Finlay Macdonald writes in the Sunday Star-Times:
One should always be wary of seemingly simple solutions to seemingly intractable problemsIndeed.
– especially solutions endorsed by Bono.Exactly.
Yet the idea of a “Robin Hood tax” on global financial transactions, despite appearing almost too good to be true and, yes, backed by U2’s blathering messiah of world peace himself, really is hard to fault.Hmmm. Not so fast.
This is the Tobin tax, proposed by James Tobin in 1972, and is a tax on all exchanges from one currency into another. Many people think it is a great idea. But some people do fault it. Some of them are even economists. Here is Charles Goodhart, LSE Professor Emeritus of Banking and Finance:
Why radical and consumer groups go on backing the Tobin tax idea ]. . .] has always surprised me. But beyond that the Tobin tax is a bad idea, since it would greatly increase both the costs and volatility of foreign exchange dealing and throw a huge spanner into the workings of the global financial economic system.Macdonald:
. . . much of the world’s total corporate profits now derive from unproductive speculative trades and other money-go-rounds . . .Goodhart:
The proponents of the Tobin tax mistake the fact that commercial end-use of foreign exchange (fx) dealing is not more than about 10%, at most, of the total of fx transactions into a belief that the other 90% is a form of ‘socially useless’ speculative froth, which could, and should, decline without real loss. This latter viewpoint is just wrong.He then gives a very clear account, well worth reading in full, of why this is so.
And as Tim Worstall says:
Transaction taxes are almost always paid, in the end, by consumers – not, as their advocates suppose, by the professionals in the markets.
Robin Hood is supposed to have made a career out of liberating taxes unjustly levied by the Sheriff of Nottingham and returning them to the poor they had been extorted from. To invoke his memory for a plan to tax the public more heavily in order to give politicians more to spray around the world is a little odd.