Ritchie Babbie!

Woo hoo! Our prayers are answered. Richard Murphy has a solution for us!

John Christensen of the Tax Justice Network and I were musing on the state of the world yesterday when it occurred to us that now is the perfect time to introduce a financial transaction tax.

Really?

But good whilst such a tax would be, that’s not the form we had in mind. There is another alternative: that’s a financial transaction tax. Few have tried this: Brazil did form 1993 to 2007 when the opposition parties killed it, largely because the tax was used to fund social programmes they disagreed with.

This tax was charged on all bank transactions in Brazil at 0.38% of their value – that is well under a penny in the pound in the UK. It has been argued that the tax was economically inefficient. I am not sure I can agree. It raised $22 billion a year. But it did so ingeniously. Because every bank account was subject to the tax, and therefore had to be declared by the banks for this purpose there was also real evidence that tax evasion of other taxes reduced as a result, which was a massive secondary benefit of the arrangement.

Wow!

We\’re in the middle of a great deleveraging. In our old frind MV=PQ, we find that V is falling drastically, meaning that if we want to keep P and or Q from shrinking then we have to increase M.

Which is what central banks all over the world are doing, lowering interest rates, printing money and ordering up those helicopters to start throwing cash over the side.

We also know that if you tax something you get less of it. This is indeed the basis of the Tobin Tax of which this bank transaction tax is a derivative. It\’s deliberately designed to reduce the number of such transactions.

Hmm, at a time that V is falling catastrophically, this is now a perfect time to tax V so as to get less of it.

Jeebus. I always knew that John and Richard were a bit strange but I hadn\’t until now thought that they were batshit crazy.

Ritchie even mentions this:

The argument always used against it was that it would restrict liquidity in the financial markets. Curiously the markets seem quite capable of doing that themselves right now.

So while we\’re desperately trying to increase liqudity you think it a good idea to restrict it?

Batshit.

BTW, Richard Murphy writes reports for the TUC.

13 comments on “Ritchie Babbie!

  1. “0.38% of their value – that is well under a penny in the pound in the UK.”

    Ah, I see. Only in the UK is 0.38% less than 1 part in 100. I always knew Gordon Brown personally sustained the laws of arithmetic. We get rid of him at our peril!

  2. In a related note, I did read somewhere a proposal for a transaction levy that would be used to underwrite Government guarantees of the banks, instead of a levy on the banks. So, for example, you wire £250k for your sale of your house to your lawyer’s client funds account, and a small levy is taken to underwrite the compensation for the failure of the bank holding the funds (the £250k at present is not guaranteed).

    I did think at the time that the downside of the levy would be that the Eye Of Socialist Sauron would turn its gaze on the stream of silver and send his orcs to take more and more of it.

    Obviously two orcs shooting the breeze in the local inn have come up with the idea all on their own..

  3. Tim

    Good to see you still think Chicago alive and well

    Liquidity is however solved in another way – it’s called quantitative easing

    OK, that looks a bit like printing money

    That’s fine when we face deflation

    You just continue looking at issues in microcosm – leave the macro to us!

    Richard

  4. “That’s fine when we face deflation”

    Yeah, but it will flip from deflation to inflation very quickly. Do you think the spending junkie can put the brakes on that quickly?

    “You just continue looking at issues in microcosm – leave the macro to us!”

    We did. Look what happened.

    This is in the DNA of socialists: tax and spend until there’s no more to take, then borrow and spend until there’s no more to borrow, then blame the crisis on international capitalism.

  5. Your left margin has gone crazy again in my browser. (IE6).

    P.S. “at 0.38% of their value – that is well under a penny in the pound in the UK”: isn’t that a neat way of saying to your readership “I assume that you are really, really thick”?

  6. I think Ritchie is a great touchstone of sanity. Let me explain… every time I start to think that I might be losing my marbles, I just read something from Murphy and I feel sane again. He’s a card!

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