Well, that seems to be the odd angle that Chris Dillow comes from.  I’ve commented: I share his opposition to the tax, though it’s not because I think that there is a logical leap between taxing transactions and denying people the vote.   Instead,  on CommentIsFree I had already enlarged on the the point Chris makes at the end.  Transaction taxes do nothing to address the real problem of the crash: the leverage. (in fact, since illiquidity was a key mechanism by which the deleveraging began, further taxing liquidity would hardly have helped an orderly process).

Everything else is incidental, oblique to the main issue, or epiphenomenal.  Leverage.  A later post will expand on this.


4 thoughts on “Tobin taxes aren’t democratic?

  1. I’m not opposed to Tobin taxes because they are undemocratic! I’m opposed to them for all sorts of other reasons.
    The point of that post was that if you do support Tobin taxes, then you should be sceptical about the merits of democracy, because if traders are irrational, then so it’s highly likely that voters are too.

  2. Hi Chris

    Thanks for the comment. I appreciate that you not ant-democracy, and one of the best explainers of human irrationality we have. But, while it pains me to defend the people who want Tobin taxes, but I am not sure that the extrapolation between the two kinds of irrationality holds.

    I think you can have a fairly straightforward model of how bubbles happen in which every individual agent is rational, but because they are rewarded for short-term over long-term movements (think 90% chance up 1, 10% down 10, sorts of random walks). You might want to curtail the disequilibriating, bubble-forming proclivities of agents that are each acting in a way that accords with individual, rational economic man – because as a system, their operations are destabilising.

    The voting analogy fails for me because individual votes do not have the same systemic links as trades – whereas momentum traders, for example, affect each others ‘vote’ on the market by their actions. So, in brief, you can think people are rational, and still be in favour of Tobin taxes to deal with momentum effects – but still want people to vote

  3. Thanks for those kind words.
    I agree, that it’s possible – just about! – to argue for a Tobin tax whilst acknowledging that traders are rational, but I wonder how many people actually do so.
    And I’m not sure how bad the voting analogy is. You’re right that your vote doesn’t influence mine. But on the other hand, people are swayed by widespread beliefs, information cascade-style. I suspect support for weird policies such as anti-drug laws or immigration controls is as widespread as it is in part because of such cascades.
    My broader point is just that if we are to give credence to behavioural finance – and I think it gets too much credence – then we must face up to the possibility that voters too are irrational, and perhaps systematically so.

  4. On your broader point, I quite agree: as with previous discoveries of the problems with free market thinking (e.g. externalities, asymmetric information, etc), the risk that behavioural economic insights might be seized upon by central-planners as some way to a. justify intervention and b. cleverly manipulate people to be “better”, is pretty large. Reading the SMF’s generally excellent Creatures of Habit


    it is hard not to get that impression. And yes, you could see them finding faults with the way people vote too – systematically, I’ll grant – and this providing some justification for a control over information, in case we should all make wrong decisions.

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