Time for the Robin Hood Tax?

I’d say so, wouldn’t you?

It is supported by an impressive bunch of trades unions, charities and voluntary sector bodies. You can spread the word. On Twitter, on Facebook where you can ‘share’ their fan-page. You an even put a poster in your window (pdf) or ponce around in a green Robin Hood mask (pdf) as well, if that’s your style.

But whatever you do, sign up to the campaign.

  • coconnor

    Does ‘Robin Hood’ tax sound that much better than Tobin tax?

  • Yes.

  • Mick Fealty

    Forgive him, he’s from Nottingham.

  • coconnor

    I know the SDLP and Sinn Féin are both long term advocates of such as tax, do we know what the Unionist parties think about it? (I know Sylvia Hermon is a fan, but that doesn’t tell us much about UUP policy)

  • Henry94

    Other people paying more tax? Nothing wrong with that of course. Why stop at such a paltry sum. If .5% can end world hunger, save the NHS and fix the environment why not make it 20% and we can all live of this new sky money. Bankers Booo! Trees Yaay!

  • Mack

    Princeton University Professor of Economics Burton Malkiel on the Tobin tax –

    “Wall Street” would not foot the bill for the presumed $150 billion [transactions] tax. In fact, the tax would simply be added to the cost of doing business, burdening all investors, including 401(k) plans, IRAs and mutual funds.”

    Professor Malkiel then explained the hidden tax transmission process whereby financial transactions taxes can become pass-through, in spite of regulators’ best efforts to prevent it (e.g. through exemptions for investors, pension plans and mutual funds):
    “high-frequency traders are not villains—indeed, they play an important role in improving market efficiency. High-frequency traders scour markets for minor mispricings and arbitrage trading opportunities. They buy and sell stocks in an instant, hoping to earn pennies on a trade. Far from destabilizing or creating volatility in the market, their actions significantly increase trading volume, reduce spreads, promote price discovery, and ultimately reduce transactions costs for long-term investors. Such trades might not be doing God’s work, but they are socially useful.”

    Professor Malkiel argued that the transaction cost would be simply “added to the cost of doing business” by the exempt high-frequency intermediaries such as investment banks acting as ‘firms’ i.e. in their priviledged capacity of market makers (an equivalent of Bureaux de change quoting two-sided prices in every market: stocks, bonds, futures, options, and not only currencies), while the non-exempt (smaller, non-bank) market makers and other liquidity-providing traders would simply go out of business, reducing market trading volume and giving monopoly powers to the remaining bank institutions:
    “Transactions taxes would make most current high-frequency trades unprofitable since they depend on the thinnest of profit margins. Trading volume would collapse, and there would be a dramatic shortfall in the tax dollars actually collected by the government. Market liquidity would decline, bid-offer spreads would widen, and all investors would pay significantly higher costs on their trades

    Malkiel doesn’t think it’s a tax on bankers, but a tax on those investing and saving for their futures (that’s everyone with a pension plan).

  • Mack

    Simon Johnson ex-IMF CEO and economics professor concurs that this tax would be paid by ordinary people and not bankers –

    Prof. Simon Johnson:
    “I think it’s hmm… partially a response, or an attempt to respond, that’s not my preferred line, approach to the problem, I think that would lead to a lot of distortions, a lot of moving of activities offshore. If you did it at the full level of the G20, you might be able to get some traction. Evasion at that level would be hard. But still I think it doesn’t address the core problem which is really about financial institutions that are ‘too big to fail’. Financial transaction tax is more of a tax on regular people like you and me.”

    The CIO of Vanguard (who revolutionised mutual funds – bringing funds with expense ratios of a fraction of a per cent to American workers)


    This view of the members of academia is also corroborated by practitioners: a representative of the U.S. mutual fund industry, the managing director and chief investment officer of Vanguard Group Inc., George Sauter, claims that competition among high frequency traders brings considerable savings for their “clients”, i.e. for all U.S. mutual funds, buying stocks at improved prices offered by numerous smaller traders (who supplement the official, more expensive prices offered by investment bank market makers, just like in the Bureau de change case):
    “Vanguard has estimated that [..] over the past 10 years, thanks to the many structural changes in equity markets, including [..] an explosion of high-frequency trading [..] total transactions costs on an average trade have fallen by more than 50%, resulting in approximately $1 billion of annual savings to its investors. When magnified across the whole investment industry, investors have probably saved tens of billions of dollars in transactions costs.”

    The road to hell is paved with good intentions..

    http://en.wikipedia.org/wiki/Tobin_tax#Who_would_gain_and_who_would_lose_if_the_Tobin_tax_were_implemented.3F

  • coconnor

    So people who subscribe to free market economic dogma believe the Tobin tax would be a bad idea. Shocking.

  • Mack

    Coconnor –

    They think it would be paid by ordinary workers and not bankers.

  • Alias

    What’s more shocking is that it never even occured to lefties – such is there weak grasp of business and indeed reality – that it would be a tax on captive consumers of banking products and not on ‘bankers’.

    What is less shocking is that lefties want other people to earn the wealth and simply want to live off their enterprise, having no wealth generation plans of their own.

  • Mack,

    The difference between the left and the right is that the right think the road to hell is paved with good intentions. The left think that bad intentions are the culprit.

    One useful thing we’ve learned recently is that whenever we suggest that it is risk and not profits that should be privatised, we’re told that the costs will just be passed right back to us.

    It turns out that that they get passed back to us in spades anyway.

    The financial services and investment industries are plainly not as socially useful as they imagine themselves to be. They do what public choice theorists used to accuse civil servants of: of creating unnecessary expensive transactions that they have to pay themselves to do.

    A Tobin Tax kills two birds with one stone – disincentivising over-artful leveraged finance – and using it to generate cash that can be used to fund collective action.

  • Mack

    It would be better if we just broke up entities that were too big to fail (see Simon Johnson’s criticisms of the Tobin tax) such that the socialisation of losses never occurs again (and bailing companies out is a solidly _left_ wing concept, I think right wing parties have adopted it in the case of the banks (along with left wing ones like British labour) as they feel they have no choice. Let’s not put them in that position again.

    If you want to tax bankers – tax their profits and bonus, taxing transactions will reduce transactions, reducing market liquidity, increasing bid / offer spreads (that’s the cost of buying or selling) for everyone and any increased costs they incur will be passed on in fees. There is are only poor substitutes for the financial industry (e.g. Gold buried in the backyard). Our savings must go somewhere. This looks like punishing ourselves – and the money out there is ours in the aggregate – either personally or via our employers – and not the bankers.

  • Paul,

    The difference between left-wing and right-wing economics is that the right thinks self-interest is amoral, while the left thinks it is immoral.

  • coconnor

    Free marketeer economists suggest it won’t work. Others, like Paul Krugman and Joseph Stiglitz believe it will.

    Economics is a political field, not a science.

    And I don’t think anyone is suggesting the imposition of a ‘Robin Hood’ tax in only one country, it would need to be on a global basis.

  • Andrew,

    I’ve got an idea of the sort of lefties that you’ve been talking to. There are plenty of ‘christian socialists’ that don’t even beleive in god.

    But as far as I can see, it’s greatest defence is that opposes the monopoly on selfishness that a small section of society have exercised for a long time. As a lefty, I think self-interest is a highly moral pursuit, and the best way to do it is using the tools of solidarity and collective action. A fraction of a percent on the thieves who’ve got us into the current mess is only a start….

  • coconnor,

    Economics is a political field, not a science

    All sciences are susceptible to politics. Look at the climate change debate.

    Paul,

    A fraction of a percent on the thieves who’ve got us into the current mess is only a start….

    But it’s not on them, it’s on their jobs and has knock-on effects on the rest of the economy. There is a case to be made for a Tobin tax, but “sticking it to the man” isn’t it.

  • Andrew,

    I’ll answer your point by repeating what I said in reply to Mack a bit earlier:

    ‘The financial services and investment industries are plainly not as socially useful as they imagine themselves to be. They do what public choice theorists used to accuse civil servants of: of creating unnecessary expensive transactions that they have to pay themselves to do.’

    You seem to be making the case for corporate welfare.

    Mack,

    When you say ‘bailing companies out is a solidly _left_ wing concept, I think right wing parties have adopted it in the case of the banks (along with left wing ones like British labour) as they feel they have no choice.’, it’s a sign of how irresponsible the thinking is where low-regulation lobbyists meet government. It’s a way of looking at the world that shows no expectation that they won’t always be shielded from the impact that their self-serving faith-based position has on society.

    Not providing that bail out would have meant that the consequences of a failure of the banking system would not simply affect bankers. It would produce a crisis that would affect people who were no part of the decisions that led to the failure.

    We would all be collateral damage. So the consequences of bank failure would result in both a private and public loss. Thus governments were faced with a dilemma and decided that the consequences of failure would be so catastrophic that they needed to take action to rescue those that had failed.

    Break them up if you like – by all means. But don’t stop with banks. What about the other monopolies that distort markets and drive down the costs their suppliers can charge and their workers can demand? Can we break up Tesco, Sainsburys, Asda and the rest while we’re at it?

  • The Raven

    Ooooh breaking up Tesco’s! I like that. Anyone who doesn’t should read Tescopoly, or better still, the unconnected Tescopoly website.

  • You seem to be making the case for corporate welfare.

    That’s news to me.

  • Mack

    Can we break up Tesco, Sainsburys, Asda and the rest while we’re at it?

    Sure, if we can also scrap the CAP, any other subsidies paid to suppliers and open up our markets to free and open international competition (Brazilian beef etc)..

    While we’re at it we should remove any planning restrictions that prevent retailers reducing costs and achieving economies of scale for consumers.

    Now there’s a thought – where do consumers who benefit from Tesco’s buying power fit into this evil retailers model? After all, if it’s not profitable for suppliers to supply they are free to pursue other opportunities (which in turn, as more companies leave the market it will reduce competition among suppliers and return their industries to profitability). Prices act as signals – no-one forces you to produce at a given price, if it’s not a fair price – don’t produce…

  • Mack

    Free marketeer economists suggest it won’t work. Others, like Paul Krugman and Joseph Stiglitz believe it will.

    They didn’t say it wouldn’t work – in fact Simon Johnson said it would work (if implemented at the G20 level – did you read it by the way or just assume what they said?) – they said the bankers wouldn’t pay the tax – their customers would.

  • coconnor

    I both listened to it and read it.

    Simon Johnson in that interview is talking about how to deal with banks being too-big-to-fail. The Tobin Tax is not necessarily the best way to deal with that problem, I agree. His solution to that is to “not allow banks to become too big”.

    The argument in favour of the Tobin Tax/Robin Hood Tax is not solely looking at that issue, but is to do with attempting to control major fluctuations in international currency markets by discouraging short term speculation – this would have a fringe benefit of raising lots of money for useful projects.

    Furthermore, if implemented properly at a G20 level, regulation could be put in place that seeks to prevent the charge being passed onto normal people.

  • coconnor

    The most common argument I hear against it from economists (of the free market evangelist variety) is that such a tax would reduce the efficiency of the markets.

    Of course, from my and many others perspective, that is not a bad thing. And we’re back to politics.

  • 0b101010

    How about the “Dennis Moore Tax” and then we can all end up eating lupins. The same amount, mind.

    “Too big to fail” is a corrosive bag of shite. We have to allow failure, at any scale, to breed a healthy market. Risk of success has to be married to risk of failure. Trying to avoid this basic truth through bailouts and subsidies is not sustainable.

  • Mack

    coconnor –

    This version of the Tobin Tax that Paul is promoting isn’t limited to currency exchange – the purpose primarily seems to be to raise tax revenues not damp speculation.

    The reduction of market efficiency in this context means reduced liquidity and hence larger bid-offer spreads = higher costs for you and me. If this were to add just 0.5% onto the cost of maintaining pension it would reduce your pension fund by 25% over 30 years. These are substantial sums to extract from ordinary working people.

  • Greenflag

    coconnor,

    ‘Furthermore, if implemented properly at a G20 level, regulation could be put in place that seeks to prevent the charge being passed onto normal people.’

    Good luck with that . You would have to make it a capital offence with mandatory death sentences for bankers if they break or evade the law , to have any hope of bankers not finding another way to gouge customers . And even then that would not be enough.

    To have any hope of a return to ‘representative ‘ democracy rather than not just covert but overt rule by the banks, the G20 or even better G200 will need to ‘nationalise ‘ all banks for about the next generation.

    Of course ‘nationalising ‘ banks leads to other problems in due course . Politicians and higher civil servants have also been known to be adept at gouging the taxpayer for as much as the latter can bear if not more i.e unto the taxpayer’s children and grandchildren ;(