Thursday, November 17, 2011

Vulture culture

The City of London isn't a national interest – it's a class interest

In their resistance even to a Tobin tax, captive British politicians ignore the havoc unleashed by overweening finance.

Posted by dill @ 07:19 AM (1158 views)
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10 thoughts on “Vulture culture

  • The standard rule of taxation is that you tax the thing which is bad. Congestion in London is bad for the economy, so we tax it. CO2 has negative externalities, so we tax it. Cigarettes and alcohol have negative externalities, so we tax it. Is there a negative externality from all financial transactions? No.

    Only a small proportion of the City’s financial activities are dangerous, and those are the ones which should be taxed or regulated. End of.

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  • Drewster – I would love to agree with you. But if the standard rule of taxation is that you tax the thing which is bad, VAT would suggest we don’t want people to buy anything, income tax would suggest we don’t want people to work and Corporation tax would suggest we don’t want companies to make money. I agree that we SHOULD tax things which are bad, but unfortunately we don’t. Cue Mark Wadsworth…

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  • timmy,
    Yes, enter the Wadsworth.

    The risk with the Financial Transactions Tax is that all the work goes abroad to places outside the EU, whether New York, Switzerland, Dubai, or Singapore. With VAT and income tax although they disincentivise work, there’s less risk that people go abroad, largely because neighbouring countries charge similar amounts anyway. Financial transactions are fairly unique in that they can move abroad very easily indeed.

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  • Taxing bads / goods is a bit black and white. For example, it’s good that people work, but it’s bad that people get unearned income. this is one justification for taxing income – it redistributes “rent”, remuneration in excess of what is required to get the job done. At some level of income extra income reduces effort, what economists call the income effect of a price change. So one can’t even assume that income tax reduces effort.
    As for the Tobin tax, financial speculation causes a lot of damage because of the instability it causes. There is a massive volume of speculative transactions, so it would be great to have the Tobin tax. Speculative gain is a pure transfer from those who actually produce things of value. I can’t think of a better way of curbing it.
    N

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  • nickb,

    My manager at work doesn’t appear to produce anything of value. He just sends lots of emails, and swans around from meeting to meeting, occasionally dipping his head round the corner to offer some generic words of encouragement. Yet somehow he gets paid more than me. Why is this?

    I believe that the most common types of speculation do produce things of value. (Purely gambling in a casino does not produce value, but that’s not the kind of speculation that most banks undertake.) If a fund manager decides to invest millions in a business, he isn’t producing the widgets himself, but he is creating value by allocating those funds.

    The people who work in financial markets are super-managers. They ultimately control the success or failure of businesses. So we’d want some of the country’s best minds working in finance, and to attract them we’d have to pay a lot. Funnily enough, that’s more-or-less the situation that we have now.

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  • Drewster – if fund managers ONLY invested millions in businesses we’d be turning the clock back 30 years and in my opinion that would (ironically) be a step forward. Unfortunately most financial institutions are only interested in quick wins and more often than not that means shorting companies they think will suffer and then ensuring they do, rather than investing in businesses they think will do well and then helping them to do that.

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  • “It’s a class interest”

    Absolute cr*p.

    How many ordinary people, not City types or the elite, are saving into either employer or private pensions which are dependent on the City?

    A majority of HPC’ers I bet.

    Let me make it clear, I am not supporting the parasites in the finance industry wherever they are based but this article is written by an unreconstructed class warrior who belongs in the 1970’s.

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  • Drewster
    What TT says at 6. How is a quant producing new CDS instruments a “super manager”?
    N

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  • Mr G
    Those pension funds might be better served by a system which directed credit towards productive purposes (real goods and services) rather than trades in existing assets.
    N

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  • @Nickb

    I’ve got to agree with you on that!

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