Robin Hood Tax: How Reformers Sabotage Themselves with Terrible Branding

If I were a still a Wall Street type, I don’t think I could have done a better job of sabotaging an effort to impose transaction taxes on big financial firms than the left has managed to do itself with lousy branding.

By way of background, transaction taxes are a perfectly legitimate concept, in fact, they were first proposed by a Serious Economist called James Tobin as a way to dampen hot-money currency speculation and are thus often called Tobin taxes. This is Tobin’s own explanation of the logic of this type of levy:

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, 0.5% 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 If this money is suddenly withdrawn, countries have to drastically increase interest rates for their currency to still be attractive.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, Southeast Asia and Russia have proven. My tax would return some margin of manoeuvre to issuing banks in small countries and would be a measure of opposition to the dictate of the financial markets.

And Tobin is hardly the first to recognize that while some speculation is necessary and desirable, too much is a bad thing. As Keynes, who was a very successful investor, noted:

Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done

Now it’s hard to say exactly how much speculation is too much speculation. But equity markets dominated by high frequency traders are an obvious candidate. The estimate that HFT has reduced the averaged holding time of exchange-traded equities to 22 seconds is controversial but probably directionally correct. But even that factoid doesn’t give an adequate picture of the impact of high-frequency trading, which accounts for somewhere between two-thirds and three-quarters of equity trading in the US. So let’s turn the mike over to Andrew Haldane, executive director of financial stability at the Bank of England, who said in 2011:

As of today, the lower limit for trade execution appears to be around 10 micro-seconds. This means it would in principle be possible to execute around 40,000 back-to-back trades in the blink of an eye. If supermarkets ran HFT programmes, the average household could complete its shopping for a lifetime in under a second. Imagine.

It is clear from these trends that trading technologists are involved in an arms race. And it is far from over. The new trading frontier is nano-seconds – billionths of a second. And the twinkle in technologists’ (unblinking) eye is pico-seconds – trillionths of a second. HFT firms talk of a “race to zero”. This is the promised land of zero “latency” where trading converges on its natural (Planck’s) limit, the speed of light.

And this activity is not salutary. Lower bid-asked spreads in “normal” markets come at the cost of higher volatility on an ongoing basis AND worse liquidity crunches in times of stress:

Taken together, this evidence points towards market volatility being both higher and propagating further than in the past. Intraday evidence on volatilities and correlations appears to tell a broadly similar tale. Overnight and intraday correlations have risen in tandem. And intra-day volatility has risen most in those markets open to HFT…

Far from solving the liquidity problem in situations of stress, HFT firms appear to have added to it. And far from mitigating market stress, HFT appears to have amplified it. HFT liquidity, evident in sharply lower peacetime bid-ask spreads, may be illusory. In wartime, it disappears. This disappearing act, and the resulting liquidity void, is widely believed to have amplified the price discontinuities evident during the Flash Crash. HFT liquidity proved fickle under stress, as flood turned to drought.

Another area where trading levels look wildly out of line in relationship to the level that would facilitate commerce is derivatives. As Satyajit Das wrote:

Based on surveys conducted by the Bank of International Settlements (BIS), the global derivative market is around US$600 trillion in notional amount. This is a large increase in size from less than US$10 trillion 20 years ago. The outstanding amount compares to a global gross domestic product (GDP) of around US$60 trillion. While this comparison is not ideal, it begs the questions why volumes should be so high? What is the legitimate reason for this activity?… While they can be used for this purpose, derivatives are now used extensively for speculation; that is, manufacturing risk and creating leverage. The UK FSA Turner Report reached this conclusion.

So let’s recap:

1. Transaction taxes are a way to curb an undesirable undertaking, namely, too much speculation, similar to taxes on cigarettes.*

2. Plenty of financial markets look to be legitimate targets, such equity markets where HFT traders operate, and the more liquid derivative and foreign exchange markets

3. Tobin gave an off-the-cuff suggestion of a tax of 0.5% when he first proposed the concept, in the early 1970s. Markets were much less liquid then. There’s been some academic debate since then as to what the proper level might be, which is a plus for policy-making (as in the studies can help inform how to design these taxes.

So what happens? The left goes and screws it up.

When I first heard of “Robin Hood taxes” which seems to be the preferred messaging for financial transaction taxes, I had no idea what they were talking about. This is just about the worst possible remotely accurate labeling that could have been chosen.

First, “Robin Hood tax” does not clearly finger banks or financial firms. Banks are a really easy target! They blew up the economy and got bailed out and paid themselves record bonuses right after that and no one of any consequence has been prosecuted, much the less gone to jail. But the proponents couldn’t figure out a way to finger the perps in their label? How about “speculation tax” or “Wall Street casino tax”?

Second, the point of a Tobin tax is to discourage undesirable activity. It will also raise revenue, but that is a secondary objective. If you make it about raising revenue, the targets (the banks) can take the position that they are being unfairly targeted. In fact, the fact that Robin Hood was a thief plays right into the banks arguing that this is really a Willie Sutton tax: they’re being targeted because “That’s where the money is,” meaning they are being targeted because they are successful, as opposed to because they are engaging in socially undesirable activity.

Third, “Robin Hood tax” alienates people who ought to be on your side. People in the real economy, including wealthy businessmen, are losers in a financialized economy. Unless they have a countercyclical business like a pawn shop, the financial crisis and its aftermath has cost them revenues and profits (and probably lost sleep too). Even investors, who might be relieved that the stock market is perking along, are unhappy about the stealth bailout and tax on savings known as ZIRP. But “Robin Hood tax” pits the rich against the poor. It reduces rather than enlarges the pool of potential supporters.

It’s not the fault of Real News Network, but when I see videos like the one below, where you have economists reducing their logic to soundbites that then get turned into something self-defeating in the follow-on political messaging, I want to scream. For instance, you’ll hear a $350 billion tax receipts estimate based on a 0.5% tax on all stock trades. I guarantee you won’t see anything even approaching that level of receipts. That two-thirds to three-quarters of all stock trades that are HFT goes poof (which is not a bad thing, mind you). That charge is also way higher than what even retail investors pay. It would significantly reduce both retail and institutional trading volumes. The naivete about how that level of tax would impact the level of activity and hence tax receipts is stunning and just discredits the proponents (as in bank lobbyists will be able to laugh them out of the room).

As Lambert says, “That’s the Democrats for you, stupid and deceptive.” But if the idea was to make sure this good idea got no traction, they couldn’t have done a better job.

More at The Real News

* New York City has particularly high taxes on cigarettes with the stated aim of reducing smoking, and various media stories have reported on their impact in lowering the level of smoking, not revenue collection.

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  1. Zane Zodrow

    Exactly my thoughts over the past couple of years. Also, how money raised should be spent in most proposals is a bit off, IMO. Why not put revenues into general funds, to help make up for the trillions of $ in subsidies the financial sector receives?

  2. Banger

    Certainly it could be marketed better and most of the left intelligentsia in this country is tone deaf to real politics as the Democratic Party is corrupt.

    But the problem is huge. First, Americans like speculators and hustlers so are a bit reluctant to tax the adventurous spirit. America loves cons for their aesthetic value as popular movies show us. The notion that Wall Street basically picked our collective pockets has never resonated in this country for that reason.

    Still, the idea of a Tobin tax should be an important part of any progressive agenda whether it is popular or not–eventually as American decline goes on year after year people may begin to see that things need to change and will turn to such a tax.

    But, as I’ve said many times, first we have to deal with the main problem we face. The left must start at the most important issue we face today in terms of public policy, i.e., that we have experienced a flight from reason–any potential solution to our collective needs that is reasonable is automatically out of the question. I say this because I have seen schemes like the Tobin tax which makes complete sense in every single collective problem we face–there are scores of these solutions and scores of brilliant people who have mapped them out in pragmatic terms but they are ignored by politicians, officials, the mainstream media (above all) and even the radical left. Forget advocating for egalitarianism–currently that’s very unpopular, advocate for reason and pragmatism.

    1. James Levy

      I think we can be unfair here. First, most of the people advocating this don’t have Koch money to run expensive focus group work to test out various memes. Second, the Right has no problem using inflammatory language that appeals to their base. The idea of Robin Hood taxing the rich to give to the poor resonates with the Left, but we are supposed to be polite and not say this. And third, the Dems are always portrayed as wonky and out of touch with the populace. Well, the populace at least knows who Robin Hood was and can relate to the idea of taking from the rich to help the poor.

      I’m just tired of every time the Left comes up with something popular (the 99%) I hear people attacking it as silly and simplistic, but when they talk technical they are attacked as being elitists out of touch with “regular Americans” and “talking down to them.” How the hell are we supposed to communicate under those strictures?

      1. Banger

        Certainly there is reason to like the Robin Hood Tax as a slogan but I think it misses the mark by a long shot because it is ambiguous and implies stealing money from the rich just because they are rich which goes against the long-standing (and mainly false) ethos that the rich earned their money by creating wealth for all of society–for better or worse this is a longstanding cultural assumption in the USA. A better term is the Wall Street Sales Tax which the United Front Against Austerity uses (which I should have mentioned) it is specific to Wall Street and makes less enemies.

        1. Yves Smith Post author

          Yes, it’s basically the left talking to itself when you need broader support to get anything done.

          And as I said, the banks are not well liked. For instance:

          Despite five years of intense regulatory effort and management action, banks and financial institutions are still the least trusted sectors in the whole global economy, according to the just-published Edelman Global Trust Survey of 2013.

          Aiming at them directly has a lot better chance of winning supporters than vague exhortations against the rich.

    2. from Mexico

      Banger says:

      First, Americans like speculators and hustlers so are a bit reluctant to tax the adventurous spirit. America loves cons for their aesthetic value as popular movies show us.

      I cringe everytime you make these broad, sweeping generalizations about “Americans.”

      Robert Huges offered an outstanding rejoinder to your polarization of continua, your realist ontology gone wild:

      And who could doubt that there is still much to revise in the story of the European conquest of North and South America that we inherited? Its scheme was imperial: the epic advance of Civilization against Barbarism: the conquistador brings the Cross and the sword, the red man shrinks back before the cavalry and the railroad. Manifest Destiny. The white American myths of the 19th century. The notion that all historians propagated this triumphalist myth uncritically is quite false: you have only to read Parkman or Prescott to realize that. But after the myth sank from the histories deep into popular culture, it became a potent justification for the plunder, murder and enslavement of peoples, and the wreckage of nature.

      So now, in reaction to it, comes the manufacture of its opposite myth. European man, once the hero of the conquest of the Americas, now becomes its demon; and the victims, who cannot be brought back to life, are canonized. On either side of the divide between Euro and native, historians stand ready with tar-brush and gold leaf, and instead of the wicked old stereotypes we have a whole new outfit of equally misleading ones.

      –ROBERT HUGHES, Culture of Complaint: A Passionate Look into the Ailing Heart of America

      1. Banger

        Fair enough–not all Americans like rogues but American culture as expressed in the expressive arts seems to like the loner, who lives by his or her own rules and gets away with illegal acts. Read Morris Berman and be more even more bothered.

        1. skippy

          Banger you always seem to miss the intentional programing which was massively leveraged by Bernays et al, and confuse it – as – the *natural state* of humanity.

          skippy… it always send up the red flag in my book, all the rest is just filler.

          1. anon y'mouse

            anon y’mouse

            if all else fails, blame the little guy for his own ignorance, which can easily be cast as inherent stupidity.

            most people do not speak the meta-language of propaganda. they only know its effects on them. even those of us who DO speak it, and were trained to recognize it at an early age, fall victim occasionally. it preys on the natural human impulses.

            does ‘the culture’ praise a certain look for women, or are women holding themselves to a standard created by Madison Avenue to sell them a new dress, handbag and pair of shoes every single season? all I know is, my legs are not long enough nor my nose straight enough. perhaps I can cure my particularly downmarket looks by putting on the -new- outfit and disguise myself as just another one of them. if I don’t manage to do this, and get the grey out of my hair and whiten my teeth to a shade of astounding blinding power, then I probably don’t have a chance in hell of getting a job nowadays.

            better brush up on those makeup skills as well…

            1. anon y'mouse

              how’d that name get on top?

              now talking to myself openly instead of privately.


              1. skippy

                It always strange to see the folks running an experiment – blame the experiment – for not producing the desired results or telling the test subjects its all their fault.

                skippy… although the neoliberal Austrian crowd is showing signs of stress out there, full devolution stuff, arguments reduced to vulgarity’s and clumsy rhetorical ploys.

                PS. Just had one send me this gem of a paper which never equates wage quality with employment numbers via Texas A&M University and NBER.


                Personally I’m compelled by NLEP’s work.


    3. Sufferin' Succotash

      There was a time when a good many Americans were very skeptical about Wall Street wheeling-and-dealing, until such attitudes became associated with small-town hick provincialism not worth serious attention. Anti-Wall Street sentiment also got mixed up with anti-Semitism in the 20s and 30s—see Henry Ford and Fsther Coughlin.

      1. s spade

        Henry Ford was marginalized as an Anti-Semite and union basher, but he built a great company without borrowing money or selling any stock to the public. It took his heirs less than ten years pretty much destroy the company by taking it public. And there was a foundation in there somewhere run, I believe, by Robert McNamara, right?

        Ford’s autobiography is quite illuminating on the subject of bankers.

    4. EmilianoZ

      America loves cons for their aesthetic value as popular movies show us.

      It seems to me that in the con movies you speak of, it’s usually the little guy that cons the big guy. I can’t remember a movie where a big corporation or important mafia boss cons the little guy and the audience is happy.

      Maybe the reason why the populace is not more infuriated with Wall Street picking our pocket is that it is not so obvious. It’s more of an indirect thing. Paying taxes that’s a direct thing.

      1. s spade

        Almost nobody understands that taxes are part of the corporate con. They go through the government, which deploys them to enrich the corporations.

    5. Jim Haygood

      ‘a Tobin tax should be an important part of any progressive agenda’

      One of the few edges that individual investors have over institutional giants is the ability to implement momentum-based switching schemes. This is so because transaction costs scale up to the 1.5 power of volume, making it prohibitive for large investors to trade millions of shares at a time owing to market impact.

      Even at today’s low transaction costs of perhaps 0.2% on trades of a thousand shares, annual turnover has to kept low. Not only would an 0.5% Tobin tax would make switching schemes untenable for small investors, it also would make many existing mutual funds and ETFs unworkable and force their closure.

      There’s nothing ‘progressive’ about attacking small investors and drastically cutting the selection of funds available to them. Nor is there anything ‘progressive’ about giving Big Gov more money for drones, prisons and global domination.

      Don’t feed the freaking fedgov!

      1. Yves Smith Post author

        I didn’t bother addressing it in the post, but you could kill most if not all of HFT with way way lower charges than 0.5%, and so accomplish that goal without impacting normal traders much/at all.

        1. Thisson

          HFT would not continue to exist if the laws on the books now were actually enforced properly. Many of the standard techniques employed in HFT constitute market manipulation under Federal Securities Laws. Unfortunately, these laws are not properly enforced.

        2. redleg

          Why not have a 0.001% access fee on all offers instead of completed transactions? Something like this would hit HFT particularly hard and small investors wouldn’t feel it.

  3. Schofield

    Better calling them APIE (pronounced “apey”) taxes to deter “a”sset “p”rice “i”nflation and “e”ndebtedness which undermine the Real Economy when we need increased investment in the latter to create jobs and income. See Michael Hudson’s excellent book “The Bubble and Beyond”.

  4. Ned Ludd

    “But if the idea was to make sure this good idea got no traction, they couldn’t have done a better job.”

    There was an article in this week’s Links about how the CIA funded modern art. One tactic that could discredit the left and undermine left-wing policies would be to support the most incompetent and most corruptible writers, pundits, leaders, and politicians on the left.

    The Congress for Cultural Freedom also gave the CIA the ideal front to promote its covert interest in Abstract Expressionism. It would be the official sponsor of touring exhibitions; its magazines would provide useful platforms for critics favourable to the new American painting; and no one, the artists included, would be any the wiser.

    By promoting bad messaging and bad tactics, you can crowd out good messaging and good tactics.

    1. James Levy

      What you say may be true, but as one of my old professors pointed out, the CIA in the late 40s and into the 1950s was giving our money to Social and Social Democratic parties in Europe that advocated and enacted policies that the “folks back home” would have gone apeshit about if they knew. You also seem to be implying that there was something wrong with abstract art, which I like and would defend.

      Remember, the CIA has always wanted to coopt the Left for reasons of system maintenance and avoiding more serious challenges to the status quo. Unless they perceive it as a threat (and in the USA Progressives are hardly a threat, and may be useful in checking the dumber sectors of the Right) the CIA is not automatically opposed to a liberal agenda.

      1. Banger

        Good points about the CIA. There has always been a progressive wing in the CIA; however, by the late-fifties it changed and drifted to the right and actively opposed social-democracy in some Euro countries, notably Italy. Allen Dulles became THE man and his ideology was very right wing.

    2. from Mexico

      @ Ned Ludd

      Alice Goldfarb Marquis explores some of these issues in Art Lessons: Learning from the Rise and Fall of Public Arts Funding. As she documents, even though Johnson founded the NEA, it was Nixon who expanded the agency’s funding many fold. And it goes without saying that the government’s funding of highly controversial art was to give the government a very big black eye, and play right into the anti-government propaganda.

      Here’s how Robert Hughes puts it:

      And so the Republicans could present themselves as the tribunes of the disparaged values and symbols of the ignored middle, the blue-collar voters who believed in America, mistrusted affluent radicals, and hated flag-burners. It was not immediately apparent that the Republicans cared very little for the economic interests of these people. Who could foresee that their fiscal policies in the 1980s would buy a short-term expansion of the American economy at the cost of $4 trillion in debt, thus leading to recession, painful unemployment and the seemingly irreversible decay of public infrastructure? At least the GOP seemed to have an economic policy, though it failed. It was nicknamed the trickle-down theory: the rigidly ideological prescription that a free ride for the rich would generate money for the middling and poor. The Democrats had none that they could sell to an electorate. They didn’t like talking about nuts and bolts and jobs. Instead, they mainly talked about rights. They were off in what struck many millions of American voters as a Cloud-Cuckoo land where every pornographer could drape himself in the Jeffersonian toga of the First Amendment, and any suggestion that a child might stand more chance of happiness and growth if it was raised by two parents who loved both it and one another could be pooh-poohed by some ideologue on the left, fresh from the beansprout commune in Vermont….

      This was a value-gap you could barrel a truck through, and the Republicans did so, thus splitting off a large and useful voting-block of “Reagan Democrats.” But this realliance is proving unstable, now that the actual results of the Republicans’ push to unconstrained laissez-faire are in: the largest deficit, the most crippling load of debt to foreign lenders, and the widest gap between high and middle-income ever to afflict America.

      –ROBERT HUGHES, Culture of Complaint

      1. different clue

        But starting with Clinton, the Democrats were able to achieve the Free Trade agenda against the Reagan Democrat voters that the Republicans had merely been failing to achieve before that. So why would the Reagan Democrats go back to the Democratic Party whose leadership had invested so much effort in exporting their jobs and destroying their lives with NAFTA, MFN for China, membership in WTO, etc.?

  5. TarheelDem

    There are three steps toward reducing the deficit and debt that I have been advocating everywhere I can. And the proposal includes getting CBO scoring of the package.

    1. Financial transaction tax of $1 per $1 million of each financial transaction. That lets people who have less than $1 million of security transactions in a year (most folks) see that the tax will not hit them.

    2. Raise the minimum wage to $15/hour and end the exclusion of restaurant and agricultural workers–actually include all workers. Even salaried workers at the end of the year should not have their pay come out to less than the minimum wage.

    3. Raise Social Security payments (the Duncan Black proposal) by a one-time raise of 20% and make cost-of-living increases track the market basket items that actually contribute to increase in seniors’ cost of living.

    1. from Mexico

      TarheelDem says:

      There are three steps toward reducing the deficit and debt that I have been advocating everywhere I can.

      It looks like you’ve fallen into the same trap which I believe Robert Hughes does in his quote I cited above.

      Let’s go back to what Yves said in her post:

      …the point of a Tobin tax is to discourage undesirable activity. It will also raise revenue, but that is a secondary objective.

      U.S. federal governement debt and deficits are only problematic in times of inflation, when the economy is operating at or near full capacity. When the economy is only hitting on six of its eight cylinders as it is now, there is no threat of inflation.

      Here’s how L. Randall Wray explains it:

      [T]he responsibility for the value of the currency lies with the Treasury. ‘Prudent’ fiscal policy, then, lies not in ‘balancing the budget’, but rather in maintaining the value of the currency while withdrawing resources from the private sector to be used in the public sector. This is done by ensuring the currency is sufficiently difficult to obtain that the public will provide to the government those goods and services it desires, at more or less stable prices, to undertake public policy….


      Sales of government bonds by the Treasury are generally seen as ‘financing’ operations required whenever the government runs a deficit….

      We will show that…bond sales can be seen as nothing more than a reserve clearing drain required to allow the central bank to hit its interest rate target. This means that…bond sales are undertaken as part of monetary policy, not to finance deficits….

      –L. RANDALL WRAY, Understanding Modern Money: The Key to Full Employment and Price Stability

      1. from Mexico

        And if you prefer what is a similar message from the mouth of an old-guard Keynesian, here’s John Kenneth Galbraith:

        Say’s Law, not a thing of startling complexity, held that, from the proceeds of every sale of goods, there was paid out to someone somewhere in wages, salaries, interest, rent or profit (or there was taken from the man who absorbed a loss) the wherewithal to buy that item. As with one item, so with all. This being so, there could not be a shortage of purchasing power in the economy….

        Until Keynes, Say’s Law had ruled in economics for more than a century. And the rule was no casual thing; to a remarkable degree acceptance of Say was the test by which reputable economists were distinguished from the crackpots. Until late in the ’30s no candidate for a Ph.D. at a major American university who spoke seriously of a shortage of purchasing power as a cause of depression could be passed. He was a man who saw only the surface of things, was unworthy of the company of scholars. Say’s Law stands as the most distinguished example of the stability of economic ideas, including when they are wrong….

        This was the doctrine, perhaps more accurately the theology, that Keynes brought to an end…..

        To suggest that there might be oversaving now no longer cost a man his degree or, necessarily, his promotion. That the proper remedy for oversaving was public spending financed by borrowing was henceforth a fit topic for discussion — although it continued to provoke bitter rebuke. The way was now open for public action.


        The Keynesian adjustment to an excess of savings is through a reduction in aggregate demand. When demand falls, something must give, and what gives must be either prices or production. If prices can be held up by the market power of the corporation, it is production that must fall. When production falls, so will employment. With corporate market power, unemployment will thus become a highly distinctive feature of the Keynesian adjustment.


        What had always been believed, as against Keynes and the Keynesians, was an inordinately powerful thing. For two hundred years Americans of the truest blood had displayed a penchant for paper money. For seventy years they had agitated for silver. Monetary experiment in the United States was thus in an ancient and politically most acceptable tradition. It also retained a large political constituency. A congressman or senator, returning to Oklahoma or Iowa after urging an issue of green-backs to enhance prices and advance social justice, could be a hero. No such tradition and no such constituency supported the idea of deficit financing, a deliberately, promiscuously unbalanced budget. A man returning to Iowa after advocating this in Washington might be thought dangerously insane.

        Wise governments had always sought to balance their budgets. Failure to do so had always been proof of political inadequacy; things need not be any more complicated than that….

        Roosevelt did not disagree; in his first post-convention radio speech he said the country must “stop the deficits,” adding that “Any Government, like any family, can for a year spend a little more than it earns. But you and I know that a continuation of that habit means the poorhouse.” 23

        The beliefs so affirmed by the two Presidents were still powerful five years later — still a formidable barrier against the ideas of a distant English don. There was also explicit in Roosevelt’s position what has come to be called the fallacy of composition. This too was a staunch bar to the Keynesian ideas — and it remains influential to this day.

        An engagingly plausible mode of thought, the fallacy of composition extends the economics of the family to that of the government. A family cannot indefinitely spend beyond its income. So neither can a government. A parent who borrows to live leaves debts, not a competence, to those who come after. A government that borrows does the same. Both are morally deficient.

        The comparison between family and state, on second thought, is implausible…. [I]t should be observed that the wealth and solvency of a nation depend on what its national economy produces. If borrowing and spending enhance production, as the Keynesian ideas held, then such borrowing and spending enhance solvency. Only rarely do borrowing and spending enhance wealth for a family. It was an enduring complaint of Keynesians that their opposition did not understand what they were trying to do. It was equally the case that the Keynesians did not understand the depth of the tradition to which their opposition was subject or the power by which it was governed…..

        The Great Depression showed the patent ineffectuality of monetary policy for rescuing the country from a slump — for breaking out of the underemployment equilibrium once this had been fully and firmly established. For this only fiscal policy would serve. Only fiscal policy ensured not just that money was available to be borrowed but that it would be borrowed and would be spent. This was the lesson of John Maynard Keynes.

      2. TarheelDem

        I am quite aware of that trap. Most of the folks who I am advocating to, however, are not and are hung up on the government debt like a family view. As a matter of political persuasion, I bypass that and go to advocating not theory but specific policies that they can understand.

        I’ve found that only obtuse holdouts for theoretical conservatism have problems with those policies. And the further from economics, management, and business training they are, the more it makes sense to them.

        My rationale for those three things is that they are backhanded ways of increasing consumer spending and two of them force decision-makers to away from paper investments and into GDP-increasing investments that require more hiring. It is an acknowledgement that the political obstruction on government spending will continue but there are indirect government policies that can increase the other factors of GDP growth and growth in employment.

        And there are distinct social policy benefits to those particular policies.

        Thanks for your critique.

  6. Elizabeth

    The idea that the left, in pushing this tax, must appeal to the investor class in its messaging, and not to the “commoners” who recognize the significance of robin hood symbology, is not one of your best analysis. Actually, analysis is needed as to why this tax would fail to adequately stifle risk taking in the criminal branch of the investor and financier class. Capitalists keep trying to save capitalism. Activists should be worried about saving the planet and bringing the capitalist world market down, as this system is the driving force behind the destruction of the planet.

    1. Yves Smith Post author

      Wow, you really didn’t read the post, did you?

      The point was this was the left talking to itself. You don’t have a snowball’s chance in hell of winning if all you do is talk among yourselves lonely leftie ghetto.

      Main Street types and quite a few right wingers would support at tax on speculation if it was labeled and explained better. Even people who like to think they are in the “free market” camp are anti HFT and don’t like the fact that bank book derivatives in depositaries (meaning they are backstopped by taxpayers). The MAIN objective was not to make this class war driven, since in case you missed it, politicians are in the business of catering to important donors, who skew wealthy.

      And tell me what is wrong with creating a wedge among investors? If you get investors against you, you are guaranteed to lose. Some investors would support a well-designed transaction tax. One key to winning political fights is to divide your opposition.

    2. hunkerdown

      Easier said than done when the global financial system has armed drones in the air and you have reason, foam core, pickets and paint. A direct decapitation attack (figuratively) isn’t the brightest strategy under those circumstances.

      In representative democracy, the commoners are excluded from any input into policymaking by design. Their proper role in such systems is to ratify incumbent brands, and not ratifying brands is commonly portrayed as heretical or sociopathic. The politics around the 2012 election, in particular both major party national conventions, was typical of that ideology.

  7. craazyboy

    If they had called it an “order cancellation and re-stocking charge” on HFT traders following orders with a cancellation a few microseconds later, the corporate non-financial sector would realize it is completely in line with corporate order cancellation and re-stocking policy.

    1. Raymond Robitaille

      “Order cancellation and re-stocking charge”. I love it. You could even have a time limit on this charge, say 1 day.

      1. thisson

        I think Denninger has the proper solution on this one, which is to require that all posted quotes must stay open for a long enough time period that a human can accept the quoted bid/offer.

  8. anon y'mouse

    um….Market Manipulation and Anti-Speculation TAx?

    FRaudelent TRading Prohibition TAx?

    UnRig the Markets?

    Genuine Investments Only?

  9. Dan Lynch

    How ’bout Randy Wray’s proposal to *regulate* hi-frequency trading rather than tax it.

    Randy suggests requiring that financial assets be held a certain period of time before selling. You could set different hold times for different classes of assets. That would completely eliminate speculation.

    Either a FTT or Randy’s regulations would drive speculators offshore, but I’m not sure that we should lose sleep over that. If Wall Street packed its bags and moved to Hong Kong, would we be worse off, or better off?

    TarheelDem, the deficit is a good and necessary thing, and we should try to increase it, not decrease it. Dems are doomed to fail if they can’t grasp economics.

    1. Jim Haygood

      ‘the deficit is a good and necessary thing, and we should try to increase it, not decrease it’

      You bet. We’re getting onto the steep part of the exponential debt curve now, and the rivets are starting to pop.

      Let’s bankrupt this bitch of a gov …

    2. Jorge X. Rodriguez

      It was my perhaps erroneous impression that some speculation was deeped a Good Thing.

      However, I am surprised to learn that transaction costs, even absent a tax, are so near to zero that one can make thousands of trades in a second without losing anything. Who’s paying for the trading machinery?

  10. Min

    “But “Robin Hood tax” pits the rich against the poor. It reduces rather than enlarges the pool of potential supporters.”

    First, the rich are already making war against the poor.

    Second, “Robin Hood tax”, though it is misleading, probably gains more support among people who do not trade securities than it loses among those who do. Robin Hood was, and is, a folk hero of legend. For one thing, a lot of people who buy and sell securities actually understand what the tax does, and approve. Calling it a Robin Hood tax may cause them to be miffed, but that does not mean that they will change their minds about.

    Third, the “Robin Hood” tax does take aim at the malefactors of great wealth who are behind excessive program trading to start with, with no regard for how it damages the system or the broader economy. Not that bad a name. :)

    1. direction

      Thank you for explaining who Robin Hood is. I was feeling really lost and confused by the discussion up to this point. Thank you so much.

  11. sublimejah

    The folks behind this tax aren’t really liberals, they are generally opportunists. Now the groups are another story, they are likely good people getting bad advice.

    But check out some of the names of supporters, Lawrence Summers, Warren Buffet, Stockman, Gates, The Vatican,etc. There are some liberals on the list like Trumka, Gore, :

    Not so convinced that these folks are mortal enemies of the banks, they are kind of an arm of finance, or at least aligned with those interests for the most part. These DC campaigns have become fake attempts at reform, and usually end up failing because there is no real reason to change when everything works well for you and yours. Everyone is down with the status quo from where I sit.

    I agree these are not winning efforts. Since I believe they aren’t intended to be winners,I guess we agree.

  12. Susan Pizzo

    Appreciate the careful analysis of the Tobin tax and its virtues, but ‘Robin Hood tax’ always seemed to me a vivid and appropriate identifier. While Ayn Rand did her best to mangle the Robin Hood narrative, a long history of ballads and morality plays give us a Robin who:

    “was a good outlawe, And dyde pore men moch god.”

    His legend places him in a time much like our own, characterized by extremes of wealth or poverty, with a dual standard for laws and taxes. He is often painted as a revolutionary – for instance, Guy Fawkes was called a Robin Hood.

    Your point that associating Robin Hood with the Tobin tax would set rich against poor is well taken; however, as Buffett said, that battle is already being fought and the 1% are winning – primarily because the 99% haven’t a clue. I sincerely doubt calling a spade a spade would change how those paying the tax would think about it or lobby against it. What was important was to explain to those hurt and bewildered by the financial crisis how the world has been arranged against them and their best interests. For that purpose, ‘Robin Hood Tax’ was ideal.

    Thanks to NC and you, we’re all a little savvier now. The important thing is to keep pushing for changes that make the system work better for all of us. I’m personally indebted to you on that score every day.

  13. dugsdale

    I started reading this post thinking, “Yeah, I’ve also been a little uncomfortable with the moniker ‘Robin Hood Tax’ — too imprecise, and worse, not instantly self-evident as to what it describes” (which you’d hope any good marketing concept would be…e.g.: “death tax”).

    But after reading through the discussion, I’ve decided it’s pretty darn good as a branding tool, and I don’t know about YOU, Yves, but I haven’t been able to come up with anything better (“Lone Ranger tax?” “Scrooge McDuck tax?” Nah.) And selling it to the general public as a way to generate additional revenue for roads and bridges, extracted from the people who junked our economy and never suffered for it, is pretty potent as well.

    There’s a neat little video explaining the Robin Hood tax (selling it, by the way, SOLELY as a revenue-raising device) featuring Bill Nighy, and here’s the link:

    1. Yves Smith Post author

      With all due respect, you are missing the point.

      NC type readers are not the people you need to enlist to get this sort of thing to happen. You need to get DIFFERENT people on board with you, and some of those are well off people (or aspirational well off, the hoards of Americans who want to be rich) who don’t like the idea of radical distribution. That’s what “Robin Hood” implies.

      One of the most effective alliances these days is for the left to join with libertarians when their interests line up. We got Audit the Fed that way. Libertarians and the left are also on the same page on the surveillance state. Quite a few libertarians would join the left on this issue if it were positioned better, but you’ll lose them if you use the “Robin Hood” branding. Do you want to win or use branding that just preaches to the choir? It’s not different than saying, “Gee, I really love red, I want to make my restaurant bright red” when design experts tell you red will drive away a lot of diners.

      Banks are really hated. People are suspicious of HFT and derivatives trading. These are astonishingly easy targets, yet they promoters are making this legislation at 50 paces sound like something different.

      1. Thisson

        I think you might find a surprisingly high number of allies in the financial sector who are against HFT; however, I think there are other ways to skin this cat besides via Tobin taxes. Folks like NANEX are certainly in favor of reform.

        1. Yves Smith Post author

          You’ve just narrowed the topic. A transaction tax would address HFT AND derivatives. It could also be designed to go after hot money FX flows, Tobin’s original target and a BIG concern of foreign central banks.

          I’m not interested in solving the HFT problem in particular. I’m interested in dampening the diversion of capital and talent to speculation. Did you manage to miss the Keynes quote in the post?

    2. Dan Kervick

      How about calling it “the Wall Street speed bump”? It’s a proposed set of speed bumps on the highway of high finance, and its designed to prevent reckless driving and crashes.

  14. Thisson

    Hear me out: we do not need a Tobin tax. The proper constraint upon speculation is to allow speculators to suffer losses (rather than to tax their transactions). The problem in the system isn’t the speculation, per se, it is the accrual of moral hazzard due to preferential bailouts.

    1. Yves Smith Post author

      Please read the Haldane link on HFT. It increases systemic risk, precisely because they run for the hills when makes get rough. With their trading strategy, they can exit and keep their take. So your “punish the speculators” won’t work there.

      Ditto with derivatives. Did you miss that they are booked in depositaries, and because they are supposed to be collateralized, are senior in bankruptcies? We demonstrated in the last crisis that the derivatives market is too big to fail.

      Transactions taxes are a realistic approach. Moral exhortations when we have a system designed so that speculators can shift risk to other parties, aren’t.

      1. Thisson

        I’m familiar with these concepts (e.g. that HFT increases systemic risk), and I have traded derivatives myself. I do not think Tobin taxes are the solution, despite the fact that they may be viable politically.

        Derivatives have a number of problems, particularly when they are not cleared through exchanges. That doesn’t mean that the Tobin tax is the best solution.

        HFT relies on manipulation (such as quote stuffing) and should be eliminated using the laws currently on the books. Why do we need a Tobin tax on HFT when we can just shut it down as market manipulation?

  15. Expat

    Of course the tax is great idea and capitalists will need to agree to something like this or there won’t be a planet left for them to breathe in while they financialize the universe away. There is plenty of precedent, from the commodities boards of yore and even the limited hours of the great exchanges, which before globalization gave the great capitalists time to eat and sleep. There might have been some spillover effects from these precedents that benefited the masses, but mainly the capitalists colluded to benefit themselves.

    Given that history, I see the folk hero name to be just fine, because it’s for the rest of us. If thin-skinned bankers want to call it the “Willie Sutton tax,” so much the better. After the past five years, Mr. Sutton is looking pretty good.

  16. John Medcalf

    I simply disagree.

    Since when do the 99% not understand Robin Hood ? Men in Tights. Leave the King on his ass in the middle of the road. Class warfare needs to be made respectable again. If we are shy about class warfare then it doesn’t matter what we name its artifacts such as Tobin Taxes. We’ve already said we won’t fight.

    1. JTFaraday

      I think there’s something to the idea that the upper middle class is the only popular constituency with any kind of political pull at the moment, so what “the people” think doesn’t really matter.

      One of the things I find most surprising about this post-crisis period is that the upper middle class has effectively laid down for a crooked financial sector and its government enablers.

      While it is probably true that less well off people have taken it harder on the chin in terms of unemployment and the general bad economy, lawlessness in the financial markets and shredding property law hits the interests of people who actually have some assets.

      I guess people must be laboring under a false sense of security to just disregard all that, because given all we’ve witnessed it just doesn’t make any sense to me.

      1. Brooklin Bridge

        I think it doesn’t make any sense, at least in part, because:

        1 ) People are literally starved for accurate information. Almost all of the upper middle class people I know (and I would include myself except for the “upper” part) have little or no idea about what’s going on and how serious it is. It’s absolutely incredible how few people know the Democratic party has been entirely taken over by corporatists, or even that the financial sector has gotten out of hand. And the more sense of unease they get – in spite of themselves – the less they want to know. Granted, some of that is perceived self protection, but most of it is simply due to the fact that there is no information outlet, virtually zero MSM for actual news. If this site, for instance, had the kind of reach HuffPo has, I strongly suspect it would be shut down just as they are trying to do with anything Snowden related. Anyway, that complete lack of objective information, the sort of Dr. Caligari style twisted, hyperbolic, upside down MSM, plays a considerable part in why there are so many jaw dropping attitudes and perspectives floating around.

        2) And these people are afraid. They know something’s up but they wish to hell it wasn’t. So they squint and make believe. And that gives them that deer in the headlights quality that makes one stand back and ask WTF are they dreaming about?

        3) Vested interest, perceived or real. A lot of these folks are doing well. Some really well. They have kids just getting out of good universities and colleges. They can just taste big time success around the corner and under their own consciousness horizon they are thinking, or feeling, “Damn it to hell, the world has no right to go off the rails now, none.”
        Intelligence is a funny thing. It seems to be as effective in hiding things we don’t want to see as it is in revealing those same things when we do want to see them.

        1. JTFaraday

          There always comes a point where “jump through hoops” and “don’t rock the boat” becomes counterproductive. We’re certainly past that point.

          I think allowing them to change the subject to the deficit was a bad move. Even the natural response to deficit mongering bypasses the whole topic of corruption.

          Which is not really acceptable.

  17. Anonymous

    Call me self serving if you want to. But as an independent day trader, I do something like 5 in and out trades per day, and a 0.5% tax would make for a drastic reduction in my income. And (unlike the big HFTs) people like me actually often add liquidity to the market, where as HFTs take liquidity from the market. In other words, I provide a service to long term investors and to other traders, while HFTs do not., an authoritative source on HFTs, explains how HFTs take liquidity. In essence, when an HFT wants to game the market, one thing they will do, is to offfer to buy at the offer price and keep on going as the offers get raised. Here’s the rub: HFTs can remove their quotes before the other side accepts them, due to the low latency of their operations. They can push price up (or down) by gaming the system with these “stub quotes.” Push the price high enough (without risking one thin dime of capital) they can rapidly get the market up to the point where they can sell short at near guaranteed profits.

    During the Flash Crash, HFTs pushed price down to ridiculous levels (remember Procter & Gamble trading for one cent for a brief time), then bought for near guaranteed profits. Again, I don’t mind if anyone pushes the market around, IF THEY ARE WILLING TO TRANSACT at the prices they post, and put their own money at risk. HFTs can push markets around, without actually putting up money until their wins are all but guaranteed. If you think that game stinks, you are dead right.

    PS: We small fish obviously can’t play games like this. When I offer to buy stock, I risk my capital, and some other person –another trader, or even — gasp! — a long term investor — benefits by being able to sell to me. That is the way it should be.

    If you think the activity of small traders should be taxed, you are either making a moral judgment about trading in general (can’t help you there), or your knowledge of market operations is deficient.

    A modest proposal — if the transaction tax were to kick in at even 1,000 trades per day, most HFTs would go poof and the rest of us could go about our business.

    Even better, simply require that any bid or offer posted to the NYSE or NASDAQ, must stay out there for a half second before it gets pulled. Then those posting the bids/ offers, will actually end up owning (or selling) the stock with their own capital — assuming they are acting near the market price and are trading in liquid names.

    1. Yves Smith Post author

      I agree completely the level is too high, you have a hard time enough getting a tax that is anti-speculation through. 0.5% is absurdly high relative to modern trading costs. It’s actually shocking that people are using the same number that Tobin just tossed out over 40 years ago to illustrate the idea as if it was a serious number now.

      That’s the other reason the proponents need to understand this is about discouraging activity. A viable tax level wouldn’t be a barn burner in terms of revenues.

      1. Thisson

        What I fail to understand: If 5% is too much, why isn’t *any* amount of Tobin transaction tax on Mr. Anonymous-Liquidity-Providing-Daytrader’s transactions detrimental to the market?

  18. Brooklin Bridge

    How bout, Nano Free Loader Better Dead Than Red Deadbeat Commie Speculator Pick Pocket And Cheater’s Tax? It has that little je ne sais quoi ring to it…

    1. anon y'mouse

      thanks for that! go, Yves, go! go, Dean, go!

      Moyers asked the question I wanted to ask and felt too stupid to: how do we know what we don’t know? whew! thank goodness someone spoke up.

      that reward for a full copy is clever. sadly, I don’t think you’ll get any takers. the people who are attending have no interest in hitting any road bumps or potholes.

  19. two beers

    “But if the idea was to make sure this good idea got no traction, they couldn’t have done a better job.”

    Of course that was the idea. The primary function of the Democratic Party is to sabotage and hijack economic reform through misdirection and willful incompetence, in order to ensure that wealth continues to trickle up to the extractors of productivity.

  20. Dan Kervick

    “Robin Hood tax” isn’t just a bad label for for the finance types. It doesn’t even tell progressives and ordinary folks what the hell it is. Every progressive tax can be seen as a redistributive tax. And “Robin Hood tax” sounds like “just another random redistributive tax.”

  21. vlade

    Indeed – but that’s been a problem of left (or more widely – “progressives”) for quite a time now. I had a comment at NC some time ago, that the unwiligness to use some of the tools and tactics used by the other side may be nice in theory, but in practice it may well mean giving up the field. The reality is, that it’s often not the most idealistic politicians who get things done, but the most pragmatic ones (LBJ being an excellent relatively recent example).

    Some people (both on left and right) think that stuff should happen just because they believe “it’s the right thing”. Or, (slight better), because a large number (often majority) believes that they should happen as the “right thing”. The reality is, things happen because there’s more people who make it happen than those who don’t. It’s actions that change world, not “willing it to happen” (w/o any action). The next reality check is that people most likely make things happen when it’s only a first-order distance for them (i.e. impacts their lives immediately, not via another lever). There are exceptions, but those are exceptions. So if you want something to happen, get these people (impacted) on your side and you’ll likely win. In this case, it’s the investors (pension funds and what have you).

    In fact, I believe an effective campaign for TT would be if people wrote to their pension fund managers (while not everyone has them, a non-trivial number do) asking to push it (NC and other sites could provide the reasoning, say along the lines is that long-term investor funds have more need of stable markets trading mostly on fundamentals, than narrow spreads in peacetime).

    Incidentally, you often get “TT doesn’t work, just look at Sweden! They tried and failed miserably”. It’s interesting how it gets so much airing, much more so than a perefectly well working TT in the UK (which has a crucial difference from the swedish experiment – everyone, not just locals, are taxed). FTSE still manages to attract quite a few companies, who don’t seem to be that bothered about it..

  22. Bill Barclay

    While the original post make some interesting points about using the RHT label, it also reflects a real lack of knowledge about actual financial markets. Altho I don’t know where the author saw the $350 billion/yr FTT revenue, I suspect it was in an article about Rep. Ellison’s “Inclusive Prosperity Act” that calls for an FTT. However, the and this is common from people who have not actually worked in financial markets – the stock market is only one (and a relatively small one at that) part of the markets that would be taxed. Average daily value of trading (ADVT for short)in US stock markets in 2012 was about $100 billion – a lot of money, right? Except that ADVT in the US debt markets – that WOULD ALSO BE SUBJECT TO THE FTT – was, in over $800 billion. And, then there are the derivative markets – and again they would also be subject to an FTT – where the ADVT is about $450 billion. When you add all this up, apply the various FTT rates that are in the Ellison bill, reduce it by 50% because you know that a lot of trading would (thankfully) go away, you are well OVER the $350 billion estimate. Time to think more clearly about what the real possibilities and issues are here.

    1. Yves Smith Post author


      The proposal is for a tax of 0.5%. There are other proposals, but I am dealing only with the one in the video.

      All the other markets you mention have lower transaction costs than equities. I indicated that equity transaction volumes would fall by OVER 50%. Well over 80% is more likely. You’d absolutely crush foreign exchange and derivatives trading (most of the volume comes from plain vanilla FX and interest rate swaps, which trade at very tight spreads).

      The serious proposals are for a mere 3 basis points, less than 1/10th the level proposed here. That has been modeled out for the Harkin-DeFazio bill which contains that proposal as raising around $400 billion over TEN years, or a bit under $40 billion a year.

      Don’t cast aspersions on my knowledge when your response indicates you don’t know much about how these markets operate.

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