Dean Baker\’s entirely extraordinary logic

Even assuming large reductions in trading volume due to the tax, the country could still raise more than $100bn a year in revenue or more than $1tn over the US\’s 10-year budget horizon. Trading costs have plummeted over the last three decades due to improvements in computer technology. Therefore, modest taxes on financial speculation, such as a 0.25 per cent tax on the purchase or sale of a share of stock, would only raise trading costs back to the level of the 1970s or 1980s.

The US already had a vibrant, well-developed capital market in these decades, so there is no reason to believe that raising trading costs back to earlier levels would prevent these markets from performing their economic function. Higher trading costs will merely act to discourage speculation.

Financial markets have become more efficient over the decades. As with everything else, more efficient means doing what they do at lower cost.

Thus it doesn\’t matter if we tax them to make them less efficient because it would simply be returning them to the efficiency of earlier decades.

Eh?

Farming has become more efficient since 1900. They fed the nation then and they feed the nation now. But we can and should tax farmers to take them back to the efficiency levels of 1900 for, after all, they fed the country then didn\’t they?

3 comments on “Dean Baker\’s entirely extraordinary logic

  1. But productivity in farming is relatively easy to measure, in financial markets it is very difficult. Trading costs have gone down, there has been more trading, but its not obvious that real output has risen dramatically.

  2. If the cost of ‘production’ goes down you cannot get away with not passing on that reduction to your customers for long unless you have a monopoly.

    What is being called for here is simply an increase in the cost of stuff. You can sort of get away with that for food because people need a certain amount of it to survive – though push it too far and you’ll have a revolution on your hands. With financial trading it is the speculation that brings in the money. Dampen speculation and you’ll dampen the income as well. People will find other things to speculate on and you’re prjected tax income evapourates.

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