One of the centerpieces of Sanders’ campaign is a new tax on financial transactions, meant to curb high-speed/speculative trading. Have any economists actually analyzed the probable effects of this? Would it create incentives to take stupid/inefficient actions in order to evade the tax? Would it lessen the liquidity of the market? Would it do none of these things, provide a valuable source of revenue, and create an incentive for smart, mathematically inclined people to do productive work instead of playing zero-sum games of oneupmanship?
I don’t think a financial transactions tax is necessarily a terrible idea. This guy defends a tax of 3-5 basis points on financial transactions, phased in by one bp a year. This seems reasonable and I’m a big fan of the incrementalism.
Overall, the idea of an FTT has its good points and bad points. On the good side, it would be pretty progressive and raise a fair amount of revenue, like $50 billion a year.
But there are downsides too. Right now, if you want to invest in some gold for your retirement fund, you can buy a gold ETF with a bid-ask spread a cent wide. Like maybe the fair price is around $104.005 and you can buy it for $104.01 (or sell it for $104.00), basically paying half a cent per share to invest in it. With a 10 bp tax, say, the spread would widen out to $103.89-$104.12, meaning you have to pay more like 12 cents a share to invest in it. This clearly discourages investment and hurts middle-class investors as well as the rich. It would also reduce liquidity and make price discovery less efficient. (Some people, including Bernie Sanders presumably, think markets are too liquid right now and reducing liquidity would be a benefit to this tax. I think that’s something smart people disagree on.) I’m not clear on what the long-term effects on GDP would be, like I don’t think they would be good but I don’t know how big they’d be and that’s probably a hard question.
Bernie Sanders has proposed a tax of 50 basis points on every financial transaction. I think this is a terrible idea. (The Tax Policy Center says that would actually raise less revenue than a lower tax.) When I found out about the 50 basis points thing I was a little concerned that no one else seemed to be talking about how it was kind of crazy so I asked an Actual Prominent Economist (who is p progressive, voted for Obama, etc.) “wouldn’t a tax that high like, end our financial system as we know it?” He was like “oh yeah, probably.”
And on the subject of productive work vs zero-sum games of one-upmanship, I think it’s not clear that HFT is zero-sum. (Reasons it might not be so bad, from Matt Levine who has written a lot more about this in a thoughtful and nuanced and frequently entertaining way.) There are reasons to be concerned about it, but for the most part I think Democratic candidates have decided to go after HFT because it just sounds kinda evil.
Idk, I sorta want to hear more people complaining about how all the smart mathematically inclined kids these days get jobs at Uber for kittens instead of doing actually productive work. Maybe this is just going to school in California but I feel like that’s way more common.