“Build[ ing ] up a mass of money”: Tobin Taxes & the financial crisis

1. “Build[ing] up a mass of money”: Tobin Taxes & the financial crisis Prof. Andrew P. Morriss H. Ross & Helen Workman Professor of Law & Business University of Illinois College of Law January 2010

2. Tobin Tax (1973) “The tax on foreign exchange transactions was devised to cushion exchange rate fluctuations. The idea is very simple: at each exchange of a currency into another a small tax would be levied – let’s say, 1% of the volume of the transaction. This dissuades speculators as many investors invest their money in foreign exchange on a very short-term basis. If this money is suddenly withdrawn, countries have to drastically increase interest rates for their currency to still be attractive. But high interest is often disastrous for a national economy, as the nineties’ crises in Mexico, South East Asia and Russia have proven. My tax would return some margin of maneuver to issuing banks in small countries and would be a measure of opposition to the dictate of the financial markets.” “Whenever development financing is discussed these days, it is hard to avoid mention of the Tobin tax.” - OECD Observer, May 2002

3. The Keynes “Financial Transactions Tax” • “The introduction of a substantial Government transfer tax on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States.” • J.M. Keynes 1936

4. U.S. Unemployment

5. U.S. Employment

6. Who is working?

7. Combating Unemployment

8. Revenue

9. Spending

10. “A World-Wide Solidarity Tax” • “speculative” cross-border transactions are taxed at 0.1%-0.5%; “non-speculative” transactions are exempt. • discourages “speculation” & reduces exchange rate volatility. • raises $300-$600 billion/year to fund international organizations and national governments.

11. Tobin and the Tobin Tax • SPIEGEL: Doesn’t it please you that now, 30 years after you proposed a speculation tax on currency transactions, your idea is finally finding supporters? • Tobin: I appreciate attention to my proposal, but many of the praise comes from the wrong side. Look, I'm an economist and, like most economists, an advocate of free trade. Moreover, I support the International Monetary Fund, the World Bank and the World Trade Organization — everything that these movements are attacking. They’re misusing my name. • They are misusing my name, Speigel Online International (09/02/2001).

12. ATTAC • “One of the aspects of this tax is to slow down speculation, i.e. making money with money without passing via an exchange of commodities. It could build up a mass of money to help essentially the citizens of the South since it is there that the needs are. At the moment, there is a debate within ATTAC about whether we want a high tax to stop speculation or, on the contrary, a less high one to restrain speculation while building up this financial aid to the citizen. Personally, I prefer the second option.” • Susan George, ATTAC France, Le Soir, 24 September 2006 • “The Association for the Taxation of Financial Transactions for the Aid of Citizens”

13. Endorsements • 1996 - NZ Progressive & Green Parties endorse • 1999 – 2/3rds of Canadian House of Commons’ votes to adopt report in favor of Tobin tax • 2000 – Finnish government officially adopts position in favor • 2001 – French Parliament adopts law committing France to it when other countries adopt • 2003 – Brazilian Pres. Luiz Ignacio da Silva & Venezuelan Pres. Pres. Hugo Chavez endorse • 2004 – Belgian Parliament’s Commission on Finance and Budget endorses a variant • 2005 – former Austrian chancellor Wolfgang Schussel endorses • 2006 – UK columnist George Monbiot endorses in Heat: How to Stop the Planet from Burning • 2009 – UK PM Gordon Brown suggests support • 2009 – UK FSA Chair Lord Adair Turner endorses • 2009 – Paul Krugman advocates

14. Conclusions • What is international finance? • What is Cayman? • Who wants the money? • What are you going to do? • “a mass of money” • A place where the “mass of money” is • Charles Schumer, Barney Frank, Barak Obama