As Richard argues in typically forthright manner, it is not clear that liquidity to the n-th degree is always a good thing – something that Krugman has pointed out, and Lord Turner – the inspiration for Richard’s post – as well. However, this does not prove that you can attack liquidity to any amount and have no consequences at all. I am utterly convinced that the 50bps stamp duty in the UK (a) falls on pensioners and (b) increases cost of capital for companies, for example. Abolishing it would improve welfare, and not introduce dangerous destabilizing speculation.
There is an important balance to strike. How much is ‘any amount’? Well, a billion or so out of global FX might not hurt much. $100’s of billions out of every area of finance – as the Robin Hood People want – would surely be devastating. Utterly insolvent banks – you would have thought that the last 3 years has taught us something about that having consequences.
So the point should be to move the debate over to where it is conducted along grown-up evidence based lines, as I think Lord Turner is capable of. Not everyone involved in this debate is so capable. So instead of:
“How much shall we take from Evil People to do Good Things, given that there are No Bad Consequences and that the people who disagree with me are clearly evil and corrupt or stupid?”
we move to:
“Transaction taxes can raise money and lower liquidity. At what level could they be set so that the liquidity lost is not harmful or if harmful is made up for by the money raised?”
Much more boring. Not sure it will attract the quantity of luvvies that the Robin Hood Tax campaign has… But, as a brilliant young friend of mine has shown in a Hume quote (private email):
“There is not a more effectual method of betraying a cause, than to lay the stress of the argument on the wrong place, and by disputing an untenable post, enure the adversaries to success and victory”
Incidentally it would also help if some of the people in the debate recognised that Corporations are not People. The tax on Corporates then fall on employees, shareholders, and so on. Read Tim’s post on this.
I am off for personal reasons today, so argue amongst yourselves ….