As a slick, and perhaps at first sight appealing campaign, The Robin Hood Tax has raised a lot of undue interest.
Firstly, is it accurate to invoke the image of Robin Hood? As far as I remember, Robin Hood did not steal to give to the bureaucrats. Secondly, although the percentage rate may make it numerically ‘a tiny tax’, its damaging effects would be huge. One cannot remove $400 billion from the private sector without significant distortion. Deals on the margin would no longer be profitable, and both the banks and their users (almost everyone) would have to bear the huge burden. Furthermore, talent is mobile, so whilst we might like to drive the majority of financial transactions away, those abroad who value their economic competitivity and wealth generation would happily not implement a tax.
The now reversed Swedish policy error of 1984 gives us some context as to the likely results. Tax revenues were extremely disappointing, about 5% of the amount expected. Fixed income transactions (debt, borrowing and lending), despite a much lower rate of only 0.003% on 5-year bonds, saw the volume of bond trading fall by 85% in just the first week! Futures trading collapsed 98% and the options trading market was destroyed.
The problem for bankers is that they do a thankless job, and when trouble comes they take blame regardless of responsibility. The government, central banks and regulators all played a huge role in this crisis and generated an unstable monetary inflation boom. Bankers, although not producing physical items, and sometimes rightly being generously rewarded for their years of toil and sweat, which may breed jealousy, actually act as wonderful wealth generators, make markets much more efficient, giving access to financial services without which we would have a lower standard of living.
Like other folklore from the Beast of Bodmin Moor to Cerne Abbas Giant, the Robin Hood tax should be understood as the nonsense it is, before it causes everyone in society serious pain. Either that, or Gog and Magog, the legendary giant guardians of the City of London, may need to make a return. If not, Mother Shipton the prophetess, who although wrong about her prediction of the end of the world in 1881, may be correct in her earlier yet unpublished conclusion that ‘the British Economy’s end shall come, in twenty, one, one. Driven by a hooded tax, collected at the barrel of a gun’.
