Following headlines over the past week about FSA chief Adair Turner’s comments in Prospect magazine on the “swollen” financial sector and his calls for a Tobin tax, we’ve gathered a diverse selection of opinions from industry experts and commentators to argue about Turner’s ideas.
Robert Kuttner, editor of the American Prospect, argues that a Tobin tax may be the only answer for the Obama administration and that, while Wall Street will no doubt protest loudly, Obama’s chief advisers may well back the idea. Early in his career, Larry Summers, Obama’s economic policy chief, was a supporter of the Tobin tax, as evidenced by a 1989 paper he wrote entitled: “When Financial Markets Work too Well: a Cautious Case for a Securities Transaction Tax.”
In contrast, the British economist Tim Congdon deems a Tobin tax “national economic suicide,” and instead asks: “Are we the British supposed to be anxious or ashamed that at least one part of our country is so fantastically productive?”
He adds, “Given that Britain’s financial services sector is so heavily an exporter it is ludicrous for Adair Turner to allege that the sector has grown too much. How can any export industry be too large for the country that hosts it?”
UBS senior economic adviser George Magnus believes that a Tobin tax would only destroy financial activity, arguing instead that “governments should summon the political courage to break up the largest banks… with the express purpose of introducing more competition.”
Meanwhile the Times’s Oliver Kamm is in no doubt that while the financial system is “broken,” a Tobin tax is not the answer. “There is no patriotic imperative to defend British banking… But the activities of the banks are far from valueless. The shame is that awesomely incompetent bankers were at the helm.”
“Even if the main financial centres were to apply a tax consistently, what incentive would offshore tax havens have to follow suit?”
Exclusive online responses from Tim Congdon, George Magnus, Oliver Kamm and Robert Kuttner