The Good, the Bad, and the Ugly of Minimum Income

For some reason, the concept of universal minimum income or “mincome” has grown in popularity. Perhaps it’s because prominent entrepreneurs such as Elon Musk and Mark Zuckerberg have spoken in favor of this concept. This post will function as an economic discussion that the concept of mincome will have  specifically in regards to entrepreneurship.

The Good

One of the sneaky benefits proponents of mincome don’t advertise as much is that people will be inclined to take risks. Providing a basic level of income will free up other income for investment, specifically in startups. I can personally attest to saying that if I were given say $10000 as a basic yearly income, I would put that cash right into a startup. My entrepreneur friends would likely do the same. Would be entrepreneurs would greatly benefit from a mincome because it mitigates the financial risks of starting a business. People evaluate risk and reward before making decisions. With less risk people may be more willing to start businesses.

The Bad

The economic impacts of mincome are relatively similar to that of minimum wage. The higher the mincome, the higher the price level. Price level in economics is represented in some form by the y-axis on chart. Giving every citizen $10000 of basic income would shift demand to the right.

demand_curve_shift_right_2011

Now the important thing to note is the increase in the overall price level from P1 to P2. With more money flowing, people will consume more but at a higher price. However, it’s hard to believe that the supply curve will be unimpacted by mincome.  The supply curve will shift to the left. So long as Q2 ends up being on the right of Q1, some sort of victory can be claimed by the mincome proponents. The money has to come from somewhere, and the source will undoubtedly be the taxpayers, assuming this policy is at least being paid for by an additional tax. Without such taxation, it would be extremely irresponsible and very dangerous to our children. The specific groups that will likely have to carry the load are the rich and corporations. A corporate tax increase in a nation with already high corporate taxation could suck some much needed cash flow from newly profitable companies. Likewise a higher tax on high income individuals will hinder their abilities to invest in startups. However, I believe I am being gullible when I assume that only high income individuals and corporations will have to foot the bill. Best not to trust a politician that says otherwise.

The Ugly

This is perhaps the least economically grounded point. It’s a fear of something much worse unfolding. With such a system in place, people will not be as incentivised to pursue higher paying careers, unless inflation really kicks in. There are plenty of people who don’t want to work in this country. Mincome rewards them. There are also those who would use this income as an opportunity to scale back their work. Who wouldn’t want to work fewer hours and make the same amount of money? As previously noted, there are those who would use this as an opportunity to invest in a startup. But would this policy create more of fewer entrepreneurs?

Immigrants and their children account for majority of startups in the US. Immigrants often came to this country with little. So many resorted to starting businesses. They believe in the American dream more than natural born citizens often do. They are hungry. But if you were to give every citizen money in order to survive, would immigrants be as driven to start businesses? I’d say the answer is no. If no is indeed correct, the universal minimum income poses an existential threat to entrepreneurialism. While the short term benefits to entrepreneurs and would be entrepreneurs is suspected, the long term threat to the hunger and drive that makes America great could fade away as fewer people will take entrepreneurial risks, and rather live comfortably.

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