I really wished Jeff Frankel blogged more since economists have established an (undeserved) reputation in the media as John Hodgman-style general experts, but the prominent ones who aren’t named Krugman skew decidedly right and reinforce the laissez faire conventional wisdom. That said, Frankel came through today with a post on the head of Britain’s financial regulatory agency coming out for transaction taxes in order to shrink the trading volume and raise funds.
Transaction taxes are of course a pet policy of mine (a better economy via better systems design!), and they have a lot of potential to raise government funds while creating positive secondary effects, in the same vein as other proposed ‘sin taxes’ such as on soda or pollution. While it may be hard to quantify the behavioural impacts of these taxes, what matters from a policy-making perspective is that, regardless of size, the impacts are positive.
I have yet to see anyone argue that transaction taxes could shrink the time-horizon of investors or increase market volatility. The debate, when it occurs (which is rare, since opponents do not seem willing to engage the issue), is over the significance of the impacts. But of course the impacts aren’t the primary reason to enact the policy; you pass it to raise money for something useful. Something like health care or supertrains or robot gladiators. Any behavioral impacts are gravy.
I really wish that public anger over the bailouts and bonuses to the financial industry could be harnessed into passing a transaction tax — it would certainly be a more productive use of the anger than the abortive attempt to pass special bonus taxes.
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