A lot of very bright people DO believe in Tobin taxes – for example, Gordon Brown.  They are not the daftest idea anyone has ever had, particularly if you think that speculation can drive markets a long way from their efficient levels.  Practically every tax I can think of has some consequences for inefficiency – apart from Land Tax, perhaps – and obviously massive consequences for distributional justice. And we need to raise money somehow.  Some people can make grown up arguments for Tobin (h/t Luis from the LibCon thread).

My bilious reaction to NEF espousing it reflects more upon the weakness of the arguments being used – made still more nauseating by the TUC’s telly advert.  Going for the ‘it’s obvious innit’ approach is bound to alienate those thoughtful people that realise you have to think through consequences beyond Stage One; such as Tim Worstall here, for example.  Taxes change incentives, and change industrial structure.  Can the proponents of the Tobin Tax really think that they can design something that will take $400bn from banking, and that as a result it will only be paid by bankers?

No- it will be paid by users of finance. To think it will be paid just by traders is as nonsensical as beleieving that VAT is only paid by shopkeepers.

This simpleminded thinking cannot help but remind me of nef’s worst ever piece of research about how much people should be paid.  Can anyone seriously think that, because a childcare worker takes care of the kids of a well paid lawyer, then that lawyer’s salary should be used to reflect what the childcare worker gets paid?  Have they not heard of marginal analysis (i.e. what happens when a small thing changes)?  For example, suppose the childcare worker strikes for £80k.  The lawyer . . . gets someone else to do it.  Or gets a relative.  Or lobbies for an in-work creche.

I have heard a rumour that the staff of a Benji’s in the City has gone to court, asking for £50m from a nearby Bank where the staff ate a lot of their sandwiches.  Their lawyer – clutching nef’s report under his arm – is claiming that, if the Benji’s staff had not made those sandwiches, then 1000 Banking staff, paid $200m, would have died of starvation, or at the least fainted from exhaustion.  They also want to claim from the family members of the would-have-been-starved …

The curse of nef: ideas that may have some merit may be buried by bad arguments.

PS: By the way, I DO think high pay is broken. Like Chris Giles (read his excellent question at Davos) I think executives exploit market power.  Progressive taxes are justified for this reason: the richer you are, the more likely you are to have used rents and not entrepreneurial skill or effort to get it rich).

PPS How nice of the FT to comment approvingly on the trend towards financial-market poetry.)

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15 thoughts on “The curse of nef: Tobin Taxes

  1. “Going for the ‘it’s obvious innit’ approach is bound to alienate those thoughtful people that realise you have to think through consequences beyond Stage One; such as Tim Worstall here, for example.”

    The telly advert is not aiming to convince people like Tim Worstall, though.

    There are grown up arguments for the Tobin Tax for people like you who are economists, but it seems strange to me that you are outraged that a public campaign aimed at the public would choose instead to use populist arguments which might appeal to the very large numbers of people who are angry about the banks but who don’t read economic journals and haven’t come across the Tobin Tax before.

  2. The Don

    I’m not criticizing the TUC for using this strategy, from the point of view of “not a good idea for them”. I am reporting on how as a wonk, populist methods nauseate and alienate me. If it were Exhibit 1 at a conference to discuss the issue, then ‘outrage’ WOULD be what I felt.

    But I am sure you are familiar with the feeling you get when a populist debate starts up on something you know 5% more about, and how irritating it is to see the subtleties steamrollered.

    To get things improved, we can’t just leap from anger->convincingadvert->legislation. We have to move through the thinking stage too.

    1. Fair enough on your wonk reaction, and I do have similar instinctive reactions 🙂

      But this isn’t a policy where we are going anger->convincingadvert->legislation There has been a lot of thinking about Tobin taxes, and actually getting people mobilised behind something like this is a way of heading off the chances of them getting mobilised behind some of the alternatives which are ill-informed and nasty.

  3. I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them I hate them .

    Someone kill the NEFs.

  4. Take deep breaths before reading:

    Andrew Simms, co-author of the report and nef policy director said, “We tend to think of growth as natural for economies, forgetting that in nature things grow only until maturity and then develop in other ways. A world in which everything grew indefinitely would be strange indeed. A young hamster, for example, doubles its weight each week between birth and puberty. But if it grew at the same rate until its first birthday, we’d be looking at a nine billion tonne hamster, which ate more than a year’s worth of world maize production every day. There are good reasons why things don’t grow indefinitely. As things are in nature, so sooner or later, they must be in the economy.

    “The economic priorities of the rich world are as ridiculous as the impossible hamster. Endless growth is pushing the planet’s biosphere beyond its safe limits. The price is seen in compromised world food security, climatic upheaval, economic instability and threats to social welfare. We urgently need to change our economy to live within its environmental budget. There is no global, environmental central bank to bail us out if we become ecologically bankrupt.”

    http://www.neweconomics.org/press-releases/economic-growth-no-longer-possible-for-rich-countries-says-new-research

  5. p.s. please don’t blog about that NEF post.

    I’m baggsying it.

    I want to do soemthing on it for tomorrow, but have to go out for a few hours and learn to write French and play squash and so forth.

    but imagine the fun I’m going to have with the NEFs’ Natural Economics Hamster.

    I don’t even need more than first year undergraduate economics to kill this one off. Indeed, all I need is a dim awareness of basic history and what a market is

  6. “Practically every tax I can think of has some consequences for inefficiency”

    Pigouvian taxes? I suppose it depends what exactly you mean by “inefficiency”.

  7. Richard Curtis deserves the credit (or blame from your perspective) for the Robin Hood tax video.

    The TUC is only one of a number of organisations hosting it.

    But stand by for a substantial policy piece on transaction taxes next week from TUC and Christian Aid (not NEF!)

    Personally I look on them as a progressive indirect tax.

    1. It would be lovely if that was what they were.

      But how do you know that is how it will pan out? All I know is that (a) it won’t raise that much (b) it will increase the cost of finance for lots of non-financial businesses (c) it will involve masses of evasion and counter-evasion and (d) the advert for not really giving any mention of this, um, gets my goat.

      I’d blog again, but I’m tired and I think the world is tired of my views on this for now ….

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