Your Data Is Dated

I’m a little frustrated, because supporters of stock or currency transaction taxes – actual card-carrying Economists, not just moonlighting engineers like myself – have written many compelling books and articles on the contributions of short-term investors to market volatility and the ability of transaction taxes on trades to forcibly lengthen investor horizons.  However, opponents of transaction taxes tend to greet the idea with silence or a drive-by dismissal, similar to Tabarrok’s:

“Circuit breakers and brokerage fees (transaction taxes), for example, don’t do much to stop bubbles (see King, Smith, Williams, and Van Boening 1993, not online.)”

Citing King, 93 as your definitive evidence of the inefficacy of transaction taxes is incredibly lazy and shows you have not engaged with the proposal at all.  It’s an important paper, but it’s about the results of modeling stock markets a subject which  inherently caused articles to become dated.  For example, Vernon Smith, one of the authors of that paper, and your fellow Colonial, wrote a great summary of the current state of market modeling in 2003, Stock Market Bubbles in the Laboratory (pdf) that says:

“…brokerage fees designed to raise transactions cost significantly reduced the amplitude of bubbles”

I understand that’s not the same thing as ‘stopping’ bubbles (something that’s probably impossible in any case), but I think we’d all settle for some reduced amplitude.  Certainly this is something that deserves more than a sentence of our time, no?

2 comments to Your Data Is Dated

  • the wifey

    nice to see you are still stoked on transaction taxes. i fondly remember a paper written by a younger version of yourself on good old whats-his-name’s transaction tax on money changing.

  • James Tobin. Most of my college part 1 work was pretty crappy, but I remain proud of that paper. The good ol’ days…

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