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.)