Killing Two Crises with One Economic Policy

The world is in trouble, I hope we can all agree on this point. We’re facing an economic crisis (first-world problems), a social crisis (third-world problems), and an ecological crisis (everybody’s problem). I’m always on the hunt for policies that address multiple inefficiencies, and that will get us moving towards a more sustainable economy. One such policy being discussed these days is called the Robin Hood Tax. This tax addresses two critical crises in the world right now: poor support from governments for global development projects and rampant currency speculation by the financial industry.

The concept is simple. Impose a tiny tax of 0.05% on all speculative currency trades, and redirect this money to fund the UN’s Millennium Development Goals. Like cute videos? Watch this one describing the tax:


In the past few years, how often have you heard that governments simply don’t have enough money right now? It’s become an excuse to cut services left, right, and centre. ‘Austerity’ has been the dominant buzzword in Capital cities around the world. It’s also been the excuse for global inaction on the initiatives outlined in Governments and cutting any discretionary spending, sadly things like poverty, hunger, and primary education are viewed as non-essential. We’re caught in a bizarre Tragedy of the Commons scenario. Except instead of systematically depleting a natural capital resource, we’re simply letting valuable human capital go to waste. Children that would grow up to be actors in the global economy, contributing to GDP and participating in their community, are never given the chance.

 

Meanwhile, currency transactions on the Foreign Exchange (Forex) market top $4 trillion daily. Up to 90% of these transactions are speculative, and provide no real benefit to society. The risk to society, however, is massive. Currency traders make more money when prices rise or fall dramatically, and speculation exaggerates the swings in currency prices. These price swings affect us all. Anyone who buys imported goods like food will be impacted by unstable prices. But it’s business owners who rely on export markets that are most affected. Price stability is key to long-term economic prosperity, and currency speculation undermines this most basic tenet.


The Robin Hood Tax will take a big step towards curtailing both of these issues. The tiny tax will discourage speculation by driving up transaction costs. At the same time, the 0.05% levy will raise up to $500 billion every year to fund the Millennium Development Goals.


Sadly, it will only work effectively if imposed by every country in the world (to avoid shrewd investors executing the trades through another country). It’s probably unrealistic to think that countries will agree on any measure right now, no matter how simply elegant a solution. Still, an economist can dream…..

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commented 2013-12-22 14:50:50 -0500
Thank you
Don't let your money do things you wouldn't