What do we think about the Tobin tax ('Robin Hood tax') then?

[PollyTroll]

Explanation here

Bill Nighy/Richard Curtis video here

Robin Hood stole from the rich(ie broke the law) to give to the poor. I thought that's what tax was.

"In any case Xenia's views on economics would appear to put her in the extreme libertarian camp. When they start raising the banks' capital requirements she'll escape to a Colorado mountain with 20 years' supply of tinned food and a gun wink"... I have an island as I probably said elsewhere. Lots of fish near by.

I mentioned cycles but no one has disagreed with me. Markets always work in cycles. You can buy books on cycles and how to work out how markets will work on that basis. I haven't invented cycles. They are part of life. My analogy to female cycles might appear weird but lots of things are cyclical. It doesn't mean they're wrong. There might even be a moral good in every generation reminding people of what really matters after they lose a lot of money - health, love etc.

Missing, you're right that all the major parties have ring-fenced development funding for the next few years. However, it's still proportionally a tiny piece of government spending - around 0.4% of GNP at the moment I think - and many people (including me) think it ought to be raised considerably.

In the UK, this tax wouldn't be in addition to the current stamp duty on shares - it would replace it (or be an element of it, as the current stamp duty is 0.5% and the proposed FTT is 0.05%), and so shouldn't have any bearing on the volume of trading activity.

The wider argument about increasing public spending vs paying down the deficit basically comes down to your political POV, I'd have thought. Lots of left-wing economists believe that paying down the deficit is the lesser priority.

OK, let's talk cycles ...

Yes, there are cycles. We all agree that there are cycles, you have not invented them. Cycles apply in economics just as in most other areas of life. Cycles, in themselves, are a fact of life and not "right" or "wrong". Happy now?

However, where your argument (if I can call it that) parts company with reality is in your ignorance of volatility and what that means for economic life. A highly volatile economic system is one where the cycle features unpredictable and rapid transitions between extreme highs and lows. In other words "boom and bust" economics, where the upside is allowed to spiral out of control creating an even more devastating fall when the downside finally comes.

I think you would be extremely hard-pushed to find any economist, even the most fundamentalist of free-marketeers, who thinks that boom and bust is a good idea just because it's a "cycle" FGS. The current British recession is not a manifestation of a normal business cycle - we've seen GDP shrink by some 6%, and the last time we had this level of debt was 1945! This means financial hardship and a lower standard of living for everyone, for the foreseeable future.

Boom and bust is not, as you suggest, inevitable. Volatility is an unwelcome feature of the global economy that has been growing in step with financial deregulation. There is a strong and growing consensus that re-regulation is now needed to reduce volatility back to its post-war levels. (In your terms, that would mean going back to a kinder, gentler sort of cycle

Unless you, your friends and family all live in some sort of trust fund bubble, I can't see how you can brush the current global recession aside because it is "part of a cycle"? That's like saying murder is fine, because everyone will die anyway some day!

Xenia, yes of course you are right that markets run in cycles. I'm confused as to what conclusion are you drawing from this though. That governments shouldn't interfere when those cycles reach a point of catastrophe? Do you think that the banks should have been allowed to fail?

Zephirine, you have made the same point in four beautifully phrased sentences that I took several rambling paragraphs to make

Hi PollyTroll,

You're right in a sense - if this additional levy was rolled into stamp duty on share transactions, it might not have such an effect.

This tax, however, has a much wider remit than shares, as well as a much wider geographical remit than the UK. It seems fairly clear to me that adding additional financial penalties on transactions will negatively impact the number of those transactions, particularly where profit margins are already low..

As to paying down the deficit vs. increasing spending, I don't think it really does depend on one's political point of view. All parties are agreed that spending needs to be cut - the only discussion seems to be around when it should happen...

The fact that Lab and Con both believe that spending should be cut doesn't mean it's a complete consensus, given that they're both crowded onto the centre-right ground - David Blanchflower, for one (former member of the MPC) thinks that cuts should be put off, and even that the deficit could be partly managed by allowing inflation to rise a couple of points. He's not alone either. (I'm completely unequipped to get into a debate about the finer points of this - I'm just saying that there are several points of view.)

I'm interested in the point about the impact on trading. How long has the UK stamp duty been in place? Did it have a marked impact on the volume of share trading when it was introduced? It's my impression that the market has been able to rub along without too much trouble, and the stamp duty is 10x the proposed FTT. Why should be the effect be any different in other countries?

As to the point about the FTT being introduced to a wider range of transactions than the stamp duty - I like Duncan Green's point that you could introduce an FTT on a discrete basket of trades at first, monitor the effects and then go from there.

Fortuitously, a Nobel Prize-winning economist has made my point for me.

Ah good - was going to link to another Paul Krugman article earlier, but I think he's mostly spoken about this in relation to the US until now. Joseph Stiglitz (another Nobel prizewinning economist) talks about this - in particular the danger of "deficit fetishism" - too.

Yes there is a classic Keynesian worry that by cutting too much, too fast, we endanger the recovery (this was the key lesson learnt from the 1927 crash and its ensuing depression).

But I think the point Krugman makes about credibility is important too, isn't it? If Britain isn't seen to be talking tough on the deficit, then foreign investors worry about the risk of default and sell up, making it more expensive for us to service the national debt. (Hope I've got that right). Perhaps the current lab/con consensus that we must pay down the debt is simply lip service to reassure everyone that we are not going to "do a Greece" ...

there has never been a period of history without some kind of economic boom-bust (in the medieval period, busts sed ot be caused by drought, long winters and wars...) - i think it is unrealistic to believe there will be a time without boom-bust any tim in the forseeable.

also, i presume this tax will be on what is judged to be non-material transations (stock & currency rather than assets & property) though in actual fact pretty much anything can be treated as a non-material transaction and traded as such. how will it be decided what qualifies? anything that escapes the tax will instantly see trade interest increase - the market where you can make 8% profit is more attractive than that where it is likely 7%.....so you would see volatility move to new quarters, rather than be abolished..

I re-iterate - even if both parties were fully in favour, it wouldn't matter - this is never going to fly with the USA, so is a non-starter on that single count.

The Japanese finance minister is in. That's positive noises from the UK, France, Germany and Japan - four of the seven largest economies. (Admittedly some of the noise is around a global bank tax rather than a transaction tax - but still, tipping point, anyone?)

Obviously I agree with Edgar - we have booms and busts. On the comment above as to whether I think volatility and very big booms and busts are good - I suppose my point is that just like with life the cycles are there and there is little we can do to stop them so we might as well go with the flow. Market corrections like these can be good for people on an individual and emotinoal level too - remind them that love, family, health matters more than money.

I accept that cycles cause hardship. No one wants suddenly to lose jobs or learn how to live on 4 days a week income not 5 but the fact the boom and bust happened doesn't mean something has necessarily gone wrong.

I was asked if I thought we were right to intervene to support the banks. Eg should we have let Northern Rock fail. Is it a great thing now that the banks know Government think they are too big to fail and tax payers will bail them out and thus they now know they can take even more risks than before (like student children who assume parents will always bail them out). Sometimes you need to know there is no parachute. I don't know if we should have intervened or not. My natural inclination is to let markets decide and thus not to intervene.

Everyone agrees the deficit has to be cut, in all parties.

We had a pretty bad crash in the 1920s so I'm not so sure we previously used to be free of them but perhaps there were fewer. I don't know. It took decades to recover from that one. My grandfather's sister's business collapsed. She never worked again. His 3 brothers were sent to Canada and USA and almost starved as they walked looking for work.

Polly, that does sound promising.

Xenia I think we are all agreed that we have booms and busts. I applaud you for your positive attitude in believing that "corrections" are good for people on a personal emotional level. Do you think your grandfather's sister and three brothers would have agreed?

I certainly don't believe that what people think is good for them is. People are often wrong. I'm not going to do a Nicholas Winterton... (I've been chuckling over his dreadful comments all day) but his one point that might well be right is that the populace can often be very wrong.

I certainly adopt the approach with the children that if things go wrong - great - that is what makes us what we are. It's how we deal with the things that go wrong in life that matters, not achieving some kind of perfect materialistic life.

Great attitude in terms of parenting - ethically unacceptable as a guiding philosophy for those who govern our financial system.

Edgar - I think it's a little naive to compare today's interconnected global economy to the medieval period. Boom and bust today is contagious as wildfire, it's impossible to insulate your country or your market from its effects, therefore unethical for policymakers not to try to control things.

Also, in the relatively recent past, people only traded in goods and services they understood. One major reason behind the current recession is uncontrolled trading in wildly complex derivatives which no-one understood, including the traders themselves, resulting in a spectacular failure of risk assessment as the underlying maths turned out to be wrong!

Luckily, as Polly says, there are signs of sanity emerging ...

Hey, don't agree. What about the tulip bubble and burst? That was classic and not very recent. People have always been riven with greed which is why we survived over the neanderthals and booms and busts will continue to happen. The different in the UK in 2010 than in my grandfather's day is that most children have shoes and few are hungry. In fact many are obese so it is nothing ilke as bad as it was (I'm an absolute not relative poverty person). The fact some middle class people have had to learn how to live on £15k not £40k is not going to kill them.

The middle classes are not the ones that are going to suffer the worst effects of this boom/bust. The effects are going to weigh most heavily on everyone who relies on public services in the coming years.

But there is massive fat in there and huge wastage. It all needs cutting back. Virtually every job created in the NE and Scotland in the last 10 years has been in the public sector and plenty of them are non jobs like in an old Soviet state. It will be all to the good to cull them. I think all quangos at the moment and there are thousands are currently having to justify their existence, what fun. And ecnomically we will be so much better without them. Sometimes the pain is worth bearing for the result long term.

Virtually every job created in central London in the last 10 years has been in the financial services sector and plenty of them are non-jobs, involving speculating with other peoples' money at the taxpayer's ultimate expense. It will be all to the good to cull them

They are the jobs which have helped keep the UK at the centre of the world and ensured we can afford to pay public sector people doing non jobs.

FT column today against Tobin tax - www.ft.com/cms/s/2/559918f4-1b6c-11df-838f-00144feab49a.html

An excellent article by Tim Harford, and I agree with him on all 4 of the measures he suggests.

"Banks have let us down, but the answer is to reform the banks, not tax financial transactions. ... I?d modestly suggest a combination of stricter capital requirements, closer supervision, better bankruptcy procedures for banks and charges for the taxpayer?s underwriting of banks? balance sheets."

Yes. Note that Harford is advocating greatly increased regulation (as indeed is everyone who does not work in the financial services sector). Note that he does not say that crashes are fine, nor does he say that we should "let the market decide". He is advocating 4 measures which will really hurt the banks, that will make them squeal loudly to prevent such regulation being put into place.

Sadly it's not really an article that supports your case, Xenia.

Good point. Well we'll have to see what happens, probably not much.

I think, in principle, it's a great idea. The amount of money estimated to eradicate child poverty in the UK is £4bn, and if the sums are correct and the money made from the bank transactions actually does reach the intended beneficiaries, then we can end child poverty in this country.

I don't really have a brilliant grasp of economics, but I am wondering how there is so much split opinion about the Robin Hood Tax. Some economists say it is workable, others say it's not.

Like many posters here, I'm concerned that the banks, who for so long have made astronomical profits, won't be keen to take this on for fear of losing out on their bonuses. One of the risks in UK banks taking on the Robin Hood Tax is that they could decide to up sticks and trade in countries that don't enforce the tax, thus making the UK less of a financial force to be reckoned with, which in turn could lead to overseas industries being reluctant to invest in the UK. For it to work, as far as I can see, ALL major banks worldwide would have to agree to this. If the climate conference in Copenhagen last year is anything to go by, getting everyone to agree to an action that benefits the world and everyone on it, getting world banks on board with the Robin Hood Tax is a big, big ask.

I'd love to live in a world where there was a fairer distribution of wealth. But, sadly, money IS power and the banks are VERY powerful.