Pleasant surprise! Pavlina Tcherneva swings by my blog.

Lesson learned: never attempt to start a serious conversation before a trip/class preparation/grading. You may end up delaying any response for god-knows-how-long.

Turns out that my open letter to my MMT friends prompted a response from none other than Pavlina Tcherneva. If you're reading this, many thanks, Pavlina! I wasn't expecting that. Here's Pavlina's comment. I will reply below.

"Thank you for your post. Please provide the quote where I have said that UBI is pro-cyclical OR that it is withdrawn when the economy is in recession. I have said no such thing. My inflationary critique of UBI is based solely on the stated goals of #UBI supporters themselves--That UBI will allow people to opt out of the labor market wholesale (e.g. Guy Standing) to avoid existing punitive/poverty wage work. I have simply carried the assumptions of those UBI supporters I have engaged with (mostly from academia) to their logical conclusion. We can only distribute what we can produce. The impact on the labor force participation rate is THEIR goal not mine. I have argued that UBI is not countercyclical which is a key macroeconomic weakness of UBI. If you look at the very first paper I have written, you will notice that I am in fact a friend of BIG (as we share very similar concerns) and that, in every subsequent paper, I have charted a way for us to join forces--mostly by focusing on 'participation income'. Indeed I have found that the intolerance toward work comes from UBI (much to my dismay). I will disagree with your point about Money. Understanding the implications of the currency as a public monopoly is a precondition to understanding the macro-effects of the two policies and the path to success as we chart a bold progressive agenda going forward."

1. My reference to Pavlina's comment about UBI being procyclical was to a video interview I saw. Right now I'm having a hard time finding it. The Spanish MMT group has posted it at least twice. This maybe unfair because video interviews are always heavily edited and may end up distorting our views. If that is the case, then I'm happy to withdraw my remark.

2. UBI might lead to a contraction in supply. Nobody denies that. There are disagreements about the scale of such contraction and how to evaluate it. Foes of UBI believe that such a contraction would be huge and/or that any reduction in aggregate supply is a bad thing. I believe that reductions in aggregate supply are not necessarily bad. For example, since we're facing serious environmental issues, reducing pressure on non-renewable resources may be a good thing. Also, there might be lots of social benefits from having more leisure. Of course, I would not endorse anything that would produce a catastrophic contraction of supply. But I believe that the contraction UBI would produce would be within the margins of the manageable and may have some benefits.

That said, we get to the next question: since aggregate supply would go down, is it necessarily inflationary? There are two things to keep in mind here. One is the distinction between levels and rates and the other is the issue of how would the entire price system react to such an impact.

Let's suppose that we introduced UBI right now. (Not gonna happen...) Some people would withdraw from the labor market. Sure. That would at first reduce aggregate supply, thereby creating some inflationary pressure. (Although, see below.) But that would be a temporary effect because what has changed is the level of aggregate supply, not its rate of growth. The country would start operating at a lower level of output, fewer hours worked, etc. but there is no reason to believe that its output would keep contracting indefinitely into the future. Even if it were an inflationary shock, something I will dispute later, it would be a one-off.

Now, I don't even believe that this one-off inflationary shock would be such a big deal because of the reactions of the price system. I know several proponents of MMT at this point invoke price spirals but, like I said in my original post, that doesn't seem correct. It is simply not the case that every firm can pass on to consumers any increase in costs. If that were true, no firm would ever oppose a raise in the minimum wage and yet we see them always fighting fiercely against it. Then, there's the issue of demand management through macro policy. Governments routinely adopt anti-inflationary measures to fight off temporary shocks and life goes on as usual. I'm pretty confident that any moderately competent government would be able to deal with the small, temporary inflationary shock that a UBI would create without debasing the currency forever.

3. This is the part that baffles me: why is UBI NOT countercyclical? A UBI program would be defined as a transfer to every citizen, rain or shine, of some sum of money. The "rain or shine" clause makes it already quite countercyclical. It would be at least as countercyclical as any other unconditional transfer that already exists, such as pensions.

Let's imagine the following UBI system. I acknowledge that it is something that only highly sophisticated, First World states can pull off right now, but at this point it's the logic that matters, not the logistics. In this hypothetical UBI, every citizen would be entitled to a transfer of, say, 600 euros a month. Now, many people (most?) owe more than 600 euros a month in payroll taxes to the state. It would probably be better for them not to claim the check at all and simply have it go toward their taxes. (The tax schedule would, obviously, have to be adjusted to make the whole thing add up, but that's another story.) Who would actually claim the check? Basically people whose tax liability is below the 600/month for any of variety of reasons. Maybe they are very poor, maybe they are unemployed for whatever reason (i.e. they were fired, they want to take time off from work, etc.).  The key thing is that, in case of an economic downturn, the amount of people whose tax liability falls will increase (this is pretty much a working definition of a downturn...). Thus, in that same downturn, the UBI program would start mailing more checks than before. That is countercyclical. It helps maintain the people's disposable income during a recession.

4. Let's agree that there are intolerant people everywhere. It's a regrettable fact of life.

5. We need to find a way of agreeing to disagree about monetary issues. Of course, macro is important. But if we want to make any progress we cannot let relatively arcane issues get in the way. Because, let's face it, the question of what is the exact nature of money is rather arcane. In my experience witnessing macro debates, economists may start from very different epistemological points of view but, at the end of the day, the debates turn on a mix of mundane, even commonsensical issues and deeply held normative values about what society is and ought to be. The equations, the graphs, the models, the jargon, all that stuff is useful but as a device to organize ideas, not as a way to see some hidden truth that would otherwise be inaccessible. I wish we could have the same debate about these issues. Some people may find MMT useful as a way to organize their thoughts. (Not me, I hasten to add.) Fine. But it can't be that at every juncture MMT becomes a barrier. It can't be that at every juncture the debate has to end because the other side has not "seen the truth" of MMT. That's the sensation I get each time I try to engage MMT. To be fair, I can easily imagine MMTers been subjected to the same treatment. (See No. 4.) But that's counterproductive, no matter who does it. I, for one, try not to do it. I do not use MMT, I think it is flawed, but I don't ask as an entry price to a serious debate about UBI/EG that my counterpart accepts my "true religion." My only entry price is a willingness to think through some of the basic economic issues, issues on which we can all agree regardless of our school.