Thursday, August 27, 2009

Taxing the banks

The UK's financial regulator is finally advocating a serious solution to the problem of banker's bonuses: tax the crap out of them. The entire financial industry is, as he says, "socially useless", parasitical on the real economy, the few real and useful services it provides dwarfed by a core business of making money go round in circles (and somehow, making it grow with each iteration). This swollen financial sector then disrupts the real economy when its scams fall over, while massively increasing inequality and inflating bubbles for their own fun and profit. The solution?

He told Prospect: "If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit. Higher capital requirements against trading activities will be our most powerful tool to eliminate excessive activity and profits.

"And if increased capital requirements are insufficient I am happy to consider taxes on financial transactions – Tobin taxes."

(Link added)

As the critics point out, Tobin taxes are supposedly difficult to implement without international agreement (not really, and to the extent that they reduce socially useless currency speculation, that is a Good Thing). But if that's the case, they can always tax bank profits directly. Financial speculation is a social bad, and I have no problem with taxing it at a higher rate than actually productive activity.