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What The Yang Freedom Dividend will do to the economy

Posted on Jul 17, 2019 by Paul White

I am a huge fan of Democratic Candidate Yang.  A real Tech guy that gets it,  But I am not such a fan of his $1000/month per person over the age of 18 Freedom Dividend.  If he gets elected and actually gets this thing through the House and Senate ( unlikely ) here is what it would do to the economy.

How are prices set?

First its important to understand how prices are set.  A little Economics 101. Prices are normally set by the market.  Meaning there is a supply of product or service, and then a demand by consumers.  The higher the price, the less consumers will want the product or service.  The less of a product or service that is available the more consumers are willing to pay for it.  Scarcity causes prices to rise, while over supply causes prices to drop.  This is how a healthy capitalist economy works.  

Lets remember the housing bubble of 2008.

In the mid 2000s the Bush Administration wanted to increase home ownership, was able to push through legislation that made it easier to quality for a home.  Mortgage programs with no down payment made it so people who couldn't save their money suddenly could buy a home.  This caused the number of home buyers to sky rocket.  Unfortunately home builders were not able to keep up with new construction, and the result was home prices rapidly increased.  A few years later due to the increase prices and profits, everyone who knew how to use a hammer was suddenly starting companies as custom home builders.  This lead to an over supply of homes.  Then in 2008 the bubble burst.  Credit Dried up, and suddenly millions of people who used to qualify for a home now couldn't.  With an over supply of homes sellers had to drop their prices just to compete for the few home buyers that were still in the market.  

Example Family

Lets take an example family with two working people each making $2k / month.  As a result they have $4k of income.  Assuming no other debts ( I know not very realistic ) and assuming that their living expenses ( food, gas, consumables, insurance, bills ) are only $2k / month, they have $2k / month left for either rent or mortgage / taxes.  But suddenly they start getting a freedom dividend.  $1000 each person.  Now they have $4k / month availabe.  They might spend more on living expenses and or entertainment, or they might try to go for a larger house.  They find their dream home and make an offer.  Only to find that even though they offerred the asking price they needed to offer more.  They were competing against bids from other families who also got their freedom dividend.  After the bidding war settled they ended up paying much more than they originally wanted.  

When everyone gets $1000 that means everyone can now afford to pay more.  

What will the Freedom Divident do?

Housing prices will go up, along with your House appraisals.  Rents will increase. Food prices will go up.  Everything will go up.  So even though you got your Freedom Dividend the increase in prices will make any money you had saved depreciate in value.  Its a bad idea, and unfortunately Yang is using the democratic playbook of free money to try to buy votes.  


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