[Lord Turner, head of the Financial Services Authority,] said he was prepared to consider a so-called 'Tobin tax' - a levy on stock transactions and currency trades.
The Tobin tax is a terrible idea that even Prof. Tobin somewhat downplayed later.
In a searing attack on the industry, he agreed the City had grown too big and was largely engaged in 'socially useless' activities that brought no widespread benefit.
Much of the problem with the financial sector is that its benefit is, in fact, too widespread to easily see. In economic terms, it facilitates the transition of capital and creative destruction that in turn brings the economic benefits in the long-term faster. It makes the long run arrive faster, if that makes sense. That's hard to measure or see. And as a self-described technocrat, Lord Turner, is in all likelihood also a materialist. Therefore, the inability to measure something means it might as well not exist.
'If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit,' he says.
I'd like a further explanation of how he determined pay was excessive and the financial sector swollen. Much of this, I believe, relies on his questionable conclusion that the financial sector is "socially useless."
He cautions against those who say restoring London's position as a world centre for finance is the overriding priority.
This would be the scariest part of the entire thing, if I were a Brit. The benefits of hosting an international financial center as important as London is cannot be overstated. Those evil, overpaid bankers donate money to the arts and universities. Patronize restaurants, stores and hotels.
Now, there is a question of whether the UK's economy is too dependent upon The City, but the solution is not to constrict the size of The City, thereby destroying wealth and economic growth. It is to encourage the growth other sectors.
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2 comments:
Volcker - smart guy - suggested that we are spending way more than historic amounts on our financial sector and that it wasn't sustainable. This was in 2005? And, sure enough, it wasn't. We need a financial sector. We need a lot of smart guys working to allocate investment the best they can think of. We don't need second, third, and fourth-level derivatives that people buy without understanding. Will a Tobin tax move the financial sector towards putting more of its effort into the stuff which helps us? It seems plausible, I'd like to hear more about it. dave.s.
Dave.s:
I'd much prefer requiring the standardization of derivatives and creating an exchange than some tax on all financial transactions.
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