Economists ought to know better when they propose selective taxes; King, Kaye and Sandler repeatedly demonstrated repeatedly that selective taxes simply fiddle around with market valuations until a new equillibrium is reached based around the net numbers, or if the barrier is large enough, compels relocation as a rational economic decision.
The Square Mile has had a serious dose of Tobin this week, only, 30 years on the idea is it should be globally imposed and not a unilateral tax imposed by the UK.
Lord Turner of the FSA let this sabre-toothed tiger out of the bag with the Prospect magazine article in a traditionally quiet August; now he's robustly defending the suggestion but then, in this instance, Lord Turner ought to be heard.
There is no getting away from the serious reality the global economy faced with the near-collapse of the banking system worldwide - the ramifications and fall-out from that are going to be felt for a long time to come.
Lord Turner is right when he argues that "the whole efficient market theory, Washington consensus, free market deregulation system" had become a "religion" which has given birth to a swollen banking lobby replete with power and huge size.
Shades of Mervyn King and his comments to the Treasury Select Committee that if a bank is too large to fail, then it's too large.
Reading again what Turner has stated, it is not yet time to throw free market principles into history's sin bin but, when regulators such as the FSA, and virtually every other on the international scene with more than one assistant and photocopier, have subscribed so thoroughly to the philosophy what alternative is being thrown on the table? Marxist market control perhaps? Joking aside, Turner is defending his statements, but not coming up with any alternatives for this philosophical paradigm shift he seems to really want debated, confirming for some, that regulators only have dentures and not real teeth.
Still others think he's spoken out of turn and his job is not to stir debate but to regulate.
I don't agree with either view; Lord Turner should be commended for the courage to open up this debate.
Getting back to the idea of the Tobin Tax; this is envisaged today as a global surcharge to cap the excesses of the global financial system.
Why this is being considered now stems directly from what Turner states is the, "very fundamental shock to the efficient market hypothesis which has been in the DNA of FSA [and regulators generally]".
Prime Minister Gordon Brown, no amateur economic slouch himself, was quick to slap Turner down last week.
Brown denied there were any plans for a Tobin Tax but this smacks of being a political knee-jerk in the run up to an election which is less than a year at most away.
One country has thrown it's hat into the ring; President Sarkozy of France agrees with the idea of the Tobin Tax as a global levy and no doubt this debate is going to heat up in advance of the G20 Summit in Pittsburgh at the end of the month.
Before then, the finance ministers will be meeting in London this Friday before their bosses do in Pittsburgh - let's see what gets thrown around next week and see where the dividing lines start appearing.
The serious issues will be:
- how much and who will set the rates?
- who will collect them and keep the taxes raised which are going to be very substantial?
- who decides what is "excessive"?
- is this a way to alleviate the serious mistrust which appears to becoming plainer between regulators and a cap on nationalism (the Fed still blames the FSA for not allowing Barclays to proceed with the Lehman Brothers takeover before it collapsed)?
- closely related, is this the thin wedge which will open the door to a global super regulator?
- will this fuel the development of tax havens?