Sunday, January 08, 2012

Tobin Tax

Looks like UK PM is digging deeper in his confrontation with EU for the financial transaction tax called Tobin Tax. It is understandable that he would be concerned about protecting Finance Industry considering its importance to London and how important London Economy is to overall UK Economy. London GDP is at around $600B whereas UK GDP at around $2400B i.e. $2.4 Trillion; so roughly London Economy is 25% of UK Economy. 

However, such opposition by Cameron to Tobin Tax will paint him more in the corner as protectorate of Big Finance and Bad Bankers of Capitalism who brought the global economy to kneels recently. This will be despite all his talk about trying to give share holders more power about executive pay. (Reforms so as share holders have last say on executive pay, Cameron should do those anyways as that is a right step so that his counter parts across the Atlantic in America would learn a thing or two too. The Tea Party which is so alert about rights of tax payers hardly bothers 'rights' of share holders and that is how Tea Party becomes a stooge of Capitalists rather being a force to fight for little people.) 

Cameron's Liberal Democrat Partners are already piqued by his protection of Big Finance. Opposition Labor is essentially eating the lunch of Liberal Democrats while Cameron Conservatives continue to carry the water for Big Finance and Cameron continues to play to the gallery of 'deep blue backbenches' in confronting EU. What we are seeing is 'class warfare' in starkest term. Capitalists are smart, they would never give an opportunity to create an open confrontation. But Tobin Tax issue is basically unveiling of this smartness forcing 'protectors of Capitalists' to come out in open.

There is no chance in the world that Americans would agree for any kind of Tobin Tax. That is what Tea Party is all about - no taxes in any case. Occupy Wall Street and all that; that hardly scratches with obdurate GOP in American Politics. GOP is on the journey of falling over the cliff while going with ultra-conservative stridency and not even Santorum's feral cry for Blue Collar Jobs likely to help here. Tea Party driven GOP is 'drunk on it's love with principles'; principles of zero or minimalist intervention by government including tax collection. In other words, unless the 'end state of GOP intransigence' is achieved - either electoral route or bringing whole America down as like how Bush's ill fated Iraq war pulled down America - America is 'tone deaf' to anything like Tobin Tax. You cannot talk Obama or Geithner or Democrats preemptively 'trading Tobin Tax with Tea Party for something else' unless in the first place GOP is ready to see utility and validity of reigning Finance Sector. There are no such signs.

For France and especially for Germany, it makes sense to support Tobin Tax. The entire German Economy is based on non-finance sectors, especially export driven high end manufacturing and France would like to emulate that in one way or the other. Economy like Sweden, which is in EU but does not use Euro, may be interested in such arrangement too since High Finance is not something which brings worthwhile wealth to Stockholm houses. Same goes for Spain, Italy, Poland and many other new members of EU. Germany wants to shove down the throat her manufacturing driven economy model for every other Euro member and in some sense everyone of them also sees salvation in that route. Tobin Tax perfectly fits in this agenda.

Is this good then? Types of Larry Kudlow would never back anything like this since for them it is 'government picking winners' or like in this case 'government pulling down a sector'. One can imagine how in particular it will be painful to type of Kudlow for whom basically the first love is Finance. (Kudlow Gets Angry in Columnist Confrontation)

I am more on populist side in this debate. Santorum talking about encouraging Manufacturing Sector is good, but with GOP or without GOP; in the end prosperity of America and country like UK is intimately tied with controlling High Finance which has gone amok in recent decades. Given all this, Cameron trying to hitch UK acceptance of Tobin Tax to global acceptance is essentially backdoor way of exploiting Grover Norquist Pledge of Tea Party members of House. He knows very well that, lunatic opposition of Tea Party Members to any tax will do the 'dirty work' for him. UK PM Cameron is simply trying to get a 'free ride' here. 

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