OK, The Tobin Tax passes that test then.

Ritchie and Larry were in favour. And this point was made:

Ah yes, but is Will Hutton in favour? That would seal the deal

Yes, he is and the deal is sealed.

Turner thinks that Britain should call for the introduction of an international transactions tax – a bit like stamp duty – on the trading of all international financial securities, assets and derivatives. This so-called Tobin tax, after Nobel Prize winner James Tobin who first proposed it, would reduce the volatility, volumes and general craziness while striking at excess bank profitability and huge bonuses. The proceeds could be used, as Turner said in his Prospect interview, as a nice source of income to finance global public good ranging from poverty alleviation to health.

So yes, we\’ve our three leftie luminaries about taxation stating that the way to make markets more efficient is to make them more inefficient.

Well done lads, true genius.

The derivatives markets value is four times larger than the underlying assets they are allegedly hedging.

Oh my word Willy, only just spotted that? Derivatives markets are always hugely larger than the underlying assets. Wheat futures are vastly larger than the entire global wheat crop….secondary traading of shares is vastly larger than primary issuance. In fact, they have to be larger, for what the secondary, futures and derivatives markets are about is shifting, dispersing, risk and you can\’t do that effectively if risks are going from a larger pool of money to a smaller one. That\’s concentrating risks, precisely not what we\’re trying to do.

What is the City doing that is so important that the financial services sector has increased by a third while its share of corporate profits have doubled?

It\’s taking part in the international division and specialisation of labour, that\’s what it\’s doing. Just as Rolls Royce makes a third of all jet engines and turbines globally, Scotland makes 100% of Grand Theft Auto globally (at least I\’ve so been told) and China makes 150% of all cheap tatty tchotke, The City has a share of the international financial markets larger than Britain\’s share of the global economy.

It is, very simply, David Ricardo in action, stuff we\’ve known about since 1817: about time you caught up with modern thinking in economics, ain\’t it?

But just imagine how electrifying it would be if Gordon Brown made a speech along Turner\’s lines, proposed a royal commission to assess what kind of financial services industry Britain now needs and committed himself to trying to find international consensus on a Tobin tax. Intellectually, the case is unanswerable.

No, it\’s not that the case is intellectually unanswerable, there\’s a reasonable outline of an answer above. It\’s that your case for it is intellectually incoherent. Pointing out that said case comes from Will Hutton would simply be to repeat myself.

6 comments on “OK, The Tobin Tax passes that test then.

  1. “So yes, we’ve our three leftie luminaries about taxation stating that the way to make markets more efficient is to make them more inefficient.”

    Gigantic straw man alert!!!

    1. Is anyone actually arguing that it would make markets more efficient? I thought the original idea was merely to try and reduce speculation. And Adair Turner doesn’t even seem to think it would have a big impact on trading levels, but rather it would be a good tax-raising wheeze. But I don’t think I’ve seen anyone argue that it would make markets more efficient.

    2. Where’s the evidence that it would make markets less efficient? It would make trading marginally more expensive, but that isn’t necessarily the same thing surely?

    Tim adds: “Is anyone actually arguing that it would make markets more efficient? I thought the original idea was merely to try and reduce speculation.”

    Err, yes. They are arguing that by reducing speculation markets are made more efficient. Which is why they are insane of course.

    “Where’s the evidence that it would make markets less efficient? It would make trading marginally more expensive, but that isn’t necessarily the same thing surely?”

    Err, yes, it is the same thing. Making trading more expensive necessarily makes the market less efficient. Unless you buy into point 1), by making markets trade less you make them more efficient.

    Which, as noted, is insanity.

    To put it another way for an “Ex-TUC official now working for a consultancy that deals with corporate governance and shareholder engagement.”…higher transaction costs lead to an less efficient market….lower transaction costs lead to a more efficient market.

    Try reading some Ronald Coase on friggin’ transaction costs fool.

  2. If I were something in the City, I would be checking on the requirements for personal and corporate residence in Switzerland.

  3. “Err, yes. They are arguing that by reducing speculation markets are made more efficient.”

    Err… I still don’t think you’re quite right. As I said Adair Turner for example doesn’t seem to be advocating it in order make markets more efficient.

    “Err, yes, it is the same thing. Making trading more expensive necessarily makes the market less efficient.”

    But surely at a certain point the level of trading becomes a significant cost in itself, so trying to reduce it may save money. I’m not saying anything new here at all. Warren Buffett put along the lines that the increase in motion results in a decrease in returns.

    The increase in trading of equities for example has been a net cost to pension funds in recent years. (in fact their investment fees have risen significantly in recent years without any noticeable improvement in returns). If there were a higher stamp duty on share trades and volumes fell pension funds’ costs might well be lower.

    Now you could argue that by reducing trading price formation becomes less efficient or something and that this is a cost for participants. But that needs to be proven (and some of the studies of the impact of shorting bans don’t seem to stand it up). And it needs to be weighed against the fact that reduced trading might lead to lower costs.

    “Try reading some Ronald Coase on friggin’ transaction costs fool.”

    Aside from the pointless insult attached, thanks, I will.

    Tim adds: “Aside from the pointless insult attached, thanks, I will.”

    The idea that you think yourself competent and qualified to comment on transaction costs without actually having read the Nobel Prize winning research on transaction costs astonishes. At minimum you should know the arguments. It would be like commenting upon the causes of famine without having read Sen, advocating detailed planning of the economy without understanding Hayek or attempting to pontificate upon matters environmental without having absorbed Garrett Hardin (who didn’t but in my view was worthy of gaining a Nobel).

    It would simply be burbling on a matter on which one was uninformed.

  4. “The idea that you think yourself competent and qualified to comment on transaction costs without actually having read the Nobel Prize winning research on transaction costs astonishes.”

    Are you sure this is a line of argument you want to take given your repeated and disastrous – indeed repeatedly disastrous – forays into macro-economics?

  5. But just imagine how electrifying it would be if Gordon Brown made a speech along Turner’s lines

    I lost the argument there. Electrifying, Gordon Brown…… does not compute….

Leave a Reply

Name and email are required. Your email address will not be published.

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>