Since we in the US are thinking of taxes today….
A tax on currency transactions was proposed in 1972 by economist James Tobin (hence, it is often referred to as a Tobin tax). Wait, don’t roll your eyes at a post on tax and finance! This gets better. Tobin argued that imposing this tax would slow down the speed of financial flows, discourage speculators, and cushion small bankers, which would help them adjust. After multiple financial crises, the idea has been revived–along with a popular campaign featuring a much more catchy label and a YouTube video with Bill Nighy that you really must watch! But, what is the likelihood that a global tax on financial transactions is adopted? Zilch!

The campaigners basically argue that we can kill two birds with one stone: prevent financial crises, and fund all sorts of programs addressing poverty, climate change, and health and education. As their website proclaims, “Turning a crisis for the banks into an opportunity for the world!”

In theory, it sounds perfectly reasonable to me. But politically? The campaigners, based in the UK, argue that the British government should pass such a tax on financial transactions. But of course, that would simply shift most financial activity out of Britain and into other financial centers. The same would be true of the entire EU passed such a tax. The ideal would be to impose a global tax on financial transactions, of course. Who would administer this tax? Who would distribute the funds collected? The UN? Well, I think we all know that the likelihood of sovereign states handing over an independent source of income to the UN, or any other international organization, is anathema to most policymakers!

But, in a related development– ok, it’s only somewhat related, it’s still on finance– the Triple Crisis blog has been talking about how the IMF is shifting its position on capital controls. In other words, the Washington consensus is truly dead. The size and scope of financial crises had to get this big before the IMF finally considered that at times it is reasonable policy to impose capital controls to slow down or prevent speculative finance.