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Financial Transaction Tax

The floor of the New York Stock Exchange.

Image via Wikipedia

There are a lot of very good reasons to institute a Financial Transaction Tax (FTT).

A small (0.05 to 0.1 percent for each transaction) FTT would generate billions in profit which could be used to make up the deficit in this country.

A few months ago former French foreign minister Philippe Douste-Blazy wrote an NYT opinion piece about the recent European Commission proposal of an FTT to help alleviate the crisis there:

To Ease the Crisis, Tax Financial Transactions

Douste-Blazy chairs Unitaid and is also a special adviser to the United Nations secretary general on innovative financing, so he has an interest in generating revenue to help poorer countries affected the economic downturn.

A similar tax has already been instituted in Britain. It brings in $6 billion annually — with no measurable effect on the market.

Not surprisingly, the main argument against the FTT is that it would inhibit “market efficiency”.

Science Fiction author David Brin says — so? Referring to Douste-Blazy’s op-ed, he makes an interesting point.

Read the article. But note that it does not mention the top reason for such a tax! That it might benefit real human investors by slowing finance and equity trading back down to the speed of human thought.

Would that necessarily be a good thing? The concocted rationalization you will hear, in opposition to this proposal, is called “market efficiency.” According to what’s become a bona fide cult, any process or innovation that allows ever-smaller increments of trade to happen ever-faster is “efficiency,” and that will automatically lead to better allocation of society’s capital, and thus a skyrocketing economy.

This is wrong in many ways, starting with the pure fact that the flourishing of fast-cybernetic trading has directly correlated with the steepest decline in the health of capital markets in a century. Indeed, the increase in market volatility that we have seen lately, with sudden spikes in apparently random directions, can be generally attributed to this trend.

According to Brin and Wall Street Analyst Peter Cohan, approximately 70 percent of the volume of trading done on the Stock Exchange is performed by “flash traders” — computers that buy and hold stocks for approximately 11 seconds before selling them again.

These trades, based on increasingly complex algorithms developed from studies of human psychology are often counterintuitive and increase market volatility.

It is becoming less and less clear why markets plunge and soar.

But that’s not the final and most terrifying argument Brin makes:

Take those high-speed trading systems we’ve been discussing. They are growing incredibly sophisticated, at a very rapid rate, absorbing and incorporating models of human psychology, with one goal in mind. To appraise and predict behavior patterns in order for the program to track and to pounce on opportunities for predatory trading. Competitive ferocity is the only criterion for success. Indeed, if you were to even propose inserting balancing factors like ethics or morality or accountability into such a project, you’d at-minimum be laughed down and probably fired.

Moreover, these systems are receiving billions in funding (including their own new transatlantic fiber cable) entirely in secret. There are no public agencies involved. No third party observers. No Congressional oversight committees. No supervision whatsoever. Laboratories developing new genetic strains of wheat are under closer accountability than cryptic Wall Street think tanks that may unleash the first fully autonomous AI… programmed deliberately to have only the behavior patterns, goals, attitudes and morality of parasites.

And so we see the ultimate reason to demand the Transaction Fee. At a low level – say 0.1% – it would never bother a private citizen who is optimizing his portfolio on E-Trade, especially if each trader gets a hundred or so “freebies” that come exempt from the tax. But it would remove the horrific incentives that Wall Street “geniuses” now feel compelled by, to invest in these monstrous, hyper-fast trading programs that swamp the market in a blizzard of uncountable mosquito bites.

The fee (which could also help balance our budget) can be tuned to give that human a fighting chance and to discourage the very worst kind of artificial intelligence from leaping upon our necks out of the dark.

Defeat Skynet. Institute the FTT!

-Chris

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December 12, 2011 - Posted by | Uncategorized | , , , , , , ,

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