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The 2020 Public Services Trust Blog

Friday, August 28, 2009

Sand in the Wheels

By Henry Kippin

“If you want to turn London into a Marxist society, then great…”

At the risk of wading in to an area I know too little about… interesting to read reaction to Adair Turner’s comments this week on the idea of a global tax on financial transactions – known as a Tobin Tax.

This is essentially a tax on currency speculation, and a proposal that some development economists have floated as a means of generating revenue to support economic development in the global south.  In fact, the original purpose seems to have been more focused on dampening market volatility – as Tobin himself put it, throwing “sand in the wheels” of the market.

Obviously the finance industry have opposed this, along with those who argue that such a thing just isn’t feasible (tax avoidance reasons, for one).  But at Avinash Persaud notes in the FT today, times have changed:

“The real question today is not … feasibility; but … desirability. It is hard to argue that anything is not feasible today after governments have engaged in whole-scale bank nationalisation and credit guarantees, pushed budget deficits into double figures, become the buyer of last resort of assets they would not normally touch with a barge pole and threatened to legislate against private sector pay. Where there is a will there is a way.”

So I guess one reason why the idea might fly today is that global regulators are looking much more critically at a ‘swollen’ financial market, and a need to address excessive profit-making in the financial sector.  This is quite a conceptual shift and, as one might imagine, one that is not shared by many bankers (one of whom was responsible for the quote above).

There’s a serious trade off underpinning all of this – between the need to make sure we don’t return to the culture of excess and irresponsibility that brought us through boom, bust and recession; and the need for London to maintain its comparative advantage in an important revenue-generating industry.  Strong vested interests muddy the waters, so Lord Turner will need to navigate a difficult path between morality, social justice, regulatory prescience and macroeconomic stability.  Good luck to him.


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