Calling Into Question Brad DeLong’s Respect for Wolfgang Schäuble
I provided the following comments on Brad DeLong’s recent post, My Respect for Wolfgang Schauble Rises Substantially. I welcome any insight into my inquiries. In fact, I would wager that DeLong’s latest post is an attempt to partly answer me.
I would really like Brad or others who agree with him to explain where this respect or support comes from.
What is the evidence for the use of this tax, and that the transfer of wealth and changed trading incentives will bring benefits? Will these benefits outweigh the negative externalities of ‘excessive speculative trading’? What is the right level of the tax, and how certain are economists and politicians that their choices are optimal? What are unintended consequences? How easy is it for trading to move offshore or into the shadow banking system? Will legitimate, non-speculative, less mobile firms then bear the brunt?
Sweden had a long experience with a financial transaction tax, that resulted in little revenues — people just stopped trading. Britian has a equities stamp duty, but shows no less volatility than other markets.
Would such a tax have prevented any of the major problems in the past crisis, or Enron, Worldcom, the dot-com bubble? What exactly is the problem being solved?
More on the Tobin tax here:
Tobin intended this tax as a post-Bretton Woods measure to decrease volatility and hot money inflows when interest rates needed to be raised. Its applicability to other markets (stocks, bonds, commodity futures, CDS, options, swaps, etc) is specious and the evidence that markets are too volatile is flimsy. Message to economists and politicians: the markets are not the cause of 99% of the problems — they are just a measuring tool, like a barometer or thermometer, telling whether the outlook is bright or stormy. Don’t shoot the messenger — there are real, urgent problems to deal with, rather than wasting time banning short sales, restricting CDS, or mis-applying theories of Nobel Laureates, of which the euro itself is the central example.
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