I\’m told that a very important person has responded to my post:
\”I would like to draw your attention to a comment we received on Debating Europe from Corrado Pirzio-Biroli, Chairman of the Consultative Committee of the European Landowners’ Organization (ELO). In his contribution, Mr Pirzio-Biroli responds to your statements on Financial Transactions Tax, an criticizes your opinion\”
My response is there:
“Tim Worstall’s statements (not the FTT) are arrogant and unbalanced…actually clear lunacy (his own words).”
Ah, the insult direct. Good, this is getting interesting.
“He uses techno-speak to frighten-off the non competent reader. ”
Try again. I go to great lengths to explain technical matters in language accessible to the general, non-specialist, reader.
“So far we have had bad economics as well as bad politics. ”
Detailing the incidence of a tax is not bad economics. It is simply economics. My apologies if this point hasn’t quite reached Continental Europe yet but economics is a science. We can use it to predict certain things. One of those being who will actually carry the economic burden of a tax. That you do not like the answer is of no more import than your not liking Newton’s Equations would be important. Apples will still fall out of trees whatever your personal prejudices on the matter.
“Bankers have their share of responsibility and sought risky private profits counting on governments and taxpayers to socialize their subsequent losses.”
The connection between this and an FTT is not apparent. In fact there is no connection: the answer to the socialisation of losses is of course not to socialise them. Let failing banks go bust. Still nothing to do with an FTT of course.
“Banks used to be intermediaries between savers and investors. They have become speculators with their clients and also with their own money, have betrayed the trust society had put in them, and weakened the capitalist system. They are sawing the very capitalist branch we are all sitting on.”
This all might be entirely true but so what? It’s irrelevant.
“Bankers are perhaps the biggest obstacle for measures improving the efficiency and transparency of financial markets, alleging Armageddon for additional financial market regulation as well as the introduction of a FTT (e.g. that high frequency trading would emigrate destroying the financial service industry where the FTT is applied).”
Gosh, that’s an interesting one. An FTT will remove liquidity from the markets, widen spreads, increase price volatility and cost consumers vastly more than it will raise in revenues. Yet you say that an FTT will increase efficiency? More volatile more expensive capital markets will be more efficient? Clearly the last couple of centuries’ worth of work on markets and the joys of them haven’t quite reached parts of the European Mainland as yet.
“Admittedly, FTT alone, without regulatory reform, would not control speculation, but would be at least a signal that excessive short-term speculation is unhealthy;”
This is something that you must prove, not assert. And as yet, no one has shown that it is even possibly true, let alone certainly so, to the satisfaction of economists. You know, economists, the people who are the experts in the science of economics? Just like you go to the physics wallahs if you want to know why apples fall down out of trees?
Speculation increases liquidity and reduces price volatility. Both highly desirable things.
“it would recognize that Keynes’ warnings against liberalizing world financial markets were justified,”
That’s the Keynes who spent decades speculating in the commodities markets, is it? That one?
“that the related uncertainties for the budgets and finance of whole countries can have catastrophic consequences and disrupt national and regional economies, if not the world economy;”
Eh? That governments are spending money like drunken sailors on shore leave is a result of those dastardly speculators? Not the result of politicians be constitutionally fiscally incontinent? We have a useful word in English to describe such a position: “nonsense”.
“and that the FTT-related revenues would be the smoothest way to deal with widespread budgetary problems worldwide.”
What? Haven’t you seen the revenue projections from the EU document about the FTT? There will be no additional revenue! A bit comes in from the tax, yes, but it shrinks EU GDP by 1.7%. Meaning that all other tax revenues *fall*. By more than the new revenue. The FTT simply does not provide any extra revenues at all: it shrinks revenues. And no, not even in European economics is a fall in tax revenues a method of dealing with budgetary problems.
“If those actually paying the FTT would be the consumers, let them decide (the majority don’t have the means to be consumers of the financial products banks offer to financial investors).”
Make the tax voluntary? Now there’s an idea. That would be letting the consumers decide, yes. Pity no one thought of that before imposing income tax on us all, eh?
“It could notably help governments affected by insufficient economic growth to grow out of the mess,”
No, you haven’t read the EU report, have you? It says that an FTT will shrink the European economy.
“and the EU to find an own resource”
That’s not something that is convincingly in favour of any tax you know. “Let’s send money to an unelected supra-national bureaucracy” is not known as being a wise move. Quite apart from it being undemocratic of course.
“which would have wide popular support, preventing governments from continuing to act as shop-keepers with a calculating machine to check the net- contributing or net-receiving effect of every EU decision.”
Well, quite, an “own resource” would mean that no one at all was looking over the shoulder of that bureaucracy. This might be how it’s done in Padua, or Potsdam, Senor, but it’s not the way that we are used to dealing with our affairs.
English political history has been described as a 1,000 years of our gaining the power to insist that the State ask us nicely for our tax money, ask for it every year, tell us where it goes and give us an opportunity to say “No”. Quite why we should have to give that up just so that Germany doesn’t invade France again I’m not sure. Perhaps you could explain why keeping a bureaucracy accountable would increase the risk of war?
“If bankers then succeeded to pass on the tax to the consumers, governments should intervene on the latter’s behalf, starting with decent limits on bonuses of bank leaders unrelated to performance.”
You’ve entirely missed the point of tax incidence. Please go and read Seligman (1899) so that you can see what is being said. There is no conscious attempt to “pass on” a tax. Rather, people’s behaviour changes as a result of the existence of the tax. This change in behaviour leads to certain people having less money in their pockets than they would in the absence of the tax. Thus these people with less money are those who bear the incidence of the tax.
My apologies, but really, what are you doing commenting upon the incidence of taxation when you don’t have the very first inkling of a suspicion of an idea of what is being talked about? Is this how things are done in your corner of the Continent? That the ignorant are asked to make public policy?
“Come on, Tim Worstall, how can a 0.005% FTT have the mammoth impact on the economy that you predict?”
Sigh. The FTT is variously predicted to raise €50 billion (some EU estimates, before the tax losses from a shrinking economy) to $400 billion (Robin Hood Tax people). Anyone who thinks that you can raise $400 billion in tax revenues without changing the way the world works just isn’t thinking, are they? You know, even in government circles $400 billion a year is though of as pretty fat money. If we stuck $400 billion on cigarettes we’d all assume there’d be some change in behaviour, wouldn’t we?
“Whose interests are you defending with your spurious arguments?”
Actually, mine. No, not as a producer of anything, but as a consumer. As one of the people that is going to have to pay this tax. I’ll end up paying £10 so that £1 can be raised in tax for Mr. Rumpypumpy to spend as he pleases. This does not please me, I do not think that this is good public policy. In fact, as I say at the top, I think that this is insane.
“As Jean Letitia Saldanka commented, I hope that the finance industry reflects on its role in society before it is to late for all of us, including that industry itself.”
Myself I hope that the political classes and their shills and lickspittles stop trying to impose entirely insane, expensive and counter-productive taxes on us.