Dec 19 2011

Dean Baker on FTT, via Tax Wall St.

Posted by: Nick Shaxson in: Thoughts

I just came across a blog with a promising title: Tax Wall Street. Its entries are perhaps a tad sparse, but I did find this interesting short interview with the respected U.S. economist Dean Baker, who argues for a financial transaction tax (FTT). It’s a year or so old, and there are no new arguments here, but it remains relevant and I think he does a good job of explaining some basic principles about finance and why the FTT works. Transcript below.

Transcript:

The financial industry is an intermediate good. It is not an end product, it is not like they are making food for us or building houses. The analogy I make is to trucking. We need a trucking industry, it is very, very important, it is about bringing goods from point A to point B.

Now the financial industry has exploded relative to the rest of the econonmy over the last 3 decades: it has quintupled. It is five times as large as it was back in the 70s relative to the size of the economy. The question is: what have we gotten for that? Are we more secure in our savings? Do we think capital has been better allocated? Maybe that is true but at least on the face of it it is hard to argue that that’s the case.

Now suppose we get our FTT and we see a big decline in the volume of trading. To my mind, that is a benefit. What that means is that the financial sector is becoming more efficient. Why would we want more people employed in trucking, if they are not better able to get goods from point A to point B? If we reduced the voluem of trading without impeding the financial sector in doing its proper function, securing our savings, allocating its capital – that’s a pure gain for the economy. So I would argue that both we stand to raise an enormous amount of revenue – about $100 billion a year – and changing the way Wall St. works, and that is at least as important.”

I don’t get into the FTT in Treasure Islands, for the simple reason that many others are ably intervening in this area and I don’t need to duplicate their work. But I do think the idea is a good one, in principle.

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