It’s time to tax the Wall Street casino!

30 Jan, 2021 at 16:11 | Posted in Economics | 10 Comments

Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.8489342The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laissez-faire capitalism — which is not surprising, if I am right in thinking that the best brains of Wall Street have been in fact directed towards a different object.

These tendencies are a scarcely avoidable outcome of our having successfully organised “liquid” investment markets. It is usually agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of Stock Exchanges … The introduction of a substantial Government transfer tax on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States.

10 Comments

  1. For many of us, financial markets are the last place we can play. Keynesians however want no play. Every human effort must be directed towards increasing the sacred Output. If financial markets become disconnected from the Holy Output, that means people are idling and everyone knows that is the Devil’s Workshop. Thank the Great Scarcity Gods we have economists to tell us in no uncertain (!) terms that we must get back to increasing the Hallowed Output, because that is the sole legitimate purpose of existing.
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    Thou shalt not speculate!
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    Never mind that the Fed has already proven time and time again that they can fix panics by supplying liquidity, and that the Blessed Output is easily more than demand no matter how many speculators have fun. Recall that FDR’s problem was overproduction (see https://www.presidency.ucsb.edu/documents/second-fireside-chat ):
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    > The Farm Relief Bill seeks by the use of several methods, alone or together, to bring about an increased return to farmers for their major farm products, seeking at the same time to prevent in the days to come disastrous overproduction which so often in the past has kept farm commodity prices far below a reasonable return.
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    The obvious solution is a basic income funded by money-printing. Pay inflation as interest on Fed basic income accounts, to encourage savings if inflation spikes. But inflation is being exported harmlessly to financial markets, anyway. Rather than recognize and encourage this trend, Keynesians just want to tax away the harmless fun others are having, because they don’t understand it …

    Comment by rsm— 31 Jan, 2021 #

    • ” Keynesians just want to tax away the harmless fun others are having….”
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      Harmless fun? Financial market manias have never brought the real economy to it’s knees?

      Comment by Henry Rech— 1 Feb, 2021 #

      • We know how to solve panics: the Fed prints money. 2008 and 2020 prove it.
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        Right now, misguided liquidity regulations are causing artificial scarcity of shares for retail investors. The regulations require Robinhood and other retail brokerages to post 100% margins but they can’t use client funds due to regulation. (Source: “They cannot use client money – RH has to use their own resources to post.” from a twitter thread https://twitter.com/KralcTrebor/status/1354952706998349831?s=20 and also a webull ceo interview posted on marginalrevolution.com.)
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        The rationing of share buying in effect helps short-sellers. Why are regulations helping shorts?
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        The obvious solution is to get rid of the ignorant regulations (or perhaps the regulations were written by short-sellers?).
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        The next obvious solution is for the Fed to supply liquidity as needed to brokerages suffering under Dodd-Frank regulations that are helping the big guys at the expense of my harmless fun …

        Comment by rsm— 1 Feb, 2021 #

      • “We know how to solve panics: the Fed prints money. 2008 and 2020 prove it.”
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        Maybe. However, enormous damage is done and recovery can take many years, despite bailout.
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        Perhaps if the bailout was removed, players would be a little more careful of the games they play (moral hazard).
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        Perhaps you could enjoy your “harmless” fun in Monte Carlo – the only damage done would be to yourself, however there would be no saviour of last resort.
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        Comment by Henry Rech— 1 Feb, 2021 #

      • I’m expressing a market view.
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        Monte Carlo is not as fun. Why should you get to dictate how I choose to have fun? I want to have fun while demonstrating how arbitrary market pricing is. Wall street bets is the best place to express my market view. Who are you to take that away?
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        Your risk-free approach may keep the arbitrary price you receive for your labor safe. But from my perspective, far more damage is done by austerity and liquidity tightening than by loosening. Economists’ perfect world arbitrarily values my labor at $0. I value their work at $0 (they should get a basic income). Prove that economists are right …

        Comment by rsm— 1 Feb, 2021 #

        • Your – individual preferences – are not the issue – https://www.currentaffairs.org/2021/01/trumps-taxes-and-the-nature-of-money

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          BTW markets are creatures of laws unless your bartering out in the middle of some desert and as history notes financial implosions are the direct result of bad incentives and poor regulation – watery ideological propositions aside.

          Comment by skippy— 1 Feb, 2021 #

      • Robert,
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        ” Wall street bets is the best place to express my market view.”
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        That’s fine with me as long as you don’t expect to be bailed out, whether you are a small player or significant player.
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        Moral hazard is an issue. Those that engage in profligate behaviour should be held responsible for their behaviour. Bailing out the system is one thing. Bailing out instigators of instability is another thing.
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        ” Why should you get to dictate how I choose to have fun?”
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        Society does this all over the place. One man’s fun can be another’s disaster.
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        At least you have a friend in Cyndi Lauper……….

        Comment by Henry Rech— 2 Feb, 2021 #

      • Henry and Skippy:
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        The laws are written by the big players. Right now, demand for GME stock is being artificially suppressed due to regulations that Dodd and Frank thought would protect little guys, but the effect is to save the short-sellers. That is why regulation is the wrong approach: it has unforeseen consequences that more often hurt little me than not. But Dodd and Frank never hear my pain because I am so insignificant. They only listen to their donors. I can be safely scrubbed from the data and no one (but me!) will notice.
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        The best way to bail out the system is a universal basic income. The Fed should also ensure the payments system works even if JPM fails; then you no longer have to bail out big institutions.
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        Talk of moral hazard is hi-falutin’ but silly in a world where JPM does what it wants, writes its own regulations (using unwitting, well-meaning but bumbling fools like Dodd and Frank), and knows the Fed will bail it out because otherwise ATMs will stop working.
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        The Fed should make sure it can keep ATMs on with or without JPM, pay everyone a basic income, insure everyone against inflation, then let JPM fail next time there is trouble. The bankers, traders, and investors will have basic income to fall back on.

        Comment by rsm— 2 Feb, 2021 #

  2. At the base of wild financial market behaviour is the excessive capital in the hands of a very few. Income and wealth distribution should be adjusted to effect greater equity. Income and capital gains taxes should be set at levels that engender optimal equitable income and wealth distribution.

    Comment by Henry Rech— 31 Jan, 2021 #

  3. For those acquainted with the actual reforms enacted during the 1930s in the U.S., the contrast with a transaction tax as a strategy of reform could scarcely be more stark. I do not think the shadows cast on the figure of Keynes by the light of that example are flattering to the acumen or intellect of Keynes.
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    Keynes could have done much better, but he did not and much was lost as a result.

    Comment by Bruce Wilder— 30 Jan, 2021 #


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