The amiable Nigel Stanley draws my attention to a new approach from the defenders of the Robin Hood Tax. First, let me remind you of the basic view of those opposing this well-intentioned but naive attempt to make everything better:

  • the tax will be on transactions, not bankers
  • transaction taxes tend to hit end users – they don’t zero in on wicked people like bankers with the unerring accuracy of some sci-fi weapon;
  • hitting transactions hits liquidity, which passes itself on in higher costs of capital, which damages productivity
  • it causes attention to be focussed on the wrong thing.  The right thing gets away, be it complexity, overhigh leverage, off-balance-sheet jiggerypokery, tax evasion, whatever.

Various versions of this can be found in comments by Tim Worstall, Tim Harford, me, other people called Tim, and so on. None of us have found Richard Murphy’s answers meet the standard.  In the nicest way, RM sometimes seems to fall back on a “they would say that wouldn’t they” position.

Now Nigel has crystalized the view of the Robin Hood Campaign:

“many of its critics have build vast superstructures out of arguments necessarily simplified to ensure the campaign goes wider than the wonk community.”

So by taking it seriously, and thinking hard about what the Robin Hood tax would actually do, we are missing the point.

But the criticisms are not “(minor)”; they are the difference between aiming at the right target and the wrong target. ( I struggle for an appropriate analogy.  Pick any you like that has a doctor treating an epidemic with the wrong medicine, and then insisting that this is just a detail. )

Nigel undermines his case when he links to the Oxfam post. It is a classic example of “go to the first iteration” – like my shoplifting example earlier.  The writer thinks he can identify a priori who will pay the tax:

“in the first instance, the tax will fall on high frequency traders like hedge funds and the proprietary trading houses of investment banks, not on low frequency traders like retail investors, people changing money to go on holiday, or high street banks. “

And then the second instance?  Spreads widen. Speculators who can trade in a lot produce narrower-spread markets.  The retail punters then with their occasional trading pay a larger spread.   None of the RHT people seem willing to even think about that.

The writer reveals his attitude towards those people pernickety enough to go to the 2nd and 3rd instance: they are nerds, who would need a ‘separate geek website for debate.’  Yes, that classic dichotomy: there are the good people who by sheer power of emotion and inner glowing goodness can divine the True Way Forward – being clean of the dirty low motivations of, you know, people involved in the business.  These people by sheer ethical magnetism attract The Gods – people who star in Richard Curtis movies and are clearly Good because they are, you know, famous.

And then there are geeks with their minor objections. Like “this would screw up the financial system to no good end, and impose a stealth tax on honest businesses and pensions”.  Silly stuff like that. Yes, these experts who think only they have the right to express themselves.  (If I ever go to an oncologist, maybe I should insist he throws his diagnosis over to the man in the street).

Tim Harford sounds as frustrated, in particular with arguments from authority.

Sadly for the RHT advocates who’ve tried to bamboozle me with appeals to Professor Stiglitz’s authority, I actually interviewed Stiglitz a couple of weeks ago and asked him what we should do about the banks. He didn’t mention an RHT. He’s also just published a 300 page book which doesn’t seem to mention the tax

And he repeats an obvious point I made before:

One other argument that has been made is that many financial institutions operate in a competitive market and thus they won’t pass on the tax. I am genuinely baffled by this argument, which seems entirely backwards. Competitive businesses make zero profits; if a tax is levied on them, they must all raise prices or else go bankrupt. It’s that simple.

But then, he’s an expert, so his views don’t count.

I expect my next report to be on this.  What is that? What was my last report about? Oh, here it is.


7 thoughts on “Riding through the glen, again

  1. I met Richard Murphy last night at a Compass meeting (entitled ‘Osbornomics – what the Tories would do to the economy…) and I asked him afterwards about the RHT campaign. Perhaps surprisingly, he seemed somewhat nonplussed (this is something of a euphemism…) – according to Murphy a more Tobin-esque tax, not on all transactions but on those deemed most likely to pose systemic risks, would not raise $400bn or $250 bn, but closer to $100bn – and that accounts for closing down around 25% of speculative activity by virtue of making it not worthwhile anymore – which I’m sure I’ve heard elsewhere :-).

    The difference between the RHT rhetoric (raises enough to meet Millenium Dev Goals etc) and Murhpy’s more candid, frank stance to me in person was that Murphy was quite clear that one of the explicit aims of his policy stance would be to dampen the riskiest speculation by taxing it out of existence, and to raise money from the next-riskiest strata.

    I’m still not saying it’s necessarily a good thing – I’m sure you’re right that such a tax would leave

    complexity, overhigh leverage, off-balance-sheet jiggerypokery, tax evasion, whatever

    untouched, but Murphy deserves to be treated separately from the rest of the RHT as far as I can see…!

    1. Hi Prateek

      I must admit I did not get the impression from his voluminous comments here:
      that he thought a 0.5% stamp duty style tax was quite beside the point: it seemed front and centre.

      As far as I can see there is very little objective proof of the (suspiciously neat) 25% figure. The even more suspicious matter, however, is that such a blunderbuss as a straight transaction tax will somehow aim accurate sniper fire at ‘the riskiest speculation’. I am often astonished at the breathtaking arrogance of those who think that with just Google and some time with a word document they can establish (a) what the riskiest speculations are and (b) how to stop them. Mad arrogance. The RHT or TT will have an entirely random interaction with ‘risky’ speculations, which change according to the season, the macroeconomic backdrop, the level of particular asset prices, and so oni.

      The stupid idea that the most frequent are the most risky, and then downwards in some sort of neat strata ought not to get out of an undergraduate essay without utter vilification, let alone a real attempt to change policy.

      I cannot think of a single way in which either Murphy’s or the Robin Hood Campaign’s proposals would have made the financial system circa 2006 any safer – and quite a lot of ways it would have made it less efficient. Sorry, I am losing my rag a bit here …. and I won’t even move onto the National Account-ignoring nature of the ‘raise enough to meet mill dev goals’ notion….

      my best wishes, giles

  2. I’m always stumped by the apparent inability of the British public to think, but sometimes I despair. One of the things that has me most baffled about this campaign is the appeal to the proposed use of the money for helping the developing world as proof that it must be a good idea. As if the use to which the money would be put has anything to do with whether this is the most sensible way to raise that money!

    Well, perhaps they think it does, although it would be strange for would-be Merry Men to be so self-righteous and pious in one breath, and then turn around and subscribe to Machiavelli’s dictum that the ends justify the means in the next. Quite bizarre.

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