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Wednesday, 2 November 2011

Intelligence and Common Sense

Quarter of a century as a university academic and two decades in the City have taught me that some of the people of highest academic attainment, who can be hugely articulate, are either obtuse on some issues, or unconsciously filter unwelcome realities of everyday life from their observation, or uncritically accept political opinions [as was the case with many of the scholarly communist die-hards of the nineteen-sixties and seventies]. Some remarkably able individuals combine all these characteristics. I have no idea whether or not Rowan Williams falls into one or more of these categories, but his behaviour and utterances indicate that he may well fall into the range.

His outpouring in the Financial Times today is an example. He writes as the Archbishop of Canterbury, aware that the heathen press [largely by quoting 'liberal' Christians] has gleefully dissected the conspicuous failure of the Chapter of Saint Paul's Cathedral to cope with the aftermath of the chaos by which the police allowed rent-a-crowd to come to rest next to their church. Appropriately he expresses sympathy with a carefully constructed argument for reform of the global economy that was recently promulgated by the Vatican. Much of this is simply restatement of classical church doctrine: some of which has been seen as impractical in an essentially secular business world. Rowan Williams chooses to add an emphatic endorsement to the Sarkozi-led campaign to introduce a global 'Robin Hood Tax' on all banking transactions.

The concept of a tax on transactions was adumbrated forty years ago by James Tobin, who proposed that there should be a levy on foreign exchange transactions which were growing in number and volume on a purely speculative basis, unrelated to the requirements for foreign currencies in 'real' international trade. The objective was to check the growth of the economically pointless money-making scam, which brought good earnings to the clever dealers who were creating a new market; and healthy profits to the firms that bankrolled their dealing. The current 'Robin Hood' proposal is not closely related to Tobin's idea. The context is the aftermath of a near-collapse in what is called 'the banking system', which is still being played-out with millions of jobs lost and declining living standards being imposed on the people of dozens of countries that had broken the Iron Law of Wages. The general public have become increasingly well aware that at least some people who are rather confusingly described [and stigmatised] as 'bankers' are still receiving remuneration that is a great multiple or nurses' or teachers' wages for performing 'socially useless' functions. The Sarkozi idea is to 'punish' the 'banks' with a tax on all transactions, the money to go to socially desirable causes in the 'real economy' [or maybe, actually, to help governments to service the debts that they have incurred in rescuing the banks].

Such a tax would merely be a nuisance. If it is imposed on transactions like paying wages, putting money into personal accounts and taking it out, issuing mortgages and other everyday 'retail' transactions, it will simply be levied on the [relatively] poor;  making them marginally worse off. If it is imposed on 'wholesale' transactions by some countries and not by others, it will simply remove trade and national income from the taxing countries to those that do not charge it. And if it is levied at the rate that is proposed [around 0.3% of the deal] it will not be at all painful for the financiers. It is a silly idea, based on misunderstanding reality.

There is a ground for a much larger tax - more than 10% [maybe much more] - on all those transactions that are unquestionably the issue of betting slips: derivatives, most swaps, and all futures that do not explicitly assure funding for demonstrable transactions in the 'real economy'. All this 'casino banking' should be recognised for what it is: gambling. It should be regulated in each country by the Gambling Commission - or the equivalent - and it should simply be banned in countries where gambling of other kinds is prohibited. It does not provide any 'financial service' to the economy that produces human subsistence. Some derivatives are used to 'hedge' some socially-useful transactions by pension funds and other essential agencies: alternative 'products' can be used for these purposes, and these should be used after exiting positions can be unwound during a transitional period. If the gambling continues, and with it the risk of instability in the finance sector is potentially increased, the citizens of the countries where it is permitted will at least be able to see the extent of the risk to which they are exposed because the tax returns will show how much is being transacted in this speculation. If there is some socially-useful aspect to this whole business, as some defenders of the system have claimed, it will also become clear and the regulatory system could be adjusted accordingly.

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