Don't believe bankers' warnings!17 Sep 2018 11:54
https://www.theguardian.com/commentisfree/2011/sep/28/financial-transactions-tax-european-commission
In Merchants of Doubt, the scientific historian Naomi Oreskes describes how a group of high-level scientists, with deep connections in politics and the tobacco industry, ran effective campaigns to mislead the public and deny well-established scientific knowledge on the link between tobacco and cancer. The same tactics are being used by London bankers today with regards to the proposal for a financial transaction tax (FTT), or Robin Hood tax. It is not the activity of bashing bankers that draws me to this debate, but the deliberate obfuscation by the industry. Doubt is their product, as a tobacco executive once said.
The UK government is opposed to the idea, and yet as finance ministers meet in Brussels to iron out the details of the 0.1%-0.01% tax on transactions that could raise as much as £48bn a year (£8.4bn in the case of the UK), nine of Europe's economies are in support.
Listening to some London bankers, you would think that a 0.1% tax would usher in a nuclear winter. Bankers are effectively saying that, while they justify their high pay with claims of superior creativity, credibility and connectivity, all of that cannot compete with a tax on each transaction of just one tenth of one per cent. If, despite the industry receiving billions in implicit public subsidies and guarantees, the largest sector in the UK economy hangs by such a thin thread, its value-added must be seriously questioned.
After hearing some of the bankers' responses, you would be forgiven for thinking that transaction taxes are a peculiar poison, but the economic and market impact of such taxes is no different than any other transaction cost (such as trading commissions; dealer spreads; fees for clearing, settlement, using exchanges; administration costs and the price impact of trading). This poses two problems to the nuclear-winter argument. First, just 10 years ago, these costs were collectively greater than they are today in the equity markets by the amount of the proposed tax, yet the sky did not fall on our heads. Indeed, and not unrelated, markets were a little more robust then than they are now.
Second, the US is the largest and most efficient market in the world, yet a few years ago Professor Kenneth French documented that fees and charges by banks and funds on trading activities amounted to $100bn in the US, or 0.67% of the value of portfolios. By the nuclear-winter logic, this would hit investment, jobs, and the wider economy far harder than a 0.1% transaction tax.
There are benefits to the services provided by dealers and fund managers for which they charge a fee, but if we are including benefits, then we must also consider the potential benefits of the use of FTT revenues. In the UK, it would likely raise £8.4bn that could reduce corporation tax by five percentage points to 19%, which would be the lowest in the world's rich countries bar Irel
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