Civil Unrest & The Credit Crisis
About a year ago I wrote that one of the dislocations of the credit crisis would be the possible spread of civil unrest in many developing nations buffeted by tightening credit and food shortages. Yesterday our new Director of National Intelligence, Dennis Blair shocked the Senate Intelligence Committee by stating that civil unrest caused by the Global Recession is the greatest threat to our national security.
The assessment underscored concern inside America’s intelligence agencies not only about the fallout from the economic crisis around the globe, but also about long-term harm to America’s reputation. The crisis that began in American markets has already “increased questioning of U.S. stewardship of the global economy,” the intelligence chief, Dennis C. Blair, said in prepared testimony.
Any clear-eyed assessment of the “financialization” of the world economy in the last twenty years has indeed be enabled by the “U.S. stewardship” of the IMF, The World Bank and the WTO. In 1984, Nobel Prize winning economist James Tobin wrote for Lloyd’s Bank Review (for some reason it’s not on line) an assessment of the dangers of the increasing reliance on financial speculation instead of production for the world’s economy.
I confess a suspicion…that we are throwing more and more of our resources…into financial activities remote from the production of goods and services, into activities that generate high private rewards disproportionate to their social productivity.
Tobin’s solution to discouraging this “nth-degree speculation” back in the early 70′s has been dubbed the Tobin Tax.
How Tobin Taxes would work:
- Currency speculators trade over $1.8 trillion dollars each day across borders. The market is huge, and volatile.
- Each trade would be taxed at 0.1 to 0.25 percent of volume (about 10 to 25 cents per hundred dollars)
- This would discourage short-term currency trades,about 90 percent speculative, but leave long-term productive investments intact.
- The currency market would thus shrink in volume, helping to restore national economic autonomy. Nations again could intervene effectively to protect their own currency from devaluation and financial crisis.
- Billions in revenue, estimated at $100 – $300 billion per year, would be generated.
Revenue from these taxes could go into earmarked trust funds to fund urgent international priorities and perhaps relieve some of the pressure of civil unrest that will only increase in the coming years. I know it’s too late to put a Tobin Tax on the agenda of the G-8 Finance Ministers Meeting in Rome this weekend, but unless we figure out a way to put the world’s capital back to productive uses, the stagnation of the world’s economy could continue for a decade.
The Intelligence Community understands the real dangers even if the Finance Ministers don’t.
Save yer Confederate money, boys, the South’ll Rise Again!
Save yer Confederate money, boys, the South’ll Rise Again!
“Bonfire Of The Vanities” — What? Tobin Tax those “Golden Crumbs” out of existence? Then why would anybody want to go to B-school any more? No incentives hardly at all!
(Just curious — what funds do the Tobin Taxes get paid into?)
“Bonfire Of The Vanities” — What? Tobin Tax those “Golden Crumbs” out of existence? Then why would anybody want to go to B-school any more? No incentives hardly at all!
(Just curious — what funds do the Tobin Taxes get paid into?)
Wouldn’t this lead to a flight of capital, as investors moved their money to places without this tax?
Wouldn’t this lead to a flight of capital, as investors moved their money to places without this tax?
The tax is intended to be incurred crossing-currencies/borders. I imagine the concept is to enact it as a widely as possible through international treaty – so that there is no meaningful exceptions.
It sounds very much like the various transaction taxes ‘Social Credit’ political parties consistently suggest across Europe, that have never been popular.
They always try to sell them as alternatives to capital or income taxes and no one ever believes it’ll work for that purpose.
But this tax is for a more specific and credible purpose – to discourage short term currency speculation.
I’m sure the argument against it will be that it’s deliberately introducing inefficiency in markets – and efficiency in markets has been a presumed unalloyed good for some time now among economists.
The tax is intended to be incurred crossing-currencies/borders. I imagine the concept is to enact it as a widely as possible through international treaty – so that there is no meaningful exceptions.
It sounds very much like the various transaction taxes ‘Social Credit’ political parties consistently suggest across Europe, that have never been popular.
They always try to sell them as alternatives to capital or income taxes and no one ever believes it’ll work for that purpose.
But this tax is for a more specific and credible purpose – to discourage short term currency speculation.
I’m sure the argument against it will be that it’s deliberately introducing inefficiency in markets – and efficiency in markets has been a presumed unalloyed good for some time now among economists.
Rachel- Fentex is right. It would have to be enacted by a global trade treaty.
Rachel- Fentex is right. It would have to be enacted by a global trade treaty.
Fentex – if there’s one positive thing that comes out of this whole debacle I hope it’s the widespread realization that a perfectly free market is like a pure democracy: that is to say, completely unsustainable.
If left to its own devices, it will consume every piece of available fuel, before burning out and collapsing under its own weight.
Fentex – if there’s one positive thing that comes out of this whole debacle I hope it’s the widespread realization that a perfectly free market is like a pure democracy: that is to say, completely unsustainable.
If left to its own devices, it will consume every piece of available fuel, before burning out and collapsing under its own weight.
“Save yer Confederate money, boys, the South’ll Rise Again!”
Nah. We had to use it ALL in the little house out back. You wouldn’t want it. We didn’t either.
Tobin Tax: interesting idea. It does qualify as negative reinforcer for international speculators, but it outs a very powerful hidden class in our culture. JetSet over NetSet. Caveat vendor.
It emphasizes tangibles and that has a scaling effect to move away from services to goods just as global information services are becoming a noticeably undertaxed business as services across borders become lucrative in the extreme.
That’s unlikely to make Google and IBM happy but this is where the rubber meets the road on Internet product taxation, or Is the Internet Generation Serious About Saving The World?
“efficiency in markets has been a presumed unalloyed good for some time now among economists”
Only if the economists treat rate and size of money exchange the economic indicator of most importance. Efficiency of a system is relative to the goals of using it.
If you drive a car like that, it wouldn’t have brakes or a steering wheel. ANY information system has controls over the efficiencies of business value. Using a tax to change the basis of the reward or to influence the rate exchange to move to a different product domain as the dominant attractor is a skilled way to get predictable and measurable change.
Even if it cause some investments to move to other countries, that is acceptable if it also refocuses the internal markets toward the technologies, services, goods, etc, that we want to develop for ourselves. Win. Win.
“Save yer Confederate money, boys, the South’ll Rise Again!”
Nah. We had to use it ALL in the little house out back. You wouldn’t want it. We didn’t either.
Tobin Tax: interesting idea. It does qualify as negative reinforcer for international speculators, but it outs a very powerful hidden class in our culture. JetSet over NetSet. Caveat vendor.
It emphasizes tangibles and that has a scaling effect to move away from services to goods just as global information services are becoming a noticeably undertaxed business as services across borders become lucrative in the extreme.
That’s unlikely to make Google and IBM happy but this is where the rubber meets the road on Internet product taxation, or Is the Internet Generation Serious About Saving The World?
“efficiency in markets has been a presumed unalloyed good for some time now among economists”
Only if the economists treat rate and size of money exchange the economic indicator of most importance. Efficiency of a system is relative to the goals of using it.
If you drive a car like that, it wouldn’t have brakes or a steering wheel. ANY information system has controls over the efficiencies of business value. Using a tax to change the basis of the reward or to influence the rate exchange to move to a different product domain as the dominant attractor is a skilled way to get predictable and measurable change.
Even if it cause some investments to move to other countries, that is acceptable if it also refocuses the internal markets toward the technologies, services, goods, etc, that we want to develop for ourselves. Win. Win.
Good post Jon. I’ve advocated the Tobin Tax for a while. Although it’s damn hard to implement, precisely for the reasons just discussed, its one of the few genuinely win-win policy proposals out there., i.e., it stabilises markets and prevents travesties like the south-east asian currency rout in the nineties (which should never have been allowed), and directly produces funding for global priorities that is independent of any individual country’s charity.
What is needed now is a comprehensive proposal for rebuilding the global financial regulatory system, of which a Tobin Tax forms a part, because it seems that such a tax is not really possible unless it is part of such a more widespread proposal.
Good post Jon. I’ve advocated the Tobin Tax for a while. Although it’s damn hard to implement, precisely for the reasons just discussed, its one of the few genuinely win-win policy proposals out there., i.e., it stabilises markets and prevents travesties like the south-east asian currency rout in the nineties (which should never have been allowed), and directly produces funding for global priorities that is independent of any individual country’s charity.
What is needed now is a comprehensive proposal for rebuilding the global financial regulatory system, of which a Tobin Tax forms a part, because it seems that such a tax is not really possible unless it is part of such a more widespread proposal.
Sorry, should have added this to my last post, but I have a question for you Jon.
What do you think of Keynes’ original proposal for regulating the world financial system? The International Clearing Union?
George Monbiot proposed a version of the Keynesian system with an integrated Tobin Tax a while back. It was of course tied into some version of global democracy, but this is a separate issue. I must admit, that I’m quite partial to the suggestion.
Sorry, should have added this to my last post, but I have a question for you Jon.
What do you think of Keynes’ original proposal for regulating the world financial system? The International Clearing Union?
George Monbiot proposed a version of the Keynesian system with an integrated Tobin Tax a while back. It was of course tied into some version of global democracy, but this is a separate issue. I must admit, that I’m quite partial to the suggestion.
Uhmmm. I always assumed that the push for Globalization came from corporations looking to expand their markets and cut costs of production.
Have to revise that to include the likelihood of considerable additional support coming from the Wall Street High Roller’s Casino and Purloo Society eager to find new “unregulated” areas of vulnerability to exploit.
Uhmmm. I always assumed that the push for Globalization came from corporations looking to expand their markets and cut costs of production.
Have to revise that to include the likelihood of considerable additional support coming from the Wall Street High Roller’s Casino and Purloo Society eager to find new “unregulated” areas of vulnerability to exploit.
Can’t we just get out of the way and let the Chinese run the place. They’re the only ones capable of turning in a good performance as we squabble and tear down our system and each other.
Can’t we just get out of the way and let the Chinese run the place. They’re the only ones capable of turning in a good performance as we squabble and tear down our system and each other.
Well, Dave, the one kid per family thing might not be a bad idea for a while! Octuplets be gone…
Rick, like we were saying before. That octodoc probably made a nice check society be damned…..bioche.
Having recently visited our local Western Union office to receive money from China, I once again wondered how much of the money being wired to Mexico and other Central American countries was earned under the table and un-taxed. Is it just politically incorrect to ask such questions? Frankly, I don’t have much of a problem with people crossing borders to earn a living. I do have a problem paying taxes and then wondering if others are under the radar with this. And those thoughts, of course, lead to wondering how big the underground economy is in this country and how much of a tax break we could all get if that economy were converted to legit. Legalize it.
Illegals aren’t paying taxes or paying for their schooling or their health problems or anything….we are. Mexico’s $20 billion a year sent from America is their second highest source of income behind to oil. More stupid policy that we must learn to live with no matter how deep we sink.
I never understand the anti-immigration anger in U.S conversation. Immigration is a nett plus in almost all things and every reference to research I’ve ever seen refutes any claims of immigrants causing excessive crime or costing public money.
It always sounds like people being distracted from more important and relevant discussions on good government such as sensible education policies, effective and viable medical provisioning and other actual matters of import on scales vastly more relevant to U.S citizens.
You’re right, you don’t understand. It’s illegal immigration that is so costly to us.
Fentex– Belief = Truth, in the Age of Poll Surfing. And if you believe some scientists, the universe at the micro and macro scale at least is the way it is because we believe it to be that way.
Anyone want to start a Mantra Circle to invoke the Eightfold Path and the Golden Rule?
JTMcPhee: The concept of consciousness needs to be kept at least 500 yards away from quantum physics at all times.
JTMc: Go to the Karma Kitchen in Berklee and look at the bill. Contrary to the pessimism, people overpay.
Len, “pay it forward” is one of my favorite phrases. I wish I was smart enough to figure out how to scale Karma Kitchen to city, state or nation size. And where do the people who eat there get the money to deposit more than the food is worth?
On topic, it looks like Europe East & West may be a bigger problem. UK Telegraph via Jesse http://jessescrossroadscafe.blogspot.com/2009/02/european-banks-face-devastating.html
This leaves very few buyers of debt – especially if China has its own problems – and a real issue for any government trying to raise funds.
Almost off topic, but I thought this was interesting … about coping with serious social breakdown. It has some interesting parallel s in it. http://cluborlov.blogspot.com/2009/02/social-collapse-best-practices.html
@jtmc: “And where do the people who eat there get the money to deposit more than the food is worth?”
They work or they steal. California is a seriously out of balance culture, yet out of such comes the Karma Kitchen or Al Capone’s Soup Kitchen. Al needed it for his image. I doubt many of us know who operates that restaurant in Berklee. Quiet voices doing good work aren’t on the front pages often.
Transformation starts with what ya got. Many/most people can experience that bigger buzz that happens when they do for others. It varies by individuals and cultures when and how that happens, but the experience is the same. Giving gets a bigger buzz than getting. It is the stuff of the Hallmark Channel, but nevertheless true. A problem is we live in an echo chamber and the “me first, I got mine, get your own” voices are louder just like the monkey cage is louder than the tigers.
As the signs on their cages say,
“Don’t feed the monkeys.”