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Originally Posted by whell
How are folks spending more money? That makes no sense.
In your scenario you've created a "fixed class" who have money to buy only essentials. A number of folks in that newly created class used to buy more than essentials, even if they did it on shakey credit. Now that their income is fixed and they have no opportunity to earn more, they won't even be able to get shakey credit. Step one to a shrinking economy.
Since you've removed buyers from the marketplace of anything more than "essentials", businesses that manufacture, sell, make parts for, make accessories for, provide services for, etc., non-essential goods and services find themselves chasing after fewer buyers. Supply and demand: price for non-essentials starts to fall, businesses that can't compete lay off workers or shut down. Step two to a shrinking economy.
Finding fewer job opportunities in the businesses that manufacture, sell, make parts for, make accessories for, provide services for, etc., non-essential goods and services, you've created additional supply of workers. Supply and demand: an abundance of labor drives down the cost of labor since more people are competing for few jobs. Step three to a shrinking economy.
Some of those workers will find jobs in businesses that manufacture essentials, albeit at lower wages, or the same wage with few opportunities to see their incomes rise. Step 4 to a shrinking economy.
And yes, some of those workers will make the decision that its easier to get by than beat their heads against the wall in the job market, and opt for the "fixed class". Step 5 to a shrinking economy.
Finally, fewer productive workers supporting those in the fixed class, and a eventually the shrinking money supply and shrinking tax base will force the gov't to raise taxes - whether on individuals or business - to support the fixed class. At this point, not only do we have Step 6 to a shrinking economy, but since we're pulling additional capital out of the productive economy for tax, return to Step One. This is called an economic death spiral.
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You describe some pitfalls that the program would have to be designed to avoid, but to a large extent you just haven't gotten you mind around the one really radical aspect, and it's implications. I refer to the funding source, which is created money, not tax money.
This means any reduction in tax receipts (which will be not so large, since the program targets people who don't pay income taxes anyway) will be counterbalanced by a reduction in current tax-funded assistance for the poor. It also means people like you don't have to go around fuming that your tax dollars are supporting 'deadbeats.'
You think there's no room for increase in consumption at the low end, with people scraping by now on incomes of 12K a year?
I'm fine with there being provisions that encourage supplementing the support with wages. The goal is a large net increase in consumer buying power, stimulating economic growth, despite any marginal abandonment of work. My guess is most work-abandoners will be persons with no opportunity to make a living wage in the first place, so there will be no reduction in consumer spending for 'non-essentials.' Those people weren't buying new cars or central air conditioners anyway.
I'm also very fine with starting slow on this. Experiment, see if your assumptions or mine are more borne out in practice. Change things as necessary as you learn.