November 29, 2011
Every so often, but not very often, the tectonic plates in society visibly move. In the last century it was the impact of the Great Recession closely followed by a second massive war in a century that pushed both the victorious and the losers in the direction of a welfare state, albeit the Europeans, Canadians and Japanese moved at a much faster rate than the Americans.
If Chancellor Angela Merkel of Germany is right and the present financial crisis is the worst upheaval since then, perhaps we are on the cusp of a major change in the governance of not just Europe, Canada and Japan but of the semi-isolationist US as well. The occupied streets and squares of some major cities suggest it. Never before in my memory have protestors gained such support from non-demonstrators. The liberals and social democrats have supported them, but so have the centrists and even some on the right.
There is a profound malaise and unease with the present organisation and dispensations of the economy which weren’t there before this crisis, even though the evidence of a maldistribution of income has been building up for years. Like all major changes in society it needed a spark to light the prairie fire. I would say the collapse of Lehman Brothers in New York and the bursting debt crisis in Greece were the Rosa Parks of contemporary life. A mass of voters feels that we are no longer going to sit crammed for space at the back of the bus when the roomy front is filled with financiers earning a hundred or more times more than us for work that appears to have no value added compared with a road-digger, teacher or doctor, and who still get paid very fat sums even when they fail.
The politicians are gradually beginning to understand this and even those in power like President Barack Obama have given the demonstrators a hand of support. At the more complex level Merkel has understood the stakes by deciding to push for a tighter fiscal union within the euro-zone which could well provide the political strength to keep the bankers, financiers and would-be debtors in check.
Coupled with that has been the push by President Nicolas Sarkozy for what until now has been a cause of the socialists in France, the Tobin tax, although to be correct one should describe it as a Belgian-French proposal since James Tobin was Belgian.
Tobin, as I remember him in 1973 when he was a professor of economics at Yale, loved to sit in front of a roaring fire in his friend’s castle in Belgium, but he never built castles in the air. The famed economist was too shrewd for that, as I found when interviewing him. The atmosphere in deep mid winter in the depths of the Belgian countryside was snug but his words were as sharp as the tips of the icicles hanging from the castle’s snow-filled guttering.
He explained to me his idea of a small tax on capital movements that would discourage speculative cross-border financial flows of the sort that can seriously damage wobbly economies. He thought a small levy of 0.5% of the value of each foreign exchange transaction should do the trick. “That seems negligible”, he said, “but if paid once a week it cuts 2.5 percentage points off the annual rate of return and much more off the yield of day trading. The buffer of 2.5% provides a central bank with some room to manoeuvre its own short-term interest rate.” In this way speculative trades would be diminished and a central bank would have more leeway in adjusting its monetary policy to its local economy.
The revenues from this tax would be considerable and Tobin thought they could be used for aid by the World Bank. They could also be used to beef up the resources of the International Monetary Fund badly needed at the moment to help out in the euro-zone crisis. Some critics, looking at only this part of the Tobin tax, have said that a 10% tax on armaments would be a better way to raise aid funds. But the two are not exclusive and the main purpose of the Tobin tax, as he kept stressing, is not aid. That is just a useful bi-product.
All this would help roll back the power of bankers and financiers who have been the main ones responsible for bringing the present financial and unemployment crises down on our heads.
By cutting down their influence (and other tools need to be brought into play too) it would lessen the persuasive powers of their lobbying on taxation policy which has been a major influence on the growing maldistribution of incomes. This might lead to the beginnings of a new economic dispensation. Rosa Parks would understand.
