can see from [FRED data](https://fred.stlouisfed.org/series/M2V) if we exclude the current corona crisis the velocity of $M2$ is historically quite stable over long periods of time even if it can change significantly in short run.

As consequence in the simplified model above holding $Y$ and $V$ constant government can't really redistribute any real resources to the poor just by monetary expansion. However, I on purpose always emphasized that the above is an over-simplification as it's just an undergraduate version of the model which lacks some important nuance.

First important caveat is that the above model does not showcase the dynamics of the relationship between money supply and price level increase. The fundamental reason why more money leads to higher prices is that people take that money and spend it which bids prices up. Hence if there is an *unexpected* increase in money supply the first person can spend this new money at prices that do not fully yet account for increase in money supply. Hence government by issuing money gets a seigniorage revenue - which could be in principle transferred to the poor. However, a problem is that amount of real spending that can be generated in this way is quite low. According to [Haslag (1998)](https://www.dallasfed.org/%7E/media/documents/research/er/1998/er9803b.pdf) the seigniorage revenue most government generate is below $2\%$ of GDP - a far cry from average OECD social spending of about $20\%$ of GDP.

Furthermore, an important thing to keep in mind is that when people do expect certain level of inflation they will just start accounting for it in their contracts (see again Blanchard et al. or Mankiw textbooks mentioned above). This occurs especially at higher levels of inflation and for these reasons in your proposal (which would arguably generate at least 2 digit inflation) you would have to eventually always unexpectedly increase the money supply at increasing rate not just some fixed $10\%$ in order to create new 'surprises' for people which would lead to ever increasing inflation.

While economists generally advocate for positive levels of inflation (see [this answer on Economics.SE](https://economics.stackexchange.com/a/5862/15517)). Most economists agree that the level of that inflation should be somewhere around $2\%$ per year on average over business cycle as high inflation rates have negative effect on economic output due to for example menu costs, shoeleather costs, increases relative-price variability and the misallocation of resources or other problems (see again Blanchard et al. or Mankiw). In addition inflation also redistributes resources from savers to lenders in a way that has nothing to do with them being rich or poor. Even if it could be argued that on net poor people are more indebted it would be terribly targeted measure as it would redistribute resources away from those poor who aren't.

Second, modern advanced economies experience on average approximately $2\%$ economic growth per year. Hence, money supply can be increased by that much on average without any effect on inflation. This would give government again some extra breathing room provided that you want to keep the level of social spending constant. However, again this would be just pennies compared to the amount of social spending and redistribution modern governments engage in. Furthermore, this is to some extent moot point as arguably even if countries would want to keep relative social spending on constant level they will tend to increase the absolute value over time as our economy grows.

Third important caveat is that more complex models for example show that at zero lower bound (ZLB) velocity can offset money supply expansion leaving inflation unaffected and in more complex models expectations of what the money supply and other variables will be rather than what they actually are plays bigger role (see [Krugman 1998](https://www.brookings.edu/wp-content/uploads/1998/06/1998b_bpea_krugman_dominquez_rogoff.pdf)).

As a result in certain times government can pay for more of it's real spending through monetary expansion without creating inflation while in other times its ability to do so is more limited. However, this creates an additional problem since poverty & inequality is here always not just in a certain years. Hence, if government would rely solely on monetary expansion for welfare spending while trying to keep inflation down poor people would face unpredictable welfare transfers which would lead to host of other problems - e.g. how do you choose which place to rent if your welfare payments change over unpredictable business cycle?

To sum up, doing some back-of-an-envelope calculations we could reasonable argue that given the above caveats in mind government could finance at most about $4-5\%$ of GDP worth of real spending over business cycle (and even here some might say I am being too generous), but that is nowhere near of how much average government needs for redistribution policy. Hence proposing to finance all welfare spending that way would require for most governments to drastically cut their current social spending.

**Open Economy Considerations**

Open economy considerations would not change that much. A country which has an advantage of issuing reserve currency will face little a bit less constraints on how much real revenue it can get from monetary financing. However, generally speaking, political reasons aside, reserve currencies become reserve currencies because relative to other currencies they tend to keep stable value so this advantage cannot be abused too much.

For open economies that are not so lucky, especially for small open economies, there would arguably be more additional problems than benefits. First, such monetary expansion in open economy will result not just in inflation but also exchange rate depreciation.

Exchange rate depreciation can be helpful to an economy to certain extent as it helps to boost exports, but this cannot be done indifferently as over long periods of time trade musts balance and hence country cannot just keep being net exporter forever (See Krugman et al. International Trade: Theory and Policy). Furthermore, in some cases economies can even experience contractionary devaluation (See [Krugman & Taylor 1978](https://www.sciencedirect.com/science/article/abs/pii/0022199678900077)).

Next as discussed in previous part in more nuanced models inflationary expectations matter as well and those in turn can depend on exchange rate (See Mark International Macroeconomics and
Finance: Theory and Empirical Methods) . If inflation expectations are weakly anchored and exchange rate depreciation can 'trigger' higher inflation expectations then that would make problems discussed in previous section even worse.

Furthermore, small open economies are at high risk of [dollarization](https://www.investopedia.com/terms/d/dollarization.asp) or more generally currency substitution (in recent history it was mainly substitution to dollar). This occurs when people within the economy decide to stop using the government issued currency, and it happens mainly due to local currency quickly loosing value, and switch to another one (see Copeland Exchange Rates and International Finance for more nuanced exposition). The whole phenomenon of currency substitution shows that the store of value property of money is far from trivial. A currency substitution basically eliminates even the small seigniorage advantage that was discussed before.

The above is not exclusive list of differences for open economy but I think that at this point this answer is getting bit too long and you can find further arguments in the sources I cited. I think the literature can be sum up in saying that for open economies that are big from economic perspective and enjoy special status such as being the issuer of reserve currency can be better off but in no way so to allow government spend up to $20\%$ of GDP or even close to that. On the other hand small open economies will face more disadvantages, potentially even leading to a situation where their own people will decide to not use their currency anymore and substitute for some another one.

**UBI Would *Probably* Make the Above Worse**

UBI is not generally considered very efficient way of transferring resources. This is because even though UBI distorts the incentives of people between being economically active or not to lower extent than let's say combination of non-linear taxes and transfers, it is due to the universal part very badly targeted welfare measure. Most economists think the disadvantages of UBI outweigh the advantages and hence relying on it would probably make issues worse than if you would just follow some non-linear transfer scheme (although here the consensus is far less clear cut). I won't be going into detailed theory behind UBI because I think that is mostly tangent but as [this another IGM](http://www.igmchicago.org/surveys/universal-basic-income/) forum poll on what top expert think of UBI show most economists think it's not good welfare measure.

The issue why UBI is not desirable can be explored more in various literature review papers such as [Hoynes and Rothstein (2019)](https://www.annualreviews.org/doi/abs/10.1146/annurev-economics-080218-030237) or [Martinelli (2017)](https://opus.bath.ac.uk/publications/assessing-the-case-for-a-universal-basic-income-in-the-uk/attachments/ipr-policy-brief-assessing-the-case-for-a-universal-basic-income-in-the-uk.pdf) and sources cited therein. The literature can be summarized nicely by the following quote form Martinelli:

> an affordable UBI would be inadequate, and an adequate UBI would be unaffordable.

However, I on purpose added *probably* to the title of this section as literature on UBI is not fully settled and it is of active research interest. Especially in recent times we actually can see some real life UBI experiments while in the past research mostly relies on theoretical and numerical modeling.

[![enter image description here](https://i.sstatic.net/7Q3AR.png)](https://i.sstatic.net/7Q3AR.png)

> **Comments:**
> **username_9**: These poll questions are very strange. They're all of the form "Would (reasonable idea) be a good idea if (insane caveat)?" Of course, you can't issue money to create *infinity* dollars; of course, you can't make things better by *eliminating all current social programs*. Like, who would think that?  
> **username_2**: @Xerxes actually there are politicians who think you could. The IGM forum questions are not random they usually reflect that some US or other important country politician stated that he or she would like to pursue some policy like UBI question in last poll was a asked right at the time when in US Andrew Yang proposed UBI for US. The first poll has to do with MMT that has been endorsed by AOC in US and I think also Sanders. Now my answer is not necessary about MMT but that poll question worked for my answer as well  
> **username_10**: "Most economists think the disadvantages of UBI outweigh the advantages"  Source?  The poll you listed only answers a very specific policy question not the abstract also, it is unlikely to be a random sample of *all* economists.  
> **username_9**: This is not an endorsement of man, policy or math, but Yang certainly does not propose funding a UBI by eliminating all social programs. He proposes a VAT, a high-end income tax and argues that UBI will create cost savings. I haven't validated the AOC claim, but what would she spend *infinity* dollars on?  
> **username_2**: @FrankShmrank you are right its not a random sample. Its the sample of the **most cited** and **most respected** top economists. Most of those economists have Nobel Prizes or similar high awards like the John Bates Clark Medal. So its a biased in a sense those are opinion of the most respected experts in the field. I think its safe to say that we can consider these elite views to represent economic profession the same way as one would not need to sample low ranking doctor in some field hospital when asking about what medicine as a field thinks.  
> **username_2**: @Xerxes the questions are not about endorsing or not endorsing candidates they are about specific policy proposals. You should not take them as endorsements or opposite. There is no politician in the world who would be 100\% right on any scientific issue. I dont know all Yang's policy proposals for all I know most of them might be great but top economic experts dont consider UBI good idea.  
> **username_10**: @1muflon1 You ignored the main part of my point which was that the poll didn't ask if they generally think UBI's disadvantages are greater than its advantages.  It asks about a very specific policy prescription.  Unless you have a source backing the general claim, I'd saying you're inferring too much to go from your poll results to the general claim.  
> **username_2**: @FrankShmrank oh ok I missunderstood the issue. Well the question asks if that specific proposal would be better than current system of non-linear transfers the only specific part of it is the value of \$13 000. Regardless you can see literature review on this issue yourself for example Hoynes, H., & Rothstein, J. (2019). Universal basic income in the United States and advanced countries. Annual Review of Economics, 11, 929-958. Generally its considered bad idea in literature. There is one caveat technically you can always construct UBI in a way it ceases to be UBI in any other way than in  
> **username_2**: @FrankShmrank name because transfers are only half of an equation and by changing taxes you can always create UBI system that is literary economically indistinguishable from a system of non-linear taxation and transfers. For example give everyone 1000e but then just at the same time choose that lts say rich will pay additional 1000e in tax. Technically you could still call it an UBI because that refers only to transfer part but economically it would just be current system of non-linear taxes and transfers just framed differently - not what econs and people have in mind when they talk about UBI  
> **username_3**: Hoynes, H., & Rothstein, J. (2019) (https://www.gwern.net/docs/economics/2019-hoynes.pdf) is substantially more nuanced than you make it out to be, and does not claim to speak for all economists. I don't mean to be rude but I can't help but notice you're 0 for 2 on your sources on UBI saying what you claim.  
> **username_2**: @TopherBrennan that source is a literature review, literature review is by definition review of most important literature on the topic, a literature review on global warming won’t be talking to every single economist but will survey all the most important papers and this is the same. And of corse it’s more nuanced but still it concludes that it is a bad idea and in my answer I mentioned caveats that consensus here is still strong but not complete. Also both of the sources are saying that UBI is less efficient then well designed system of non-linear transfers - did you even read them at all?  
> **username_2**: @TopherBrennan Hoynes et al: A pure UBI (providing a set benefit to all regardless of income, age, etc.) funded to meet basic needs for a household without earnings would be extremely expensive, about twice the cost of all existing transfers in the United States. Funding it would require substantial new revenue. The source of the new funds is a first-order issue and will have substantial impacts on the distributional effects of the policy and its ability to target those most in need of assistance. In particular, replacing existing antipoverty programs with a UBI would be highly regressive  
> **username_2**: @TopherBrennan Martinelli: "an affordable UBI would be inadequate, and an adequate UBI would be unaffordable. We assess the basis of this claim, looking at microsimulation studies on the fiscal and distributional implications of alternative UBI schemes in the UK. For schemes that aim to replace the myriad means-tested supports (‘full schemes’), we show that such schemes either lead to unacceptable household losses (including some disadvantaged groups falling deeper into poverty) or simply cost too much." Hence I am sorry but I am 2/2 on my sources.  
> **username_0**: @1muflon1 My initial question was solely about redistribution through inflation, regardless of redistribution policy.  
> **username_2**: @Nico then why did you include UBI explicitly there instead of redistribution? Regardless the UBI part is just a side note at the end rest of the post addresses the main question  
> **username_0**: Yes and I thank you for your answer, it was very detailed and you obviously put much research into it.  And you are right, I should have formulated the question slightly differently  

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### Answer by username_11 on 2020-08-31. Score: 5

The Modern Monetary Theory (MMT) literature discusses the historical experience of issuing “new” currencies. (Typically, the introduction of money in colonies that did not have a simple monetary system that was compatible with Western notions of “money”.) One text with some historical analysis is *Understanding Modern Money* by L. Randall Wray.

The MMT story is straightforward: the government needs to create a source of demand for money to offset its spending. The usual source of demand is to impose taxes, but it could be done by selling products (e.g., mineral rights), which might not be considered a “tax.”

The analysis using neoclassical economics is more complex, but a lack of taxes would contravene the governmental budget constraint, and so one ends up with a story that might have the same qualitative result. (The governmental budget constraint is somewhat controversial, and I have severe concerns about its construction.)

Cryptocurrencies like Bitcoin have been created without such a demand. However, the exchange value of Bitcoin versus real-world commodities or wages is extremely unstable, and so it could not easily be used as a form of money in which capitalists borrow to fund fixed investment.


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### Answer by username_12 on 2020-08-31. Score: 4

Wanted to note, with a digital currency this is exactly equivalent to replacing all forms of taxes except a single (high) Wealth Tax [1] that only applies to currency, rather than net worth.

Under your model, each year 10% of all currency would suddenly be redistributed, roughly equivalent to $5k/person if this was applied in the United States.

If it is digital anyway, it might make more sense to do this continuously rather than all at once, and not bother changing the total amount of wealth, so your money is continuously increased if you have less than the average, and decreased if over the average.

Some side effects of this would be that money should be converted into goods (or anything that deprecates less than 9%/year) as quickly as possible.

[1] <https://en.wikipedia.org/wiki/Wealth_tax>

> **Comments:**
> **username_13**: That's not true, inflation effects not only currency that's held by people but also various contractual obligations.  
> **username_0**: Great point about the continuous redistribution. Makes perfect sense. Thanks for that!  
> **username_4**: I recently learned about the "Circles" cryptocurrency project which attempts to do something like this. Not an advertisement; I'm not convinced the project is going anywhere; but it exists and attempts to do this thing. There are additional caveats - mainly how to stop people from just creating 1000 accounts to receive 1000 times the UBI? - which results in it departing radically from traditional currency models.  

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