Mindboggling, simply mindboggling

\”Based on calculations by the Austrian Institute for Economic Research, such a global tax at 0.05 per cent could yield up to $690bn a year, or about 1.4 per cent of world GDP. This tax would not unduly burden financial-market participants, yet it would raise a significant amount of money to finance the costs of the crisis.\”

How can anyone think that a tax of 1.4% of global GDP will not \”unduly burden\” those who will be paying it?

I don\’t know the numbers (perhaps someone could tell me them?) but I wouldn\’t be at all surprised to find that $690 billion is greater than the total profits of the global financial sector.

We\’re going to tax the profits entirely out of a sector and this will not \”unduly burden\” a sector?

Yes, Ritchie does support this. Obviously.

7 comments on “Mindboggling, simply mindboggling

  1. Yes and if the 20th century teaches us anything it is that powers grabbed during a crisis will be cheerfully relinquished when its gone …errrm….
    Still Tim I wish you would tell your public what you think we should do ? Nothing is often the best answer but I `m not convinced in this case.

  2. The $690bn is on the assumption of only a small reduction in trading volumes (the ‘low’ scenario). The ‘high’ scenario has it raising $293bn.

    However I think perhaps you are making a mistake in assuming all the burden of the tax would come out of financial company profits.

  3. No Tim, this isn’t a tax on profits. It’s a tax on transactions. Tobin’s idea was to use a transaction tax to build up a capital fund to support the banking system during moments of inevitable crisis, rather than having to turn to the taxpayer for support. That looks like a sensible system of pay as you go insurance to me, not an attack on the finance industry. It might have the effect of reducing the amount of churning within the financial system, but that would be a good way of creating stability and minimising the inevitable bubbles that characterise money markets.

  4. OK, John, tell me how increasing the cost of doing a financial transaction does not make it less profitable?

  5. John:

    It makes eminent good sense that a government-regulated banking system burden the taxpayers for losses said system can’t handle itself. How on earth else can those same taxpayers ever come to understand (in their role as voters) TANSTAAFL?

    The old saw that “people get the government they deserve” applies, as well, to a government-run banking system: you get what you pay for (and will get as much of it as you can tolerate–and then some).

  6. John:

    The stock and financial markets perform one of the most vital and necessary fnctions of any highly developed industrial society. Those involved in such transactions are the supreme set of men determining the allocation of virtually all resources to those points at which they may be required most urgently for the most desirable purposes. The plain objective to “make profits, avoid losses” comprehends actions of almost infintely variable magnitude and highly variable time-frame, into which even the seemingly “small” (0.05%) tax is like throwing not a monkey-wrench but an anvil.

    What you seem not to recognize properly is that every transaction is an attempt by each of two parties to better his present condition by what seems, at the moment, a suitably profitable trade.
    Unlike ordinary transactions, however, markets of this sort are “zero-sum.” The “churning” to which you refer is no evidence of useless or counterproductive activity but, rather, illustrates the tendency for many to try to “lock in ” their
    profitable status by limiting the length (in time) of their exposure to risk, even at obvious loss of potential for greater profit.

    Consider that, as thing stand right now, an actor who committed the entirety of his fund each day (X 250 days per year) to a single transaction and had a profit/loss ratio of 60/40 would need reap, on average, a profit of only 1% on the profitable
    trades to achieve a respectable 20% ROI. But, under the tax regime proposed, 5/8 (62.5%) or 12.5 out of the 20% return is taxed away! Now, it is obvious that such disincentive will eventuate in less numerous trades, militating toward those in which a larger potential profit would be less-proportionately ripped off. But you should also be able to see that the tax itself would likely be the very incentive toward fewer but riskier trades.
    (And that is considering that the tax is collected, to the suggested extent, from the trade itself (rather than being assessed against both sides of the transaction). My guess is, that if such a tax is enacted, we will see a mass exodus of those able for “greener pastures.”

    I should also point out to you that the great frequency of trading (and this applies also to commodity, currency, and other markets) is not some evidence of wild speculation (as is often alleged) but the normal process through which buyers and sellers are driven ever closer to the mutually-agreeable price at which the trade takes place.

Leave a Reply

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

This site uses Akismet to reduce spam. Learn how your comment data is processed.